Duck Donuts sold to private equity investors; eye on growth
Duck Donuts, founded in 2007 on the Outer Banks of North Carolina, was sold to private equity investors interested in accelerating the growth of the popular made-to-order doughnut business.
“When someone thinks of doughnuts, we want Duck Donuts to be top of mind in consumers’ minds, and I think we have a real opportunity now,” founder Russ DiGilio said.
On Wednesday, Pennsylvania-based private equity firm NewSpring announced it is partnering with Charlotte, North Carolina-based investment company Free Fenix to acquire Duck Donuts as part of a strategy for investing in innovative franchises. Terms of the deal were not disclosed. Franchise locations will continue to be locally owned and operated.
DiGilio, who lives near the corporate headquarters and store in Mechanicsburg, Pennsylvania, came up with the idea of creating a shop for custom fresh-baked cake doughnuts when he and his family were vacationing in their regular destination of Duck, North Carolina. Duck Donuts opened its first stores in Duck and Kitty Hawk in 2007. The Outer Banks now has five shops.
Customers can choose from a variety of toppings, coatings and drizzles. Maple icing with chopped bacon and a salted caramel drizzle is a favorite.
While Outer Banks vacationers may have taken doughnuts home, others kept asking when their hometown would get a store, leading to franchisees bringing the model back to their cities, DiGilio said.
Duck Donuts began to franchise in 2013, starting with its Williamsburg location and now operates 101 franchise locations across 21 states and one international location in Dubai, he said. Franchises also opened in Suffolk, Norfolk, Chesapeake and Virginia Beach.
While customization is a huge seller, so is the focus on family-friendly customer service and the relaxed “vacation vibe,” the founder said. The franchise model also means store owners are better connected with their communities.
But organic growth only takes a business so far, said DiGilio, who began exploring potential partners about a year and a half ago. NewSpring not only brings financial backing but has the experience to guide the company through strategic growth, he said. He wants to increase brand awareness quickly before potential competitors gain ground.
Specifically, the goal is to open another 30-35 stores this year, then about another 50 a year to hit the milestone of 300 stores within four to five years, he said. While the coronavirus pandemic dampened last year’s goal, Duck Donuts still opened 20 shops.
The brand plans to continue to grow internationally, including in Canada, as well as deepening its presence in its U.S. markets, he said. The franchiser is open to thinking outside the box with nontraditional formats such as in amusement parks, airports or entertainment or sports venues, he said. Duck Donuts already is in a Pennsylvania ice arena, a Richmond theater and a shipping container in California.
COVID-19 and related requirements prompted stores to adapt with online ordering and curbside delivery, and the business wants to continue that momentum of innovation, he said. That means exploring drive-thru concepts, enabling franchisees to operate food trucks and updating menu items with milkshakes, ice cream sundaes, breakfast sandwiches, specialty coffee drinks and an assortment of limited time offerings.
Already this spring, sales are better than this time as in 2019, and DiGilio said he can’t wait to see what the summer will bring with more normalcy as more people get vaccinated and restrictions ease.
“We’re really primed for some strong sales this year,” he said.
DiGilio will remain a significant owner serving on the board of directors, the equity firm says, although he has stepped down as CEO. Betsy Hamm, formerly chief operating officer, will succeed him as chief executive.