My girlfriend and I had this lengthy conversation recently about donuts, and the apparent demise of the upstart vendor Gonuts Donuts. In case you’ve been living in a donut-less cave for the past 2 years, Gonuts was the hottest thing in the local food industry since shawarma back in ‘99, and zagu a few years after that. People were queueing up in these long-ass lines to get at these delightful pastries for the first six months of Gonuts’ business; 15 new branches opened within months of each other, and they still couldn’t keep up with the demand. Now, just over a year later, those branches are nearly always empty. The romance, as they say, is definitely over.
Compare this to their recent competitor Hot Loops, which tried to pull a Gonuts and quickly realized that there was a different approach available to them, one that another donuts shop had used to great success several years before. Remember Mr. Donut, the cheap alternative to the almighty Dunkin Donuts? Although their overall quality is akin to eating chewy plastic, they’ve survived for the past decade by spawning mini instances of themselves in a way that no other donut shop had ever done. Basically they partnered with gas stations like Shell, convenience stores like 7-11, and fastfood restaurants like KFC and got a small corner in each of these establishments’ branches. Suddenly Mr. Donut was all over the place again, and available in more physical locations than even their primary competitor Dunkin Donuts.
This is the strategy Hot Loops is adopting, and they’ve started doing this already by partnering with Ministop (which is itself an aggressive expander due to its franchise-driven business model).
To be fair, Gonuts Donuts is also attempting to expand via their own franchising model, detailed here. The problem is that their smallest franchise packages start at PhP2M, renewable every 5 years. Compare that to Ministop’s PhP1M package and you’ll see why it’s not exactly the most appealing offer on the table. On the other hand, Gonuts is always going to be towards the more expensive side of things, because the quality of their donuts is generally perceived to be higher (although to my far-from-gourmet palate, they just taste way too sweet).