The Rise and Fall of Winchell’s Donut
Here is the video of this transcript: The Rise and Fall of Winchell’s Donut
Winchell’s Donut House quickly became a household name in the 70s and 80s, operating about 1,000 stores at its peak. It was huge in the West Coast, where it had over 200 stores, and opened locations across the world, including New Zealand and Saudi Arabia. I recently went on their website to find out how many stores they operated nowadays. It’s gone down to merely 170 stores. So, what really happened to such a big chain that was poised for success? Let’s dive in.
In 1948, Verne Winchell opened the first Winchell’s Donut House in Temple City, California. He had originally planned to open up a hamburger stand but someone beat him to it across the street he wanted to set shop. Instead, Winchell decided to open a doughnut and coffee shop, where customers could watch the doughnuts being made through the store’s windows. Customers adored the concept and by the following year, Winchell opened up two new restaurants in California.
Expansion was afoot in the early 50s, with more stores being opened up every year. By early 60s, Winchell’s stock was trading on the over-the-counter market. Since his brand was gaining national recognition, Winchell started franchising his restaurants. From there, more than 30 restaurants were opened every year. In the mid 60s, the chain introduced their famous apple fritter. I wonder if the taste remained the same from over 50 years ago. Winchell’s had built a strong moat around the brand and was even offered to be bought out by the United Fruit Company. But the deal fell through for some reason.
By the late 60s, the chain had over 250 restaurants under its umbrella. And now comes the interesting part. The chain actually merged with Denny’s Restaurants in a stock swap, and Verne Winchell was named chairman and CEO of Denny’s in 1972. Under Winchell, both brands expanded significantly. The donut division opened up around 1,000 stores across the U.S. and in countries such as Japan, Spain and Korea. Revenues for Winchell’s reached around 200 million dollars.
But the expansion might have been too fast. By 1980, a lot of Winchell’s locations became unprofitable and had to be closed down. It is not clear what prompted the wave of store closures. I suspect it might have been the result of the rising competition from brands such as Krispy Kreme and Dunkin Donut. It might also have been the result from consumers shifting to healthier food options. At some point, Verne decided to leave Denny’s and subsequently sold his stake in the chain. He went back to his horse breeding passion that he cultivated since the 60s, with a horse named “Donut King”.
In the 70s, the chain had bought out its franchisees and operated the units under corporate ownership. As financials continued to deteriorate, more restaurants were shut and the chain decided to reintroduce its franchising program, charging franchisees around 30,000 dollars in fees. Although it was open 24 hours, most of their sales happened in the morning. But the 24-hour concept was popular among police officers, who would pop in during the night to have a donut. When Denny’s went private in its 1985 leveraged buyout transaction, it spun off Winchell’s division. By then, the donut chain had shrunk to around 740 stores, but it was still the second largest donut chain in the US, right after Dunkin Donut.
The late 80s were tough for the chain. Although it introduced new products and had deals to sell donuts in 7-Eleven stores, it registered a string of operating losses and top executives resigned from the chain. The stock price nosedived from 18 dollars to around 4 dollars at the beginning of 1988. James Verney was brought in to steer the sinking ship. But the situation worsened. Sales dropped to 145 million dollars with less than 700 stores in operation. It is true that increased competition and shifting consumer trends negatively affected the chain. But what made it worse is that under Denny’s ownership, not a lot of money had been put towards marketing or remodelling restaurants. The funds generated by the chain were supposedly transferred to the parent company, which was Denny’s.
Then in 1989, a Vancouver-based firm, Shato Holdings, bought out Winchell’s. Shato was well known in the space, operating restaurants and franchises in Canada. Shato began restructuring the chain by selling over 250 stores to Pizza Hut and hiring new seasoned executives, which included the VP of International House of Pancakes. New measures to boost profitability included revamping the supply chain and adding new menu items. They launched a new concept called Witchell’s N More that featured sandwiches and salads. But that did not take off as expected.
There has been a lot of leadership changes at Winchell’s in the early 90s until Nancy Parker took the reigns. Parker completed the sale of the stores to Pizza Hut and introduced a new line of frozen donuts for sale in retail stores. By mid 90s, the chain operated only 300 stores and sales started dipping again. Parker was then replaced by a former Baskin-Robbins VP who introduced Winchell’s Express, a service counter placed in sandwich shops such as Subway. Through the 90s, a lot of new products, ranging from bagels to coffee, were introduced to revitalize the brand. Underperforming stores were transformed into stores that would supply doughnuts to better performing locations.
However, the 90s marked a huge increase in the already crowded donut space. Gourmet coffee shops and small bakeries would pop up every where. Moreover, Krispy Kreme was ramping up its marketing campaigns and began encroaching upon Winchell’s territory. Winchell’s tried really hard to maintain a grip on their chain. They started “Winchell’s World”, a concept where customers would watch the doughnut production line through windows. They also rolled out their Warm ’N’ Fresh program that guaranteed fresh donuts, defined as being less than 3 hours old, from 6 to 9 a.m. Red flashing lights signalled when a batch has been made beyond the time limit, making the purchase free for customers. The chain went on to form new partnerships by opening more Winchell’s Express in 7-Eleven stores. Winchell’s new initiatives help bolster revenues marginally, to around 70 million dollars.
However, in the early 2000s, the chain kept closing stores around the US. When Yum-Yum Donuts bought the chain in 2004, there was only around 200 stores in operation. It seems that Yum-Yum continued closing underperforming stores, with 160 stores left at the end of 2005. And to be honest, the situation did not change much from there. Maybe Yum-Yum decided to concentrate on its own brand rather than remodeling and revamping Winchell’s.
For those of you who grew up with Winchell’s Donut, do you still eat at their restaurants? Or did you defect to Krispy Kreme and the likes? Why do you think it was not able to rise above the competition? As always, let us know what you think.
