startups

Lessons to be learned from Doughnut Time sugar rush and crash

We were like lemmings following the crowd. The doughnut drool craving of Homer Simpson had taken over the masses. I too was called to join the crowd. I saw someone walking down Flinders Street with one of their cool looking turquoise boxes, I had to find where it was from and get one for myself.

The next day I joined the Doughtnut Time queue for my sugar rush. I became the one with the coverted box in my hands and the cool Aunt who delivered the goods to my teenage nieces. Pics were instantly uploaded and shared on Instagram and Snapchat so they too could boost their social kudos.

Doughnut Time Box Small

This was June 2016, the height of the Doughnut Time sugar rush, by March 2018 the crash had come. They went from a peak of 30 stores to 7 almost overnight. The life of the business from it’s first store opening in Brisbane in January 2015 to entering administration in March 2018 was just over 3 years.

Doughnut Time Shop Small

Doughnut Time appeared to be a hugely successful enterprise, it’s customers promoted it’s products for free on their social media profiles and there were lines down the street. So what happened? Here’s where it went wrong:

  1. The money pot ran dry. Rapid growth requires high amounts of cashflow for daily operations and investment in new stores. They chased growth in store opening numbers assuming our craving for doughnuts would continue and borrowed from family to do it.
  2. Not paying your staff is not on. This was always going to end in a PR disaster, when you hire staff from a generation who shares their feelings with the world on social media and you treat them badly, everyone will know about it.
  3. Leasing high profile locations is expensive. Get a couple of these leases wrong with lower than expected traffic and you have a liabilty on your hands.
  4. The hype was gone. Founder Damian Griffiths has been quoted saying “the trend is your friend”, but it was it more like a fad, here one day, gone the next. The social media trendsetters had moved on to the next new thing.
  5. It was just doughnuts. The rise and fall was so quick they had no time to reinvent themselves and had limited themselves to a single product type.

When you compare to the cupcake craze that came before the doughnut fad, the survivors like Cupcake Central have focused on continual reinvention and updating of their brand to keep it new and fresh. If doughnuts are the latest thing, then they’re putting doughnuts on top of their cupcakes.

So is it really, “It’s always a good time” ? Perhaps not, it seems that some good things do come to an end. The 7 remaining stores will have their fans and most likely will continue. Instagram fads will come and go, the challenge is to turn the fad into a trend and keep the customers coming back.

Information provided by the Rachel Craze is general in nature and does not take into consideration your personal situation. It is for educational purposes only and does not constitute financial or taxation advice. Before acting, you should consider seeking independent advice that is tailored to your needs.


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