Before arriving at Shipley Do-Nuts in May 2023, CEO Flynn Dekker spent nearly nine years in the world of chicken.

He worked as the chief executive of Korean fast-casual Bonchon for four and a half years and in marketing roles at Wingstop for the same amount of time. One of his biggest memories—or nightmares, if you think about it—was the cyclical nature of the chicken market, where operators live and die by what the price is on any given day, week, or month.

Dekker much prefers the sugar and flour commodity markets.

“It’s a lot more stable, right?” Dekker said at last month’s ICR Conference. “So when chicken goes from $1.20 per pound and people are losing their minds, it can’t go any higher, and it goes to $3.20 per pound. It’s really hard to consistently make money and price yourself appropriately, especially if new entrants into the market come in, they’re usually probably lower priced than you because you have to price up because of the last cycle. We don’t have that problem. Plus we have two sources of revenue—dough mix, our proprietary dough mix, which we produce and ship to the store, as well as our royalty. So it provides a nice balance.”

The stability sets the table for consistent, franchisee-led growth. Shipley—celebrating its 88th year in 2024—has roughly 350 shops in 12 states. The entire system is franchised, except for 12 corporate units used for testing innovation and operations. The chain was founded by Lawrence Shipley in 1936, back when one could buy a pack of 12 cream doughnuts for a nickel.

The business was family-owned for nearly nine decades before Peak Rock Capital stepped into the picture in 2021. The private equity firm helped form a foundation to accelerate growth, like new POS systems, integrated online ordering, and supply chain innovation. Over the past three years, AUV has grown by 50 percent and Shipley has “squeezed a ton of costs” out of the system, especially in food and labor.

Nineteen locations opened in 2023 and 30 more are on tap for this year. The five-year goal is to double the current store count. All of that growth was packed by a 6.3 percent rise in same-store sales compared to 2022.

“This isn’t an opportunity where we’re looking for pennies,” Dekker said. “There are a lot of dollars hanging out there because the business is just modernizing. We’ve got a product with that quality and consistency and variety that a lot of people have sort of abandoned in that market. And we come in with a very shiny, clean-looking business, and we’ve got all sorts of opportunities for product innovation and other things. So I think the upside potential here—obviously, I am biased—is huge.”

When Shipley was run by the family, freestanding drive-thru units dominated development. With construction costs rising, the company can’t always be tied to that prototype. So the brand subscribes to a “smaller, faster, cheaper” mindset, according to Dekker. That means second-generation opportunities, endcap drive-thru, and inline, in addition to ground-up freestyle. Shipley is focused on a build-out cost of $650,000 and less than a three-year cash-on-cash return.

Franchisees own about two units on average, but Dekker seeks more multi-brand, well-capitalized operators as Shipley moves farther out. The Texas-based chain currently occupies the Southeast corridor, from Colorado to Maryland. Nearly half of the system is in the Lone Star State, so most of the chain’s development agreements are coming outside of those markets. However, Dekker indicated there may be some room in West Texas and San Antonio.

“It’s shockingly well-received [outside of Texas],” Dekker said. “I’m blown away by the amount of revenue that comes in the first few weeks in a market where I thought we had almost no brand awareness. This is a Texas-based thing. If I go to my home state of Indiana, nobody’s going to know what the hell Shipley’s is, right? But as we’ve gone to these new states, it has been overwhelming the amount of business that we do.”

From the beginning, Dekker’s focus has been on franchisee profitability. One of his first accomplishments as CEO was rounding up franchisee support for a marketing co-op to fuel limited-time offers and a rewards program. The first LTO in company history—a POPTASTIC do-nut covered in freeze-dried Skittles—launched in January. That kicked off what will be a cadence of quarterly promotions each year. As for loyalty programs, Shipley rolled out a points-based system in Q3 2023. In early January, there were 75,000 members actively transacting with the company.

The system reached 100 percent of units with online ordering just last year. So in the past several months, digital mix has almost tripled; Shipley hit a record 8 percent at the start of 2024. Dekker noted that doughnuts fit well with digital since the product is fast and convenient.

“It’s fantastic that a lot of that product we make is at different intervals during the day. So it’s already there,” the CEO explained. “So how do we maximize the use of that inventory and get things out as fast as possible? So I think from a digital perspective, there’s no 20-30 minute lag in terms of the production. The sky’s the limit. 

” … It’s really about blocking and tackling at the location level,” he added. “Making sure that we’re managing PAR levels and making sure that we’re producing at regular intervals throughout the day to match those PAR levels and the demand that we’ve got.”

Dekker said Shipley’s customer demographics range from blue to white collar, calling doughnuts “an everyman’s treat.” That means household incomes of $45,000 and above. Judging by the location of shops, the CEO believes the company hasn’t found a place where it can’t thrive.

To him, as the economy ebbs and flows, there isn’t an item out there more recession-proof than a doughnut.

“It’s still a treat that people will give themselves,” Dekker said. “So I think that there’s always sort of general demand. I don’t want to compare ourselves to In-N-Out, but I do think that there is this ripple effect of the home of the brand that ripples out with family and friends and people are aware of it before we ever get there. More so than what I expected.”