Nothing Bundt Cakes is as niche as it gets in this industry, selling bundt cakes of various sizes and flavors. The company’s history, growth, and economic model have proven that occupying such a space works really, really well. The company was founded in 1997 and recently opened its 600th bakery. In 2023, the company flirted with $675 million in sales and has since surpassed $750 million, according to CEO Dolf Berle, who joined last August. His goal is to get to over $1 billion by the end of 2027.
“We have a solid shot at that,” he said during a recent interview.
No doubt the Roark Capital-backed company has at least a strong tailwind. Its sales, according to Technomic data, are up by nearly $283 million since 2019, while its footprint has nearly doubled. If Nothing Bundt Cakes does reach that billion-dollar milestone, it will be among the top 58 restaurant brands by sales in the country, per Technomic data. For added context, other chains at or near $1 billion include Marco’s Pizza, Shake Shack, First Watch, and El Pollo Loco.
To understand the source of this tailwind is to understand Nothing Bundt Cakes’ economic model. Average unit volumes are nearly $1.5 million, with the top third around $2 million. EBITDA is over 22% (about $350,000), including royalties. Last year, the average cost of a unit was just shy of $750,000, and the cash-on-cash return is just under 50%, Berle said, adding there’s a lot to like about those numbers for franchisees, who make up 98% of the system.
“The economics are really very special. The reason is it’s a simple product that can be executed with excellence by people who care,” Berle said. “We also have a lot of baking capacity. We have a limited fixed cost in terms of the bakery and a fairly simple and reasonably repetitive, durable product. Therefore, the time and effort of the leaders and owners can be external facing. The goal here is not to be under 60 seconds at the drive-thru. It’s a noble mission, but it’s not our mission.”
That said, the numbers are only part of the reason Berle was drawn to the brand after CEO stints at Lindblad and Topgolf, and a COO role at Dave & Buster’s. They’re also only part of the reason he’s set ambitious mid-term goals which, in addition to reaching $1 billion, also include 1,000 locations by 2027 and more than 1,500 in the long-term based on the company’s real estate analysis.
“What’s very clear is this is the joy business. The specific type of joy we’re in is elevating important moments and events in people’s lives. Cake has a superpower when it comes to that. It has all the nostalgic value associated with special occasions,” he said. “So, we’re a good treats, but just as importantly, we make special moments that much more special.”
Berle adds that this “joy” is especially resonate now with high anxiety and depression rates. Perhaps this is why consumers have been gravitating more toward indulgent treats as evidenced by the growth in afternoon snacking and specialty beverages. Or why dessert shops are the fastest growing concepts in the U.S., according to Yelp data, with a 52% increase in openings throughout the past year. That said, don’t paint Nothing Bundt Cakes into a tidily defined category.
“People buy cakes for many reasons. We’re fortunate because we have unique niche without direct competition; kind of a category of one. The part that is so important is this is a franchise where there’s a very high need and a requirement for franchisees to be involved outside of their stores. You have to run great four-wall operations and bake great cakes and have great customer service. That is true across QSR. The difference here is our bakery owners and team members get out into the schools, churches, corporations, organizations, to help them with celebratory events,” he said.
All of these elements pour into a formula that will drive those aforementioned growth goals. Nothing Bundt Cake’s internal study suggests that the company has less than 40% brand awareness, so most efforts now are focused on changing that narrative – creating new product/flavor news, adding third-party delivery, a mobile app and a loyalty program, extending into catering, enhancing the website, and so forth. These efforts have started to attract more interest from multi-store operators who sometimes have one or two other brands in their portfolio, Berle said, which should help accelerate growth as well.
“We put a premium on people who have the instinct and talent to connect with the community. That’s the fun of it. It’s different than high efficiency, operations oriented,” Berle said. “We put a premium on external facing.”
As Nothing Bundt Cakes ramps up its growth, it will begin considering non-traditional formats, like stadiums and train stations, and, eventually, international. Though the pace seems swift, the discipline to stick to the “superpower” of the brand and product remains.
“We want to stay focused on building the brand before we go too far afield so we can build excellence and be more poised for growth in a strategic and planned way,” Berle said. “We’re not making a cultural shift in the sense of devaluating what got us here.”
Contact Alicia Kelso at [email protected]