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A Hole in Their Dreams

Ambitious immigrants found success with doughnut shops, but now big chains are eating away at profits.


The doughnut business, once a well-traveled route to the American dream, has become a dead-end for many immigrants as major doughnut and coffee chains have blanketed the country with stores, taking a bite out of the profits of countless mom-and-pop entrepreneurs.

For more than two decades, Cambodian immigrants, in particular, have made a mark in the doughnut business, which requires few English-language and technical skills. Drawing on the money and support of family and friends who paved the way, many ascended to the middle class by cultivating this particular retailing niche in their adopted homeland, just as thousands of Vietnamese newcomers gravitated to the nail salon business and many Thai immigrants opened neighborhood restaurants.

Now, Cambodian immigrants, who operate an estimated 75% of California's nearly 2,500 doughnut shops, are struggling, especially in Southern California, the epicenter of the nation's most intense doughnut wars. They and other independent operators must grapple with a resurgent Winchell's Donut House, which is renovating stores and has boosted its advertising budget, and the exploding popularity of Krispy Kreme Doughnuts, which has attracted a cult-like following and has grand expansion plans for the Southland.

Growing competition from bagel shops and national coffee chains such as Starbucks Corp. and Diedrich Coffee Inc. also are hurting sales.

Amid this cutthroat environment, some independent doughnut shops have expanded their offerings to include muffins, croissants and premium coffee drinks. Others have laid off staff, slashed expenses and, in some cases, closed their doors.

In a reflection of the difficulties faced by mom-and-pop businesses, the number of U.S. doughnut shops dropped to 10,470 in 2001 from 10,646 the year before, a 1.7% dip, according to NPDFoodservice, a research firm in Port Washington, N.Y.

That decline comes as the $3.5-billion doughnut market is posting sales growth in the high single digits as consumers increasingly indulge in Krispy Kreme Doughnuts Inc.'s glazed doughnuts and other treats sold by major chains, said Technomic Inc., a Chicago restaurant research and consulting firm.

Thousands of independent doughnut shops across the United States that inhabit aging stores in poor locations and that are saddled with tiny marketing budgets "are going out of style," said Hal Sieling, a Carlsbad, Calif.-based restaurant consultant. "Their days could be numbered."

Nobody knows that better than Ning Yen, who supplies 1,600 doughnut shops in Southern California, the nation's most crowded market. Just a few years ago, Cambodians and other immigrants called on him for advice on how to operate and get financing for doughnut shops. The "godfather" of Cambodian doughnut makers would freely dispense words of wisdom to fledgling entrepreneurs, who in turn would buy sugar, dough and icing from his company, B&H Distributors.

His telephone isn't ringing as much now, except for queries from financially strapped customers who are seeking more time to pay him.

With immigrants' children heading to college and pursuing professional careers, Yen worries that nobody will be left to run the doughnut shops when their parents retire in a few years. The independent shops, under increasing pressure from the chains, could go the way of scores of small businesses that have disappeared in the growing wake of Wal-Mart Stores Inc. and other retail-chain behemoths.

Krispy Kreme Changed the Doughnut Market

Sales at Yen's La Mirada company have fallen 20% over the last three years to $12 million in 2001. This year, he laid off five of B&H's 40 workers, the first layoffs in the firm's history. Business has been so sluggish that he recently sublet a 30,000-square-foot space, at a small loss, to a salvage company.

"I'm waiting for better days," said Yen, flashing a weary smile, amid the whir of forklifts at his warehouse. "I hope they will come."

Yen, like many of the Cambodian immigrants he has mentored, has experienced far worse times. The 46-year-old doughnut mogul lived on a 20-acre farm with his parents and seven siblings until the Khmer Rouge seized their land in 1975. Under that harsh regime, Yen spent the next 4 1/2 years harvesting rice and clearing jungles, sometimes subsisting on snakes and rats he caught in the fields.

In 1979, Yen escaped from Cambodia and made his way to the United States, where he crammed into a three-room apartment with 11 family members. Within six months, he had landed a job as a Winchell's doughnut baker in Santa Ana, a career step taken by thousands of Cambodian immigrants as the first rung on the ladder to middle-class success.

Yen worked long hours and saved almost everything he earned. In 1984, he struck out on his own, buying Mag's Donut Bakery in Irvine, with a $20,000 loan from family and friends. By using higher-quality ingredients and scouring equipment until it sparkled, he made tastier doughnuts. Soon, lines snaked out the doors.

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