I took a little trip up Aurora Avenue mostly because I wanted to see the new Krispy Kreme.  On my search, I sought a mixture of business types in different industries and levels of sophistication.  Generally, businesses that are less capital intensive can tend to have better margins.  Competition and business location exist as a large factor in the level of profitability of these businesses. 


Business 1:  New Aurora Krispy Kreme Doughnuts - Fad or the real deal

Location: 130th Street and Aurora

Believe it or not, there are at least 5 places to get doughnuts within a few blocks either direction from the Aurora Krispy Kreme.  Two of which are stand alone doughnut shops and I’ll bet both are a little nervous. 

My gut tells my Krispy Kreme is here to stay.  They offer much more that doughnuts.  They offer an experience (sound familiar). 


Through my research I found that each Krispy Kreme cost about $2 Million to open.  There is a $40,000 non refundable fee and 4.5% royalties on sales.   The machine to make the doughnuts alone costs $350,000.  


The Issaquah Store had sales of $450,000 in the first week.  From the looks of things when I went by the Aurora store should have similar results.  Average weekly sales at $60,000 - $70,000 and are some of the highest in the fast food industry beating McDonalds in fact.   Margins are also some of the best at over 20%.  The stores run huge volume due to a wholesale and retail model.  The doughnut machine runs 24/7.  


Profits for the Aurora store could average $700,000 annually.  I wish I had the $5 Million in net worth required to apply for a franchise. 

Source: http://www.fortune.com/fortune/smallbusiness/articles/0,15114,361359,00.html


Business 2:  Money Tree Stores – bit of a dirty business, but they fill a need


Call it a mobsters business, hard money lending, praying on those who are down and out and need the money now to spend it at the tavern, but the truth is the check cashing business is no doubt a cash cow. 


The model is simple.  Think of a crafty name like “Money Tree,”  lease some space in a washed up strip mall on the side of Aurora of Lake City way, advertise a bit, and walla – you have your own little cash machine. 


Essentially, you provide pay day loans to folks who can’t wait for their paycheck.  The fee is simple, generally a flat 10%.  Most of the time the criteria is you must get paid within one month of receiving the loan.  This provides money tree with a nice 120% return each year on the money lent.  The problem is the business tends to deal with a few shady folks that don’t always pay you back.  Some you can never find and some you must go through the trouble of garnishing future wages to get the loan back.  But here are the numbers: 100 customers per day x $500 average loan size x 10% fee = $5,000 day in fees, 6 days a week or about $260,000 annually.  If you collect on 75% of the loans that is a profit of  $195,000 annually. 


Business 3:  Lincoln Towing – Not the most glamorous but they tow in the cash

This one is my favorite.  The Aurora Lincoln towing runs about 15 trucks each at an average of 12 hours a day (some run around the clock) and can tow one car an hour at a charge of $140 per vehicle for a total of around $25,000 per day.  Here is my favorite part:  If you don’t go get your car after one month, Lincoln has the right to auction if off.  Average price of an auctioned car is around $1000.  180 cars are auctioned each week.  The cost of holding the car is around $500 for the month and the State gets the surplus, so Lincoln collects on the $500 made to cover impoundment costs. 


Annual revenue will be around:

(25,000 x 365) +  (150 x 180 x 52) = 912,500 + 4,680,000 = $ 5.6 Million in revenue.  The trucks are expensive and the impound yard is large with high property taxes.  I am guessing margins are still at around 20% so profit is at least $1,000,000 annually.


Business 4: Countrywide Mortgage – the peak of the market?

I doubt any business has benefited from recent economic conditions better than the mortgage brokers.  The little Countrywide Mortgage office in the Oaktree Plaza near Larry’s staffs around 20 brokers.  Each broker does around a 3 loans a week at an average of $275,000 a loan.  They collect around $3000 in fees per loan. 

 The total revenue is 2000 x 3 x 20 x 52 =  $6,240,000.  The payout to the brokers is around 40% with benefits, training, and base salaries.  This gives the owner about $2.5 Million annually to cover fixed costs.  I have heard of other mortgage brokerage firm owners making nearly $350,000 a month.  The problem is this easy money will not last much longer once rates rise and the refi boom ends.  I hope they are taking some of this windfall profit and setting up some sort of hedge against the inevitable assent ion of interest rates.


Business 5:  Les Schwab Tires – the necessities of life

Car ownership seems inevitable in America and with cars come tires.  The Les Schwab Tire center on Aurora has 6 stalls for working on cars.  This tire center sells tires, wheels, and offers assorted repairs to autos such as shocks, brakes, mufflers, and wheel bearings.  The average revenue per car is around $400 and the store services nearly 100 autos a day.  Annual store revenue should be around 400 x 100 x 6 x 52 = $12,480,000.  The problem is profit margins are pretty thin.  Gross margins are only about 30% after subtracting CGS, leaving about $3.5 Million to cover around 10 staff per day and large inventory costs.