This Failing Midwest Donut Chain Just Filed For Bankruptcy

As a 64-year old chain of donut shops, Jack's Donuts is a beloved part of many Midwest communities — or perhaps was — since it filed for Chapter 11 bankruptcy at the end of October, after over a year of declining business and unpaid bills. Jack's Donuts plans to remain open through the process, and the company claims that independently owned locations will not be affected. But how did a seemingly stable business slide into financial hardship?

Since opening in 1961, Jack's Donuts grew from one location in New Castle, Indiana, to 24 stores, including 14 franchise shops, built on the back of delicious donuts made in-house. However, it appears that this simple formula for success went awry in 2023 when third-generation owner Lee Marcum encouraged all locations to source donuts from his centralized production facility instead of making them fresh.

Regardless of the owner's intentions, customers noticed a severe reduction in quality. One franchisee told Indianapolis' WRTV local news, "We lost customers when we changed over, and they compared us to a gas station donut. That was heartbreaking." Within a year of the change, corporate began experiencing financial difficulties. Months later, these debts ballooned to tens of millions of dollars — a burden the business could not bear.

Successful food service requires high quality standards. This lesson was also learned by Maple Street Biscuit Company, a Cracker Barrel-owned breakfast chain closing 20% of its stores. Like Jack's Donuts, it enjoyed several years of success until customers noticed a decline in quality that drove the business into the ground.

In Jack's case, replacing house-made food with factory-made food essentially renders the donuts store-bought, even if the brand also owns the factory. And while there are many ways to upgrade store-bought donuts with sprinkles, cookie crumbles and more, it's never going to beat the appeal of a freshly-made donut. Unfortunately, Jack's Donuts had to learn that the hard way.

Still, there may be hope for the brand. Independently owned restaurants can long outlast their corporate ownership, as is the case with the last remaining Woolworth's lunch counter, a California business that has outlived its parent company by over 25 years. And after this calamity, it's likely that any Jack's Donuts locations that can continue operating will go back to cooking in-house.