Hacking Hostess: Can The Better Bakehouse Redefine Donuts?

It’s been a two-year wait, but better-for-you baked goods company the Better Bakehouse recently debuted its first brand, Donutful, exclusively at select Wegmans stores. While the concept of creating a cleaned up circular sweet may sound pretty uncomplicated, getting the business off the ground and the donuts on-shelf was not a piece of cake.

“The industry in general was so tumultuous in the first and second quarter of last year, and then it stabilized a little bit, but we just had to ride it out and do the best we could,” said Tony Davis, founder and CEO of The Better Bakehouse. “We continued to invest our time and our resources to make the packaging, do the product R&D, and then get an amazing partner with Wegmans. Having all of that under our belt gave us a good fresh start in the spring of this year, but it took a lot longer than we thought.”

Conventional CPG donut brands like Hostess and Entenmann’s primarily fry their products and use a long list of synthetic ingredients, such as titanium dioxide, that consumers want to avoid. Davis said The Better Bakehouse was founded to offer an alternative to those items in order to bring consumers back to grocery baked goods.

Donutful began to roll out approximately six weeks ago with a 3-SKU line of baked, icing-coated, donuts in Chocolate Dipped, Vanilla Dipped and Pink Dipped flavors. Each two-donut serving contains roughly 180 calories, 9 grams of sugar (25% less than a traditional donut, the brand claims) and 14% of daily fiber levels, the latter in part due to the addition of chicory root fiber. The product is made with wheat flour, cane sugar, egg and vanilla, among other ingredients, and while it does not boast in vogue attributes like plant-based, gluten-free, or sugar-free, Davis said the donuts are positioned around their simple ingredient list that does not require “a degree in chemical engineering” to understand.

But producing packaged, baked donuts via a co-manufacturer was no easy feat, Davis said, explaining that the process for baking rather than frying a donut required very different production capabilities and said the company conducted an extensive search for the right partner. Donutful’s products are packed in a 10-count hot pink box as well as 2-count sleeves pouches, intended for convenience stores and other grab-and-go locations. The products ship cold like most baked goods but are slacked out at ambient temperatures to be purchased as a shelf stable product.

The former U.S. CEO of Swedish ice cream brand N!CK’s, Davis launched the company with his own money, but he has also raised capital – more than $1 million, he said – from a mix of friends, family and institutional investors, including Niclas Luthman, founder of N!CK’s ice cream.

Davis acknowledges the funding environment has made it even more challenging to launch The Better Bakehouse; at one point he was working with a Canadian holding company and investment platform, Eat & Beyond, to arrange for investment in his company and add celebrity-backed baking mix maker Foodstirs as part of the company, but that deal fell through when Foodstirs could not get their financing in place quickly enough, Davis said.

“It’s been a brutally difficult time for pre-revenue companies to raise money with what’s happened over the last year and a half, and really since early [2022] when the market receded and the capital markets froze up,” said Davis. “I have a good story with N!CK’s ice cream, and I think we have a super exciting compelling opportunity here…so [the deal with Foodstirs] was very frustrating, to say the least, because without money, you can’t grow a business and you can’t launch a business.”

Davis said Eat & Beyond decided it wouldn’t be able to fund its capital commitment to The Better Bakehouse by late Spring 2022 at which point Davis said the companies – including Eat & Beyond, Foodstirs, and The Better Bakehouse – all went their separate ways, although he did bring on former Foodstirs chief revenue and growth officer, Laura Setzfand, as a co-founder of The Better Bakehouse. (Foodstirs executives and investors did not comment for this story.)

Davis said in the product’s first month on shelf, it has already received five purchase reorders from Wegmans and while he noted the brand is still in “infancy,” it is already seeing “good sell-through” rates. The company will add Amazon Fresh distribution later this year.

“When you look at the snacking usage occasions for a product like this, there’s five to six times a day you can eat this which is really amazing,” said Davis. “The opportunity for this is massive and what’s really crazy is that the donut category in general, and the [broader] baked good category where we play, is pretty sleepy – there hasn’t been a lot of innovation. There haven’t been a lot of new ideas or new brands.”

Davis said for the Wegmans buyer, who works between cookies, crackers, sweet snacks and baked snacks, Donutful was the first new brand she had bought since the onset of the pandemic. All new products in the retailers’ set for cookie, crackers and baked snack categories had come from line extensions launched by existing brand partners.

That is the opportunity Davis wants to continue tapping into. He highlighted that with a brand like N!CK’s ice cream, it was only feasible to reach about 40,000 doors due to limited shelf space in frozen and the difficulties of selling cold-chain products. But, with ambient shelf-stable baked goods, though shipped cold-chain, Davis believes the company can reach about 200,000 to 300,000 store locations. The Better Bakehouse already plans to launch complementary product lines with similar brand identities, but details regarding those new innovations are still under wraps.

“We really passed an important inflection point [with the Donutful launch] because the difference between being a good idea and having real performance – being aspirational versus real – is huge,” said Davis. “When we shipped our first orders, we had a massive shift in the description and the profile of our company… plus we have “P” on the P&L now, as opposed to just the L.”