Crumbs Shuts Stores: Have Americans Lost Their Appetite for Cupcakes?

By IndustriesFOXBusiness

Long before the Cronut was even invented, the four-inch Crumbs cupcake was the biggest thing in the dessert world.

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But with the news that Crumbs Bake Shop Inc. (OTCMKTS:CRMB) is, well, crumbling, some experts say single-dessert chains have officially gone stale. Earlier this week, The Wall Street Journal reported that Crumbs was shutting down all 48 stores and was considering filing for bankruptcy; the company’s website was no longer up and running by Tuesday afternoon.

Last year, Crumbs reported losses of $18 million – and some say other similar chains may soon be facing a similar fate.

“I think the category of specialty dessert concepts is at risk,” said Kevin Burke, a founder and managing partner of boutique investment firm Trinity Capital, which specializes in the restaurant industry. “The category is at risk because rents are high and demanding, and it’s very difficult to run a business on a few-hour sales window and still compete for the best real estate locations.”

And aside from the operational challenges associated with dessert-centric businesses, some say the cupcake mania may have simply petered out as Americans became more interested in a healthy lifestyle.

“Crumbs was following fads rather than long-term trends within the food culture … They were really expanding too quickly in the realm of what was the opposite of what the consumers are interested in, which is fresh, less-processed, real and authentic [food],” said Melissa Abbott,  vice president of the Hartman Group, a consulting firm.

Burke said the rise of yoga studios and fitness businesses is proof of a changing consumer mindset – one that could challenge not only cupcake shops, but also the many frozen-yogurt chains that have popped up around the country.

“The trend is that people are a little more aware of making better choices,” said Burke, the implication being that 600-calorie cupcakes probably aren’t the go-to snack for the yoga and Pilates crowd.

Are Cupcakes Doomed?

Though cupcake fever may be waning, some experts say Crumbs was simply a victim of its own rapid expansion.

“You just cannot maintain a healthy culture with that growth trajectory,” said Aaron Allen, founder of Aaron Allen & Associates, a restaurant industry consulting and analysis firm. “They started in ’03, went public in 2011, and went to 65 locations before starting to close locations … They waited too late to explore options and try to get ahead of this fad.”

Allen said there’s still wisdom behind the single-dessert concept – if executed correctly.

“The real benefit from a business point of view is that you’re very focused and specialized, which allows you to shrink down the box, so there’s less overhead, and shrink down labor costs and food costs,” explained Allen. “But in the case of Crumbs, they maintained large locations, with some over 3,000 square feet, when they needed less than 1,000. It was just bad management.”

And though Crumbs may have shut its doors for good, cupcake aficionados may not have to worry just yet about where to find their next sugar fix.

“These are all-American classics. Cupcakes aren’t dead – we still love cupcakes,” said Abbott.

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