Case Scenario: Lessons for Growth-Minded Start-ups from Crumbs Bake Shop's Failure
Crumbs Bake Shop was founded in 2003 by Jason and Mia Bauer, a husband-and-wife team. The idea was to sell gourmet cupcakes. The cupcakes came in an assortment of sizes and fillings. Most of the cupcakes were familiar flavors, such as cookie dough, tiramisu, and caramel apple. There were also cupcakes named after celebrities like Elvis Presley and Artie Lange. The cupcakes came in three main sizes: the mini "taste" size, the "classic" size, and the "signature" size. The signature size cupcakes, which were nearly double the size of standard cupcakes, cost anywhere from $3.50 to $4.50. Crumbs placed small signs in front of each cupcake or baked good reporting the price and calorie count. The blackbottom cheesecake brownie cupcake was reported to have 1,090 calories. In its latter years, Crumbs made a $42 "Colossal" cupcake that served as many as eight people.
Crumbs expanded quickly and soon became the largest cupcake chain in the United States. At its peak it had expanded to 79 locations with plans for many more. It broadened its approach some but primarily stuck to selling cupcakes. In early 2011, Crumbs was sold to a shell company, which took it public that June. For the first time, its same-store sales started to decline. The company's new CEo, Edward Slezak, tried a new approach to growth-striking licensing deals to sell Crumbs-branded products in other stores. He also started closing unprofitable locations. In mid-2013, Crumbs announced a partnership with David Burke, a well-known chef and restaurateur, to begin marketing a new line of gourmet sandwiches and salads at select Crumbs locations. The partnership ended roughly a month later due to poor sales. In late 2013, Crumbs opened a gluten-free store in downtown Manhattan in new York City. on July 8, 2014, Crumbs announced that it planned to close all of its stores. The company's stock had been delisted several days earlier by the nASDAQ Stock Exchange. The company warned that the delisting would cause it to default on up to $14 million in debt. A sad ending. At one time Crumbs was proud and growing. now it was closing. what went wrong? Several things- all of which provide valuable lessons for growing entrepreneurial firms. First, an increasingly crowded market. when Crumbs opened in 2003, it was unique. There were only a handful of bakeries devoted to cupcakes nationwide.
By 2011, the year Crumbs's same-day sales started to decline, there were many. Some were bakeries and some were simple kiosks. In addition, almost any bakery could add gourmet cupcakes to its product offerings if it wanted to do so. Second, consumers started losing interest in cupcakes. when Crumbs opened, cupcakes were hot. Consumers eventually moved on. To illustrate this point, the wall Street Journal ran an article in early 2013 titled "Forget Gold, the Gourmet-Cupcake Market is Crashing," in which it reported Crumbs's declining sales. while its drop in sales was attributed in part to Hurricane Sandy (many of Crumbs's restaurants were in the new York City area), the wall Street Journal article said Crumbs was suffering from a larger problem: "gourmetcupcake burnout." Third, high real estate costs. Crumbs had nice stores. Many were large for a single-product company. Its shops averaged about 1,000 square feet. one Crumbs Bake Shop near Chicago, according to a 2014 Business insider article, measured 3,300 square feet. That's about the same size as a generous four-bedroom home. Fourth, no pivot or change in strategy. Despite falling same-store sales, Crumbs kept opening new locations. It added 35 locations from mid-2011 to 2013 alone. This was during a period in which it knew its same-store sales were declining. It also maintained its focus on cupcakes, with no serious attempt to diversify. A challenge with selling a product like cupcakes is that it's an occasional rather than a regular purchase. while people might eat at the same restaurant every day or buy bread from the same bakery several times a week, very few people buy items like gourmet cupcakes more than occasionally.
Questions for Critical Thinking
1. What are three lessons that other start-ups can learn from Crumbs's failure?
2. To what degree do you think Crumbs should have been able to anticipate a decline in interest in gourmet cupcakes?
3. why do you think Crumbs doggedly stuck to its singular focus on selling cupcakes, in light of declining same-store sales?
4. was Crumbs's failure preventable? what, if anything, could have been done to save Crumbs? Based on the material in the chapter, what types of growth could Crumbs have pursued that it didn't go after?