From the Publisher: The great cupcake caper
By Seth Mendelson
The demise of Crumbs Bake Shop contains a lesson for all business people: Know what your customer wants and how much they are willing to pay for it. This is a story about cupcakes. After arriving with much fanfare in several cities across the country, things quickly started to crumble at Crumbs Bake Shop, a purveyor of high-end cupcakes. The company announced that it was shutting down all of its stores in July. In New York and, I suspect, several other areas of the country, this was pretty big news, given that Crumbs seems to represent a major indulgence for consumers. After all, where else could consumers, many of whom incessantly complain about high prices, purchase a cupcake loaded with calories for just $4 to $5 each. Upon the announcement the local media did what it always does best: create a story where no story really exists. The press interviewed many consumers to get their views on the chain’s demise. Virtually everyone was teary-eyed by this event and many said they had no idea where they would now go to get their cupcake fix. I do not get it. I visited Crumbs twice and, frankly, I initially thought it was a great idea to purchase premium cupcakes, for myself and the guys back at the office. A dozen cupcakes set me back more than $30 and most of my co-workers and friends did not seem too thrilled with consuming a product that may look and taste good but would end up making them feel miserable about their expanding waistline. Based on the company’s declining sales and profits over the last few years, it appears I was not alone. So what happened to Crumbs and what can the rest of retail learn from this story? The first thing is that consumers may act stupid on vacation and around the holidays when they will pay too much for just about anything. However in regular day-to-day life, most do watch their budgets and high-priced cupcakes do not always make the cut. More importantly, however, is to remember who your customer is. My guess is that Crumbs’ top brass developed a business plan based on oversized cupcakes and high price points. They believed that just presenting an enticing product would be enough to sustain sales. That does not always work out too well and if the supplier does not have a backup plan it becomes very difficult to survive in a complex and fickle marketplace. Of course, a few days later that backup plan was put into place. Crumbs secured financing led by Marcus Lemonis, chairman and CEO of Camping World and Good Sam Enterprises and star of CNBC’s The Profit. “I don’t believe that any business can make it singularly on one product and so the goal ultimately is really to have it carry multiple products whether it’s pies, cookies, ice cream, cake, a variety of things because as things kind of move in and out of popularity, we want to be able to be nimble,” he said in a Power Lunch interview recently. His point should be heeded. Operators need to keep a constant finger on the consumers’ pulse and watch their behavior. If things are going well, keep doing what you are doing. If things start to falter, perhaps it is time to regroup and re-develop the business plan. It is always better to react before the cupcake crumbles.