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Why Crumbs Has Struggled to Turn a Fad Into an Icon

Crumbs Bake Shop rode the cupcake craze all the way to an IPO--but has struggled ever since. Here's what it would take to turn its fate around.
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Fads can be enthralling--at least while they exist--and while it's possible to make money off them. But the day comes when the next fad comes along. What do you do then?

Crumbs Bake Shop, a company that went public based on the results of dozens of specialty cupcake bakeries, faces that problem now. Although the stock price was in the teens when the company went public in the summer of 2011, it now rests below 50 cents. So what does Crumbs do now? Try to become an icon rather than a fad.

The difference is as easy as saying Dunkin' Donuts. The Massachusetts-based chain has sold doughnuts for years, a baked good that doesn't seem so fundamentally different from the cupcakes of Crumbs. And yet, Dunkin' has been around since 1950, building a business on coffee, a breakfast snack, and franchises.

The major contrast between the two is that Crumbs has focused on a dessert--a treat. Dunkin', on the other hand, is a purveyor of a breakfast mainstay. Objectively, an oversized cupcake and a doughnut or muffin seems similar, except perhaps for volume of sugar. But people treat them as two separate categories. Doughnuts and muffins, paired with coffee, are part of a daily ritual, and so are better able to support regular repeat business. Cupcakes are treats that come after meals. Dunkin' has been able to become an icon with 7,677 points of distribution according to its most recent annual report. That slight twist means that it has been able to become part of life. Crumbs continues to offer a treat, and one that can be supplanted by the next dessert fad.

What does Crumbs do? Try to expand beyond the fad category, as Bloomberg Businessweek recently reported. The question is whether its newest strategies will work within the company's brand, and consumer perceptions of it.

Expand the business model

One hallmark of an icon is ubiquity. In the territories it covers, Dunkin' Donuts can be found everywhere--stand-alone stores, service stations, and grocery stores. The more places people can buy, the greater a chance that you'll get their business, if they're already predisposed to enjoy your product.

Crumbs is selling through BJ's Wholesale Club now because its overly-concentrated expansion of stores resulted in cannibalization--it has closed 17 stores since 2013. However, Crumbs is licensing its brand name, which might eventually result in significant income (last year saw only a reported $17,000 in royalties) but doesn't help leverage its current production capacity. That might be because the individual stores that are baking don't offer the scale of operations that would be necessary. The company could consider franchising its operations rather than undertaking the capital investment for all expansion, but doesn't currently have plans to do so.

Find new products

Dunkin' Donuts has significantly expanded its product line over the years, from doughnuts and coffee to muffins, bagels, breakfast sandwiches, and lunch items. Because the company was able to concentrate on food by meal time, the extensions have worked and fit the company's brand. Crumbs also tried line expansions, including lunch items that it ultimately removed from the menu. Although the move may have seemed similar to what Dunkin' did, the Crumbs brand isn't associated with a full meal, just the sweet end of one. Last fall Crumbs introduced its "Crumbnut," a take-off on the Cronut--deep-friend puff pastry in the shape of a doughnut--created by Dominique Ansel Bakery of New York City. According to Crumbs CEO Ed Slezak, the item has done "very well." But does the move alter the dynamics, or simply trade one fad for another?

The ultimate problem with a fad is its generally one-off nature. The amusement hit doesn't have ties to a larger context that might provide greater longevity. To get beyond the limitations of the cupcake, Crumbs will have to connect what it does with something larger and more pervasive.

IMAGE: flickr/mr_t_in_dc
Last updated: May 1, 2014

ERIK SHERMAN | Columnist

Erik Sherman's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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