When word spread that Marcus Lemonis, star of the CNBC reality show The Profit, was buying Crumbs for $6.5 million, no one was sure what to think. For all intents and purposes, Crumbs was a failure. It grew too big, too fast, and opted to go public at the worst possible time.
But the chief executive of Camping World truly believes he can turn it around. In the video below, he's vowed to scale back operations, kiss those pricey Manhattan rents goodbye, and diversify Crumbs' offerings with his other dessert holdings, including Mr. Green Tea Ice Cream, Key West Key Lime Pies, Sweet Pete's Candy, and Matt's Cookies, many of whom he revived on The Profit.
There are risks to this, of course. "The thing failed once, so there's no reason to believe it'll succeed again," warns Quentin Flemming, an adjunct professor at the University of Southern California's Marshall School of Business. And there's no guarantee Lemonis will recapture the customers Crumbs used to have. Finally, in terms of synergy, says Flemming, who knows if these other items can cross-sell with cupcakes. "He may be sending a disjointed message."
So, should Lemonis go through with it? Here to weigh in on the pros and cons of this audacious decision are David Sax, author of "The Tastemakers: Why We're Crazy for Cupcakes but Fed Up With Fondue," and Darren Tristano, an executive vice president at the food industry research firm Technomic. First, Sax takes the floor with the pros.
Pro: 'It's More Than a Cupcake Business'
"When you strip away the history of it being a cupcake-based business, what you get is a lot of real estate and infrastructure that allows you to bake pretty much whatever you want and deliver it to all these markets," explains Sax. "You don't have to do very much in terms of a new investment to broaden out the product offerings. You may have to change your staffing and instructions on how to bake and sell other things that aren't cupcakes, and you might have to change the racks you have in the store and buy more cookie sheets and regular cake pans, but it's not such a specific thing that it can't be easily converted.
"If Lemonis got [Crumbs] at a good price, there's a good value there. While the cupcake trend has ebbed from its heights, people are still going to want baked goods, and so if you can position it as something that can serve whatever baked goods, you're sort of starting off ahead.
"You have those 1980s French croissant bakery chains and the lower-end Auntie Anne's and Mrs. Fields, and the donut chains, but is there something that's a nationally recognized brand where you can get a high-quality, consistently baked product coast to coast? Not really. If you can position it into something that'll make a lot of baked goods, you're going to get the people who like muffins, brownies, and Rice Krispies squares. And that allows you the freedom to sort of innovate and grow products--instead of putting lipstick on a pig 100 different ways."
The takeaway: Like scavenging at a yard sale, there's nothing wrong with buying a bankrupt business--that is, if you have an infrastructure already in place.
Con: 'It's Too Confusing'
"If they are able to open, they're still going to have the issue of a very narrowly focused cupcake snack or dessert, and that's not going to change," Tristano says. "The need to broaden the menu outside of what this brand is known for creates a very complicated challenge, because right now people know this as a cupcake concept. They're not going to go there to purchase a sandwich or another item.
"I think you have to look at Krispy Kreme as the fast parallel to what Crumbs went through. They took a product that had a very strong following and they over-expanded and over-invested in it. It was very indulgent and made it overly accessible to the public. When you take a look at the challenges, you can't increase supply beyond the current demand, and in addition to the demand being to some extent fixed, you have a lot of other competition influencing the supply of cupcakes.
"The Crumbs concept looks more like a fad than a longterm trend. It's not continuing to grow. It's not only mature, it's declining unlike other types of concepts which can be healthier and as indulgent. Quite frankly, I think Crumbs has as good an opportunity to be more of a retail product that's made offsite, brought into stores, and sold separately with other concepts.
"Today's health and wellness goes against indulgence. The longer outlook for cupcakes is not a growth segment of the food business. It's an area that's expected to decline as healthy foods become more available, less expensive, and basically more of a part of our day-to-day activities and behavior."
The takeaway: Cupcakes are out, health is in. If there's hope for Crumbs, it's in supplying baked goods to other retail brands.
Readers, what's your vote? Will Lemonis be able to turn Crumbs around?