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cookie dough ready to be put into the oven

Not all too long ago, it seemed like cupcakes were taking over every block, mall, and shopping district in the United States. Both independent shops and chain storefronts were popping up regularly, tempting consumers with their sweet bakery smells, attractive frosting creations, and clever flavor combinations.

The failure of one of the most prominent cupcake chains suggests that the trend might not have been quite as substantial as some observers anticipated. Crumbs, a 48-store chain that started in New York and spread across nine other states, halted its operations soon after it was kicked off the NASDAQ exchange. Without a position on the exchange, its debt holdings defaulted, and the company found itself out of business.

However, not everyone agrees that its failure is simply a matter of customers moving on to other temptations instead of cupcakes. Instead, some analysts argue that it indicates some poor choices by the founders of the chain. For example, Crumbs grew relatively quickly and took on substantial debt to be able to do so. Even as sales continued to increase, Crumbs could not keep pace.

Furthermore, the market for sweet treats is always crowded and competitive. Crumbs faced competition from the wealth of other faddish cupcake stores, but also from well-known incumbents, like Dunkin’ Donuts, that enjoy massive economies of scale and scope. In this sense, the crumbling of Crumbs has something do to with consumer preferences: When they want a sweet cheat on their healthy lifestyles, consumers are quick to move on to the next big thing that might tempt their taste buds.

Source:

Kevin Chupka, “Crumbs Is Dead, But the Cupcake Won’t Disappear Anytime Soon,” Yahoo Finance, July 9, 2014, http://finance.yahoo.com.

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