Crumbs to be Quite a Workout for Lemonis
Crumbs closure and announced bankruptcy last week raises questions on how it got to this point, and what is attracting Marcus Lemonis and the owners of Dippin Dots to buy the chain, subject to bankruptcy court approval.
Crumbs always felt to me like a stock offering in search of a strong business concept. The sterile retail stores made profligate use of 1,000-1,200 square foot of space per unit to sell primarily sweet baked goods. Many of their stores are on expensive Manhattan avenue addresses, where Gray’s Papaya manages to get by with just a quarter of that square footage to sell hot dogs and papaya juice, and Korean grocery stores get by with approximately half that space.
The expense and high calorie count of a single Crumbs cupcake likely reduces the possibility of bulk purchases, and the shops are sadly lacking in any kind of diverse cross-selling product offerings. Ironically, the Crumbs closest to my home is located next to a Modell’s sporting goods store and an Equinox gym, and around the corner from a yoga studio. A strategic alliance with Starbucks which was formed in August 2012 lasted only 13 months.
Crumbs achieved public ownership through the creation of 57th Street General Acquisition Corp, a so-called “blank check” company whose pitch to shareholders was basically “there are plenty of risks, but trust us, we’ve done this before, we know what we’re doing.” And while Crumbs management may have been strong at operations, in fact the brand was too narrow a platform, leaving them exposed to the end of the five-year cupcake craze.
All of which leads to the interesting question of why Marcus Lemonis (star of CNBC’s “The Profit”) is jumping in to attempt to snatch the chain from bankruptcy, and where exactly does he see the value which make Crumbs worth the risk? It is probably more about the chance to acquire a distribution system for his growing portfolio of baked goods and sweets than the marketing allure of the Crumbs brand. As Lemonis told the “Daily News” on 7/11/14, “we know that in order for this business model to succeed it must have a diverse offering. Our hope is to create America’s sweet and snack shop.” Buying Crumbs out of bankruptcy will afford Lemonis a platform to do the kind of triage he does so well on “The Profit,” only instead of maximizing the selling potential of a single pie shop/wine store/gym, he now gets to do the exercise for a sixty plus unit sweets chain. Should be quite a workout.
