I am on a mission to find interesting stories about real companies that we can learn from:
'Crumbs Bake Shop launched in 2003. In 2010 they were included as part of Inc.’s “500 fastest growing companies” list. In 2011, they were acquired by a holding company for $66 million. The company then went public, with a share price of $13.
Just three years later, in June of 2014, Crumbs’ share price had fallen to a paltry $0.15. Ouch. So what went wrong?
One key factor in both Crumbs’ success and their subsequent fall from glory was their short-sighted focus on a single, trending product: Cupcakes.
Cupcakes are a very recent trend – one that took off exponentially, and is now in steady decline. Crumbs’ mistake, therefore, was to focus on an expansion that was geared around selling more cupcakes in more locations – and little else.
This worked, to a point. But cupcakes (expensive cupcakes at that) have a limited appeal. They’re a treat, not an everyday necessity, and as we can see above, the cupcake’s massive popularity is, in essence, a fashion – and fashions come and go.
Crumbs also chose to invest heavily in costly retail space. One of their outlets, located near Chicago, covered a massive 3,300 sq. ft. – easily the size of a 4-bedroom home.
What can we learn from them?
Work to expand your product range, as well as your reach
Few people buy a cupcake every day. To account for this, Crumbs could have expanded their offering to include items that customers would be more likely to purchase on a daily basis – sandwiches for instance, and of course, coffee .......' Sujan Patel
The signs were there that cupcakes as big business were in steady decline:
On August 6, 2012, the company announced a partnership with Starbucks to serve their brand of coffees, teas, and other assorted beverages. The partnership ended in September 2013 due to a sharp decrease in sales and customer satisfaction.
On May 15, 2013, the company announced it had partnered with chef and restaurateur David Burke to begin marketing a new line of gourmet sandwiches and salads to be sold at select Crumbs locations. This partnership ended roughly a month later due to poor sales.
On September 13, 2013, the company announced the planned opening of their first ever gluten-free store in lower Manhattan. Crumbs Gluten Free featured the same cupcakes, cookies, brownies and pastries that the brand is known for in gluten-free versions.
On February 4, 2014, the company announced a partnership with Pelican Bay Ltd. to create a line of At-Home kits, including Crumbs Cupcake mixes, hot chocolate kits, cupcake-in-a-mug kits and "Colossal" cupcake kits. The line was sold at club and craft stores across the country. The company shut the doors for customers on 12/19/2016.' -From Wikipedia
Can you think of anything that might of helped Crumbs Bake Shop?
Well, one of my questions would be why did they have such huge shops to sell cupcakes? Their stores averaged 1000 square feet which meant they had extremely high fixed costs in rent that had to be paid even if they sold just a single cupcake that month.
It's important to be able to tell the difference between your business' Fixed Costs and Variable Costs and know the importance of keeping those fixed costs down. Don't be tempted by that fancy office or large outlet too early.
Growth Isn't Everything!
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