Crumbs is dead but the cupcake won't disappear anytime soon

Kevin Chupka Yahoo Finance

There's one less option for Americans craving a sugar and caloric spike in their diet. Crumbs, the mass market yet still artisanal cupcake chain, has shuttered all 48 of its stores across ten states. The closings come a week after the company was kicked off of the Nasdaq thus triggering a default on their debt.

Yahoo Finance's senior columnist Mike Santoli notes it was "clearly not a great big juggernaut of a growth business. It was always kind of a local New York thing, loaded on with a bunch of debt."

In short, it was simply a poorly run company. Sweet treats can be a big business if the company selling them is run well. Take Dunkin Donuts. "Nobody says they have the best donuts," Santoli says. "They just happen to be the best operators at selling high volumes of coffee and sandwiches and donuts to a large number of people."

So the demise of a poorly run Crumbs certainly doesn't mean the end of cupcakes. Perhaps the cupcake business was never meant to be handed over to big public companies, or at the very least, big public companies that aren't good at being big public companies.

"Sales were up at Crumbs from 2012 to 2013. It's not as if they stopped selling cupcakes, but I do think the space got too crowded. It became more of a fad," Santoli says, adding that some form of "not really good for you" treats will always be available.

Rather than a story of the "death of the cupcake," Crumbs serves as a cautionary tale for entrepreneurs and investors alike. For the next "Crumbs" the lesson is to look at a model like Ben and Jerry's instead. The Vermont-based ice cream maker started small and is now owned by a multi-national.

For investors, the lesson of Crumbs is that their loss came at the expense of the big-money guys who took Crumbs public in 2010. They got paid while John Q Investor largely didn't. Santoli says it's a case of taking "invest in what you know" a little too far.

"If it seems like too obvious a consumer trend, it probably is," he notes.

More from Yahoo Finance:
3 summer picks from a surprise sector
The great American food court revolution


Merrill Lynch is not responsible for the editorial content of this program 

View Comments (717)