Wednesday, July 9, 2014

Forbes, Crumbs...and My Delight Cupcakery?

Yesterday, Forbes ran a piece discussing the demise of a cupcake chain known as Crumbs - and the claim that Crumbs' problem was that it had an expensive product of limited interest.

In 2013, when we wrote of the cupcake’s imminent death, Crumbs’ stock had sunk to $1.27 from a 2011 peak of $13. The day the company gave notice of its delisting, shares closed at 23 cents.

At the time, Wedbush Securities restaurant analyst Nick Setyan notes that that Crumbs’ $3.50-plus-per-cupcake price tag made it an unappetizing prospect versus some of its cheaper regional counterparts — not to mention Krispy Kreme and Dunkin Donuts.

So, does that mean that all stores that sell gourmet cupcakes will shutter their doors?

Or, more specifically for me, does it mean that Ontario's My Delight Cupcakery may disappear one day?

Well, My Delight has one thing going for it that Crumbs doesn't have. Let's return to Nick Setyan's analysis.

On Tuesday, Setyan said he wasn’t surprised to see Crumbs close up shop. “They expanded too quickly with a product that simply was not differentiated or compelling enough,” he said. “When the returns are not there, it’s impossible to continue to operate.”

According to Forbes, Crumbs had expanded to 50 locations. My Delight has obviously not expanded that much.

In addition, My Delight aggressively maintains a local presence in their market.

Now perhaps My Delight may choose to expand its product offerings at some point, but that doesn't necessarily guarantee success. I used to work for Motorola, and during my time at the company, it sold everything from automated fingerprint identification systems to police radios to cellular telephones to cable set-top boxes. Motorola was not especially helped by this diversification.

So, rather than the demise of an industry, Forbes may instead be looking at a shakeout of the bad companies in the industry, leaving the good ones to prosper.

Or so I hope.

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