Accountants sound a warning; new management is closing stores.
Things are not looking hot for the Jewish-owned, kosher-certified cupcake giant Crumbs Bake Shop Inc. Crain’s New York reported that the company, owned by Jewish Upper West Siders Mia and Jason Bauer, recently disclosed that its auditors, Rothstein Kass, may no longer consider the former cupcake king a “going concern.” That’s investment jargon for possibly going out of business.
A new management team at Crumbs is trying to stave off failure. New Chief Executive Edward Slezak, who took over last fall, is closing underperforming stores and moving to sell Crumbs' supersize cupcakes and other bakery goods in supermarkets. "We are at an inflection point for our company and for our business," Slezak told Crain’s.
But Slezak doesn’t have much time. The company’s cash flow requirements will likely consume their existing resources and cash from anticipated sales unless they are able to raise additional funds prior to June 30, 2014.
Where has the cupcake craze gone? During Crumbs’ golden days, the company ranked among America’s 500 fastest-growing companies, with 17 New York stores and 31 stores nationwide.
Mia Bauer initially envisioned the business as a small, intimate bakery experience. "The goal was to have a neighborhood bakery where I knew everybody and their kids, and I made all their birthday cakes," Mia Bauer said in an interview with NewYorkFamily.com in 2012.
But the cozy birthday cake parlor morphed into a cupcake giant in 2008 when the Bauers sold half their stake in Crumbs for $10 million. In 2011, Crumbs was acquired for $66 million by a holding company called 57th Street General Acquisition Corp. and taken public. But the company grew too big for its own britches (a liability for Crumbs consumers as well).
Darren Tristano, executive vice president at Technomic, a food-focused consulting firm in Chicago, said in a recent interview that the problem was size. Similar to the donut chain, Krispy Kreme, which followed a similar trajectory of boom and bust, “both companies took a single product with a high craving factor and overinvesting in it," said Tristano. "Locations were much larger than necessary."
Will the kosher-cupcake giant be able to recover? Krispy Kreme does provide a promising, albeit sobering, example. After major cuts, the company stabilized last year and now generates about two-thirds of its peak revenue. Crumbs hopes to follow a similar path.
But whatever lies in store for the cupcake empire, the Bauers left their brainchild behind in 2012. Both Jason and Mia Bauer resigned in November, though they retain an 8.5% stake in the company they began.
"I'm disappointed with the company's performance and stock price," said Jason Bauer, "but I've moved on."
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