Hold the obits on cupcakes, say local purveyors

A Crumbs cupcake . The debt-crippled company closed all 48 stores Monday. Local bakers saw flaws in its business model. Bloomberg

Crumbs may be gone. But cupcakes are here to stay.

That's the dish from cupcake bakers in Philadelphia, who say the failure of the Crumbs chain has not affected business - nor does it signal the cupcake trend has fallen flat.

Instead, consumers still crave mini-luxuries they can afford in place of expensive meals and eating out regularly, say market analysts. That includes cupcakes - but not from Crumbs, says John Columbo, of Philly Cupcake at 12th and Chestnut Streets.

This week Crumbs Bake Shop Inc. (CRMBU) shut all 48 of its stores nationwide amid millions of dollars in debt.

Local bakers weren't surprised. The business model was suspect, Columbo said.

"How could they offer cupcakes nationwide, baked out of one source in Brooklyn? They would ship out to all their locations every morning, sometimes the night before," he said.

"But the cupcakes were frozen, and there was a defrost process. That doesn't work well."

Offering other items alongside cupcakes is the key to survival. Artisanal cupcakes, fresh desserts - baked or prepared that day, so they're not stale - and healthier options are keeping the cupcake trend hot, says Norrinda Brown Hayat, co-owner of Brown Betty Dessert Boutique, with two locations in Center City and a mobile cart.

Crumbs went public and expanded too quickly to appease shareholders, which she believes led to an inevitable bust. "The stores were an attempt at making good on the promises of the [Crumbs'] IPO," Brown Hayat added. "This was not a mom-and-pop shop operation. I don't think the goal was for Crumbs to last."

Bonnie Riggs, a food-service analyst with NPD Group in Rosemont, Ill., says multiple factors worked against Crumbs' retail shops: market saturation, high overhead, and prices as high as $60 for a dozen.

Crumbs didn't offer enough other food items. Sweet Freedom Bakery, 1424 South St., offers customers variety - treats free of gluten, corn, soy, dairy, eggs, peanuts and tree nuts, and refined sugar.

"We are kosher, vegan, and free of preservatives, and we knock out all the common allergens - that's our specialty," said manager Jen Kremer. To her point, Sweet Freedom recently opened a third location in a former cupcake store in Bryn Mawr. The previous tenant failed for the same reasons as Crumbs - high overhead and not enough sales.

"You have to sell a lot of cupcakes to pay the rent. We do more than that," Kremer said. For example, Kremer's operation recently introduced bread for sale.

Riggs, the NPD analyst, predicts other food fads could soon fade, namely high-end yogurt and juice chains such as Pinkberry or Red Mango.

Americans in general are dining out conservatively, Riggs explained. Dining out in general has stayed flat, at 61 billion visits to restaurants in the year that ended in April. The prerecession level was 62 billion visits.

Perhaps for that reason, cupcakes remain a hot-seller when customers do come into the bakeries, said Brown Hayat.

"The cupcake has moved from fashionable to food," she said. "Because we think about food differently now, we want it fresh and true."

Brown Betty's best-selling item? It's still red velvet cupcakes.