Crumbs Takes the Cupcake

Coming out of the recession, consumers are more selective than ever by focusing on certain factors when deciding where to spend their money. Specifically, retail sales over the past two years have highlighted consumers’ preference for trendier goods and services, better value and superior quality.

Even as the unemployment rate continues to hover around 9%, this number varies significantly among workers with different levels of education. While the unemployment rate is nearly 15% for those who haven’t completed high school, it is a much more modest 4.5% for those with a college degree. In other words, unemployment is lowest among the highest educated and, presumably, highest earning groups.

As a result, many different retailers offering the consumer affordable luxuries have fared well since the end of the recession and are projecting 2011-2012 to be among the best years in recent memory.

Ken Schapiro, president of Condor Capital Management, has identified a broad range of consumer-oriented companies that are poised to benefit. In the food sector, many dining companies offer products and an experience that enable them to transcend traditional fast food restaurants, yet are still relatively inexpensive compared with upscale eateries. One company in this growing niche segment that Condor Capital has recognized is Crumbs Bake Shop (currently trading under 57th Street General Acquisition Corporation).

Crumbs Bake Shop quietly emerged as the largest domestic retailer of gourmet cupcakes. With a variety of sizes and mouthwatering flavors such as Caramel Apple and S’Mores, Crumbs has done its part to make sweet treats an affordable luxury.

Most cupcakes cost a relatively higher $3 to $4, and the average transaction ranges from $18 to $20. To save on costs, the company employs a unique business model where it uses a contract manufacturing model to source out the production to local bakeries instead of baking the treats in-house. As a result, it only costs Crumbs slightly more than $1 to produce the average cupcake and brings the company’s average sales per square foot to more than $1,000 — among the highest in the industry.

With regard to the company’s expansion plans, management hopes to complement its online store with nearly 200 physical locations by the end of 2014. The first Crumbs Bake Shop opened in March 2003 on the upper west side of Manhattan, NY, by co-founders Mia and Jason Bauer.

Crumbs has grown to 50 locations, including 29 stores in the New York metro area, four in Connecticut, six on the West Coast, five in Washington, DC, one in Virginia and five in Illinois.

For 2012, Crumbs plans to continue opening stores in both existing markets and new markets such as Boston and Philadelphia. The cupcake shops produce more than 60 varieties of cupcakes daily, introducing a new cupcake of the week each Monday.

Net sales at Crumbs for its latest fiscal quarter in 2011 increased 18.3% to $8.9 million from $7.5 million in the same period last year, according to the company’s earnings report. Cost of sales increased 23.1% to $3.8 million from $3.1 million, and as a percentage of net sales, increased 1.7 percentage points to 42.5%.

Gross profit increased 14.9% to $5.1 million from $4.4 million compared to the third quarter of 2010 due to higher net sales. Crumbs opened four stores in New York and Illinois during the third quarter. “We are taking definitive action to improve performance,” says Jason Bauer, co-founder of Crumbs.

In November, Crumbs named Julian Geiger as the company’s new president and chief executive officer. A member of the Crumbs’ board of directors since May 2011, Geiger served as chief executive officer and chairman of Aeropostale, which grew from about 110 stores in North America to more than 900 stores during his tenure from 1998 to 2010.

Bauer, who served as president and chief executive officer since 2003, becomes senior vice president of business development.

In other appointments, Crumbs recently named Stephen Fass to its board of directors. His election as an independent director fills a newly created directorship resulting from an increase in the number of directors following Geiger’s appointment as president and CEO.

Beginning in October 2005, Fass served a consultant and from November 2006 as a partner and vice president of Ciao Imports LLC, a specialty food importer and distributor. Fass has served as a member of Ciao Import’s board since November 2007. From September 2003 to October 2005, Fass was a partner and vice president of sales for Vela Di Natura, LLC, an importer of Serbian juices and other specialty foods from Serbia.

“Stephen’s expertise in the specialty food business, along with his prior board experience, makes him a perfect fit to join our board of directors,” Geiger says. “We are delighted to be welcoming him to Crumbs and look forward to benefitting from his insights and experience.”

The design of Crumbs Bake Shops is inspired by old-time neighborhood bakeries, creating a warm and friendly environment with wall-to-wall treats. There are more than 75 varieties of cupcakes baked fresh daily with a new cupcake of the week debuting each Monday.

The company ranked as one of Inc. Magazine’s 10 Breakout Companies of 2010. Staying on the cutting edge of information technology has helped their cause. In 2011, the company introduced the brand’s first iPhone Application, available on the Apple App Store. Partnering with Global Bay Mobile Technologies, a leading provider of mobile retail software, to create a consumer facing iPhone application, Crumbs was the first national bakery to launch its own iPhone App. Satisfying fans’ sweet tooth on the go, the Crumbs iPhone App enables customers to enjoy interactive experiences and live news updates, as well as purchase CRUMBS gift certificates via a mobile coupon function.

Users have the option to send custom Crumbs greeting cards, locate the closest Crumbs Bake Shop and save and edit their “favorite” cupcake flavors that can be shared with friends via email, Facebook and Twitter. Mobile customers also receive current in-store promotions and exclusive discounts as part of the live news updates. Gift certificates purchased via the app are redeemable at Crumbs Bake Shop locations across the country.

The Crumbs iPhone App announcement last year followed the company’s $66 million merger with 57th Street General Acquisition Corporation to take the company public. For Crumbs, the next step is managing growth across the country and ensuring it stays true to the quality standard it adopted from the start.