More Evidence That The Gourmet Cupcake Bubble Has Popped

Crumbs, the world's largest cupcake company, isn't doing very well.

The company's stock plunged shortly after its 2011 IPO from $13 to $3.75 when its earnings missed Wall Street estimates. It started tanking again last week when Crumbs announced that sales would be 22% lower than projected.

Crumbs also indicated that certain locations “incapable of reaching acceptable levels of financial performance” would need to close, according to the Wall Street Journal.

This collapse led the Journal's Emily Maltby and Sarah E. Needleman to declare that the gourmet cupcake market is crashing.

Judging by the often deserted Crumbs across the street from Business Insider, we are inclined to agree. (The two Starbucks down the block seem much more crowded.)

For a somewhat systematic evaluation of this Crumbs on Park Ave South in Manhattan, we sent reporters to make observations throughout the day.

Here's what we saw on Thursday, April 18:

7:11 to 7:16 a.m.: Deputy Editor Gus Lubin checks out the scene right after Crumbs opens at 7. No customers:

8:43-8:48 a.m.: Retail reporter Ashley Lutz spends a few minutes at Crumbs during the morning rush hour. Minutes earlier, the Starbucks around the corner had a line of at least 20 people. At Crumbs, one man sits alone, eating a pastry and reading a newspaper. There are two people in line, but they buy coffee, not cupcakes:

10:30-10:50 a.m.: Lifestyle reporter Megan Willett said seven customers came in during a span of 20 minutes. Most customers only ordered coffee, but one woman bought two dozen cupcakes for an office party. Megan noted that the cupcakes were well-stocked and the employees were helpful. Her own cupcake was good, too:

12:50-1:05 p.m.: Retail reporter Megan Durisin sees one customer eating a cupcake in the store. Only one employee was working at the store. She eats a "birthday" cupcake, white cake with rainbow sprinkles:

2 p.m.-2:05 p.m.: Senior Editor Julie Zeveloff noticed five customers in the store buying "post-lunch coffee and a snack." Some of the cupcake trays were half-empty.

4:50-5 p.m: This is the busiest Crumbs has been all day. Business reporter Max Nisen notices seven customers total in the late afternoon. The customers get coffees, cupcakes, and beverages.

While Crumbs had customers through the day, it was never actually crowded.

It's worth noting that Crumbs was founded in Manhattan a decade ago, meaning that NYC residents are very familiar with the brand. There are 21 Crumbs stores in Manhattan alone.

Market saturation is a big problem for Crumbs. Cupcakes are an easy product to replicate, and competitors such as Magnolia Bakery and Sprinkles began expanding aggressively after Crumbs went public.

Crumbs said in a recent earnings statement that it was slowing down on its plan for expansion.

Consumers might also be tired of cupcakes.

Eric Rodawig at Seeking Alpha notes that Google traffic for the word "cupcake" peaked in 2011.

The "novelty has worn off," Kevin Burke, a managing partner of investment banking firm Trinity Capital, told the Wall Street Journal.

Business Insider's Max Nisen notes that the company has used promotions to get customers in stores.

"The only time I've seen a real line at the place was when they were doing the dollar ice coffee promotion last summer," said Nisen, who has argued that gourmet cupcakes are simply an awful business.