When Crumbl first burst onto the scene two years ago, a few doubters almost immediately thought about frozen yogurt.
Readers of this column almost certainly recall the dual froyo fads, the most recent of which emerged in 2005, when the first Pinkberry location opened in Southern California, spawning a furious race to open frozen yogurt shops.
Franchises emerged and quickly signed up hundreds of operators, many of whom were laid off during the Great Recession. Attendees at the National Restaurant Show during that era gorged on free samples of frozen yogurt that were common throughout the exhibit hall.
Alas, as we don’t see froyo shops everywhere right now, you all know the result: There were too many of them. They cannibalized one another, hammered sales at individual units and led to large numbers of closures.
Fast forward to last week, and it appears those doubters may have been onto something. Crumbl’s growth in the past few years may now be showing some cracks, as unit volumes plunged and a few stores closed.
In reality, the comparison might not be quite like that. Instead, we’d throw out a different one: Krispy Kreme.
First off: Credit should be given to the founders of Crumbl, who have insisted on reporting detailed financials in their franchise disclosure documents. The only reason we, and franchisees, know of the steep decline in unit volumes is because the company is reporting them. Many would have stopped the moment things started looking bad. We’ve seen it many times.
Still, the Krispy Kreme example may be more apt, in part because it’s a single concept.
More than two decades ago, the North Carolina doughnut chain began expanding aggressively in new markets with large, fancy stores that drew massive lines. The company continued expanding based on those early unit volumes, which in theory was justified.
And then the early enthusiasm for Krispy Kreme’s hot doughnuts waned. The company’s strategy to sell doughnuts out of grocers and convenience stores didn’t work, either, because many of them would sit there until sold, which hurt quality. Stores closed. And the brand had to reconfigure its model.
Crumbl in many respects is similar. The chain surged and added locations at a breakneck pace. And it had the unit volumes to keep doing so. Its average unit volumes in 2022, for instance, were $1.8 million. That’s a lot of money for a cookie concept.
The problem, however, is the curiosity customer. A new Crumbl opens, people try it. And then they don’t order cookies again for a long time. Cookies are great. But you just can’t eat that kind of sugar that often. And many people do not.
That, plus its continued aggressive unit growth, has led to a 37% decline in average unit volumes. Worse, per-store profitability was cut by 58%. Some stores have closed and some franchisees—and the company, last year—have laid off workers.
The good news for Crumbl is that Krispy Kreme was able to reconfigure itself as an omnichannel doughnut concept. It increased the quality of the doughnuts sold outside its shops by delivering them daily, improving the unit economics of those shops and enabling expansion again.
It went public in 2021 and now has a deal to sell doughnuts inside McDonald’s locations. That deal will enable Krispy Kreme to return to markets it had abandoned when it closed stores.
Of course, it also bought up many franchised locations in the process, believing that such a concept was better done through a corporate-run organization.
Still, it shows that a brand can more than survive a challenge like the one that Crumbl is apparently facing. How it moves forward will determine whether it is truly a long-term brand or just another fad.