Issue #34: Crumbl Explores Acquisition

Good evening! I hope everyone had a nice weekend. If you haven’t gotten a chance to read last week’s issue, Issue #33: Bowls, Salads, Wraps & More, where I highlighted 10 rising salad/bowl concepts. I highly recommend it! Thank you for all the positive responses to that issue and I really appreciate people sending their favorites. If you have a favorite salad/bowl place not listed, don’t hesitate to send it over! This issue is going to be slightly abbreviated due to heavy travel for me this week, but don’t fret, I will be back with a full issue next week!

Crumbl, the cookie and cake store with 1,000+ locations, a new menu every week, and a strong social media presence, “announced” this past week it is exploring a sale of its business for $2B. PE firms have been purchasing franchises recently, most notably Jersey Mikes was acquired by Blackstone. It makes sense they are looking for an exit now. Overall, I find this sale interesting for two reasons. First, it is one of the most successful retail businesses in terms of growth right now and one of the first retailers to be social media first. Second, it is a mix of franchises and non-franchise stores, which means the acquisition could be complicated and require advanced maneuvering.

Let’s dive into point #1 first. Crumbl has always treated its menu like a hypebeast clothing brand, by doing weekly “drops” of its menu. While adding difficulty to logistics, doing weekly drops generates a ton of buzz around the brand and new flavors. It allows people to have a conversation about the menu, albeit a similar conversation, every week. Plus, because in addition to the drop format, the menu is changing weekly, it gives people a reason to purchase the item and talk about it. Crumbl was most popular on TikTok, where it had almost 10M followers and a highly active “#crumblreview” hashtag. It will be interesting to see how the impact of what happens with TikTok’s ban or not being banned affects the sale. I could see a potential buyer being weary, rightly so, that the major platform of user acquisition may not exist shortly. However, I believe the brand is so strong now and the social media/drop strategy can be modified to any platform. Finally, another aspect of its strategy is utilizing partnership advertising, similar to PopUp Bagels. Look at this week’s menu above, where Crumbl partnered with Oreo. The combination of “drop” menus, changing up the menu weekly, social media focus, and partnership advertising are some of the many reasons this remains an interesting company, even if some of the hype has died down

Crumbl is a franchise, which means the company owns some locations and also some locations are owned and operated by individuals, who purchase the right to do so. At Crumbl, the breakdown is roughly 85% franchise and 15% company-owned. The benefit of launching franchises is that it allows you to launch locations faster since you have access to more capital (the franchisors are the ones putting up the funds to open the store and paying commissions/royalties back to the corporation). Since there is a franchise involved, the acquisition may look a little different. Whoever is purchasing Crumbl is not purchasing the entire company, unless they reach separate agreements with each individual franchisee. Instead, what the acquirer gets is the brand, trademarks, operational processes, supply chain infrastructure, and any corporate-owned stores. The operations would run similar to before the sale, unless the new owner makes changes. Whoever the new owner is believe that they can grow the entire business. On the sale logistics front, given all the recent acquisitions of franchises by private equity, it should not be an issue getting this acquisition through from a structural standpoint.

On the other hand, I am very curious to see if this acquisition pricing wise holds up. Here are the numbers: Crumbl is valuing itself around $2B, with revenues of ~$1.3B (system-wide sales), and EBITDA of ~$150M. For some context, Jersey Mike’s was doing $3.3B in system-wide sales when it was purchased by Blackstone for $8B. This tells me either this valuation is undervaluing or overvaluing Crumbl. As mentioned previously, there are some genuine concerns about the growth ability of Crumbl (average unit volume has been falling for the past two years) and the uncertainty around their main social media platform. Crumbl is already the largest cookie chain in the United States, with Mrs. Fields and Insomnia in second at around 200 locations each. That is why you see Crumbl try to become not just a cookie chain but a broader bakery/dessert chain. Dunkin has 13,000 locations and Krispy Kreme has 1,400.

One final thought - I am very curious to see how this impacts PopUp Bagels (9 Locations), which has just launched franchises and has a very similar strategy. For some context, the leaders in its space Brugger’s, has 190 locations, and Einstein Bros, has 700 locations. It has room to grow and is exciting to see what it can become.

• Summary: An NYC smash burger chain that has grown to be popular due to its quality food and option for late-night eats. The stores tend to be smaller footprint and focus on takeout/delivery.

• My Take: 7th Street Burger has adopted the dominate your local market first playbook. I love this strategy. It will be interesting to see when and if they expand, but right now it is very impressive the scale they have reached already. Fun fact: they are also involved in Apollo Bagels - the small bagel chain that has blown up recently.

• Founder(s): Kevin Rezvani, Paras Jain, Chuck Patel, Vishal Patel

• Funding: Unknown

• Number of Locations: 21 locations (all in NYC)

• Social Media Following: 107K on Instagram

Additional Links:

1. A very interesting deep dive into Panso, a hospitality and customer relationship management system for hospitality businesses (read more here)

2. Wondering some of the ins and outs of retail (here is a great guide)

3. UWS pizza institution Mama’s Too is expanding (see more here)

4. ShopMy raises $77.5M to help connect creators and brands to collaborate on marketing (read more here)

5. Guitar Center reports 6.6% holiday season sales growth and its best holiday season in years (read more here)

6. Amazon Go is closing more locations (read more here)

7. Fanatics Collectibles is launching its first retail location, interestingly in London (read more here)

8. Fortnite partnered with c-store Sheetz to launch a virtual purchase within Fortnite (read more here)

9. How to build a catering program as a restaurant (read more here)

10. Yogurtland sees growth based on focusing on improving its digital experience with digital ordering and a new app (read more here)

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