the cronut economy

The Cronut Business Has a Scaling Problem

So tasty. Photo: Konstantin Sergeyev

The cronut business needs to go global tomorrow.

That’s the message I take, anyway, from my Grub Street colleagues’ great coverage of the cronut craze. A cronut, if you’re unfamiliar, is the new hybrid pastry — half croissant, half doughnut — that is sweeping New York. Or would be sweeping New York, if people could get their hands on them. As of today, the only place cronuts are sold is at the Dominique Ansel Bakery in Soho, where people now line up down the block as early as 6 a.m. — two hours before opening — for the chance to snag one of the 200 cronuts the bakery produces daily. The competition for cronuts is so hot that there is now a sizable black market, with people charging as much as 800 percent markups for scalped cronuts.

Dominique Ansel, the inventor of the cronut, is trying to keep up with the boom as best he can. He’s reportedly “staffing up” to increase his production capacity and trying to point customers to his other, non-cronut pastries to alleviate demand, while keeping prices for cronuts locked at $5 apiece.

But these are the wrong moves. What he needs to do is stop making other pastries immediately and focus on getting his cronut business big, fast.

Ansel could justify raising cronut prices, which should rise naturally in an efficient market given a small supply and a huge demand spike. That’s what happens with Uber cars, airplane tickets, hotel rooms on holiday weekends, and any number of other industries with dynamic-pricing schemes.

But by insisting that he’ll keep the price of a cronut stable at $5, Ansel is ensuring scarcity, and all but promoting black-market activity. He’s doing that for a good reason, of course — part of the fun of the cronut craze is that they’re affordable but hard to get, making your ability to find one more a question of dedication than ability. And he’d be accused of gouging if he raised the price of a cronut to $200. Still, he’s putting a rather low ceiling on his profits.

Ansel’s main problem, as I see it, is that he’s experiencing the kind of growth typical of tech start-ups, but he’s limited by the supply constraints of a physical brick-and-mortar business. Fueled by appearances on Fox News, ABC, the Today show, and other big-time media outlets, the cronut could be selling in great numbers all over the country. But while a tech start-up can accommodate a huge spike in demand simply by adding a few more servers, Ansel would need to spend weeks buying real estate and baking equipment, hiring and training bakers, and coming up with a more effective distribution scheme than simply handing cronuts to customers over the counter, one-by-one.

Ansel — who has smartly trademarked the word cronut — has a bit of a head start on his competition. The process for making cronuts is notoriously tricky — you can’t just throw croissant dough in a deep-fryer. But given enough time and food-science expertise, big national bakeries will figure out how to make a decent facsimile soon enough. And when they do, it’s off to the races. These mass-produced cronut knockoffs (or “dossaints,” or whatever they’ll be called) may only be half as good as the original, but they’ll be good enough that diehards who used to wait outside Ansel’s bakery at 6 a.m. will get their fix elsewhere. (For a good comparison, look at the way the market for Silly Bandz — another consumer fad — was quickly saturated with knockoffs.)

Ansel could theoretically get a venture capital infusion and try to grow his business himself. But there’s no guarantee he’d be able to hold off imitators for long enough. Instead, he should try to get his cronuts into every city in America as fast as possible, while he still has a monopoly. The easiest way to do this would be to license the cronut’s secret recipe to a large bakery conglomererate like Entenmann’s and let the conglomerate make Dominique Ansel–branded cronuts on their own machinery, distribute them in their trucks, and put them in supermarkets on the shelf space already occupied by Entenmann’s products.

Alternately, he could strike a deal with Starbucks — like the $100 million deal Starbucks made to acquire Bay Bread last year — that would increase his production capacity and distribution while preserving some of the exclusivity associated with cronuts. (You’d still have to go to a Starbucks to get the authentic Dominique Ansel cronut, but you’d be able to get them in thousands of places around the world.)

Mass-producing cronuts, of course, would instantly dilute their appeal to a certain coterie of trend-seeking New Yorkers. And Ansel may well abhor the idea of a cronut sold in a Des Moines Safeway or a Starbucks in Shanghai. (He told Eater he’s focused on “quality over quantity.”) But Ansel must know that if he did manage to turn the cronut craze into a nationwide business, his profits from selling in supermarkets and coffee shops would make up for any lost New York sales a hundredfold, and could make him a household name.

The truth is that most celebrity chefs have made peace with mass commercialization — whether it’s Wolfgang Puck restaurants in airports or a Nobu hotel in Las Vegas. And if Ansel truly wants to capitalize on his famous pastry creation in a big way, he’d better hurry. Time for a cronut cash-in is running out.

Update: In a response to a set of questions I sent him before this column was published, Dominique Ansel tells me that he’s not interested in a wanton growth strategy like the one I’ve suggested. He writes:

I’ve said it once and will say it again: This bakery is not a cronut store. The flagship is very precious to me. You know, my name is on the door, and I don’t want to see it scaled out and lose its charm. There’s an integrity behind businesses that don’t do that, which I believe in. Will we expand? Yes, sure. But in a different and more creative way than just punching out the same model. I believe businesses should have heart behind it. Customers can tell the difference. And as a chef, you want to be able to look at your fellow chefs and stand tall, not feeling like you’ve sold out.

Ansel also points out that cronuts aren’t even his best-seller – that honor goes to his DKA – and adds, “I hope customers continue to find joy from cronuts for a long time, and from many other things from the bakery as well.”