In July, Crumbs, a publicly listed cupcake chain that at one point had more than 60 locations, filed for bankruptcy, signalling the end of the fancy cupcake craze. Crumbs’ fate is in many ways symptomatic of our over-reliance on social media and the growing consumer digital footprint as grounds from which to evaluate business opportunities. Crumbs, and those bankrolling it, went all in on the business based on the buzz accompanying cupcakes back in 2011 (when the company went public), only to later discover that the buzz was not supported by lasting changes in the marketplace.
There are important lessons to be drawn from Crumbs’ demise. First among these is that the pendulum has swung too far toward online buzz at the expense of market intelligence in evaluating business opportunities. The ease with which we can consume the buzz has trumped old-fashioned due diligence on how markets are shifting and trending. Before going all in on an opportunity it behooves us to assess market traction. Are businesses bought into a concept to the point that they’re tying their fates to it in meaningful numbers? Cupcakes never met this standard of proof. At their height, they only showed up on 2% of menus nationally. At that level, the average consumer would have a very hard time buying cupcakes in spite of being inundated with buzz about them.
This is not to say that online buzz isn’t valuable. It can undoubtedly help us predict market shifts. However, if there is a second lesson to be drawn from Crumbs’ experience, it’s that we need to be more analytical and disciplined in triaging the buzz. There are many pitfalls to avoid. First, we have a tendency to monitor Internet chatter at a global level, while the meaningful signals are often the ones that exist at a local or segment level. “Averages lie” as the famous saying goes. Meanwhile, we have psychological tendencies (availability bias, recency bias, shiny object syndrome, etc.) and corporate values (agility, leanness, etc.) that make us highly reactive.
At Food Genius, we’ve developed a framework that helps foster a blended approach to evaluating business opportunities. The intent is to categorize the opportunities that exist at the intersection of buzziness (as measured through online listening) and trendiness, as measured through market intelligence:
The application of this framework forces us to reflect on a couple of key questions. First, how does one know if an item is high trend?
Measure adoption: In the food industry, menu penetration is a signal that businesses are tying their fates to an item. For us, this means that an item appears on more than 5% of unique menus. This threshold is meaningful for a couple of reasons. First, we tend to see a natural inflection point at the 5% mark for many items. Second, based on about 750,000 restaurants in the nation, 5% is enough to indicate a market shift. This threshold will vary from industry to industry and is partially a judgment call. The important thing is to have the evaluation be governed by some kind of pre-agreed upon threshold.
Introduce a time dimension: The average lifespan of online buzz is short. Cronuts for example hit their peak on Google Trends in August 2013 and only six months later were down to 28% of their peak. Trends on the other hand have staying power. For us, an item needs to have appeared on a greater percentage of menus over the last year and in the most recent quarter to be a legitimate trend; again, this threshold will vary from industry to industry.
Re-frame the opportunity: Despite the buzz surrounding Sriracha sauce at the moment, it only appears on 2% of menus and is too specific to be considered a trend. On the other hand, it’s parent hot sauce has seen menu mentions rise from 19% to 21% since last year, and is relevance in almost every segment. If Sriracha is the tree, hot sauce is the forest.
Next, it’s important to define how one goes about taking a more analytical and disciplined approach to online buzz. How can you use buzz as a predictive mechanism? In the food industry, we might ask the question as: “how do you know whether an item may one day appear on 5% of menus?”
Scalable market conditions: If the local conditions under which an item has grown popular exist in many other markets, you might get more traction. For example, chorizo chili has had a lot of buzz and is trending in New Mexico and parts of the Mountain West, probably because of the large Latino immigrant community and their influence on local tastes. This condition is not unique to New Mexico. While Chicago and New Mexico look nothing alike on the surface, they both have large Latino immigrant communities. Chorizo chili isn’t trending in Chicago yet, but you could see it doing so, and if these similar-looking markets are all added up, you begin to see a path to 5%. The key is to identify whether there are markets that may mimic the trajectory of a lead market, based on having shared conditions.
Control the narrative: Sometimes you can take control of the narrative in such a way that you’re able to influence the likelihood of something becoming a trend. Right now we’re witnessing a trend around artisan fries. You can trace the origins back a few years to buzz around disco fries, which were in the midst of a comeback, particularly on the East Coast. In the meantime some enterprising restaurateurs noticed buzz cropping up around things like soft cheeses and high-end oils and fats. They cleverly recognized the opportunity that existed at the intersection of these disparate and seemingly unrelated trends and unprompted, decided to combine them. Now you’re starting to see items like poutine and Belgian frites popping up on more and more menus. If we aggregate the universe of disco fries, poutine, Belgian frites, and so on, you quickly get to 5% and see a trend occurring around the parent of these items–artisan fries.
Population coordination: Modern marketing communications and supply chains are allowing us to aggregate populations into markets where we couldn’t before. A good example is Taco Bell’s “Live Mas” campaign, which was used to promote and turn the Doritos Locos Taco into a cultural phenomenon. The product goes against everything that’s trending at the moment in tacos. It’s not ethnic or artisan in any shape or form. It’s just plain decadent. However the “Live Mas” campaign homed in on the disparate (and underserved!) population of decadent taco eaters and asked them to share their experiences with the Doritos taco, which in turn fueled the popularity of the item. As this example illustrates, the success of an item that is popular everywhere in small doses can be amplified through thoughtful coordination.
Scalable supply: There are many items whose supply can’t scale quickly enough to support their existence as a trend. A few years ago, goji berries were generating a lot of buzz and being viewed as a way to drive price premiums in categories like nutrition bars, fresh salads, shake beverages, and more. However goji berries are grown in remote parts of the world and their supply is limited, effectively capping their ability to achieve meaningful market traction, at least in the short- to medium-term, after which time the buzz is likely to have passed. Despite their buzz, goji berries are destined to be niche because there just isn’t enough supply to support the 5% threshold.
Operational flexibility: Whether buzz ever ends up being accompanied by lasting market changes may be irrelevant if you conceptualize buzz as free marketing and you have the operational flexibility to leverage its slipstream. In 2013, McDonald’s was on the forefront of the spicy food trend when it altered existing items with spicy sauces, which can be brought to market far faster than launching an entirely new item. In short, if you’re able to react quickly enough, you may be able to ignore the 5% threshold.
Properly evaluating business opportunities requires a blended approach. We can make good decisions when we listen to our social channels and combine that insight with rigorous market intelligence. Paying attention to the wrong signal is a distraction; acting on the wrong signal can be costly, as Crumbs and its investors learned this summer. Next time you’re evaluating a business opportunity, don’t let the buzz of the day set you off course.