Gigi’s Cupcakes filed for bankruptcy! Here’s why folks should stop freaking out.

Jan 11 2019 2 Comments Tags: trending

The Gigi's Cupcakes bankruptcy doesn't mean what you think it does, and here's why...

Image Gigi Butler of Gigi's Cupcakes. Gigi's Cupcakes recently filed Chapter 11 Bankruptcy to manage debt obligations.

Its not every week that a girl gets to write about the same company in the span of 3 days, but here we are…staring at a headline that names Gigi’s Cupcakes as filing for bankruptcy.

As luck (or irony) would have it, on the same day that I publish an article about a pair of former NFL players teaming up to open a Gigi’s Cupcake franchise in Texas, the news of Gigi’s Cupcakes broke about them filing bankruptcy.

Of course, in true Sweet Community style…I could see the panic setting in from sweet business owners questioning everything from whether this meant the gourmet cupcake trend was coming to an end to whether this was an indication that the sweet market was oversaturated. To both of those comments, I say (in my professional opinion) and based on my research...this bankruptcy is not an indication of that at all!

To understand why I say that, we all need to take a step back and understand how Gigi’s Cupcakes landed in bankruptcy court on Jan 4.

As I mentioned, in my last article, Gigi Butler started Gigi’s Cupcakes in 2008 in Nashville, TN as the demand for gourmet cupcakes was on the rise. Gigi’s story is most notable for the fact that she opened her first store with only $33 to her name.

How is that possible you ask? Well, reportedly…homegirl bet on herself “and after being turned down by various banks” she funded the business by using $100,000 from her personal credit cards.

Ahhh…that’s scary, but it paid off!!

By 2013 (only 5 years later), her franchise locations grossed an estimated $43 million in sales…BUT that’s not the end of the story.

In 2016, Gigi received $6 million when she sold 100% stake of her business to FundCorp, the company who is behind the bankruptcy filings. At that time, “the chain had 92 locations.”

So to be clear…Gigi Butler (a fellow sweet maker, someone who is just like us) bet on herself, built a brand from scratch with $33 to her name and within 8 years sold it for $6 million! Which definitely feels like WIN and strong pay day in my book!

Now…on to the bankruptcy.

Based on my research, it appears that things for Gigi's Cupcakes started going south after 2016, once Gigi was out of the picture…well except when she was doing photo ops as a brand representative.

As the story goes, FundCorp took out a $9.2 million loan from Equity Bank in the summer of 2018. So, here we are six months later and the company is claiming “a liquidity crisis” and that they need cash immediately to “pay employees and to pay for ordinary operational expenses.”

Oh, but wait…there’s more!

In 2017 (again), after Gigi was no longer involved in operations and, I’d like to imagine she was off sipping on piña colada and counting her $6 million…FundCorp was sued by a group of 18 Franchisees over reportedly raising “prices on key ingredients to an unsustainable level.” These prices made a significant blow to these franchises' bottom line and (as a result) some had to close their doors.

According to the Franchise Times, one franchise owner Bruce Speidel, said “I think we reported a $30,000 loss the first year (2015).” He goes on to say, “We were an average store, we were smack dab in the middle and we had to close within months of the supply change.”

So, I say all of this to say…calm down sweet peeps! A headline doesn’t always tell the entire store.

Is the gourmet cupcake trend coming to an end? Probably not, but can anyone really call it?

At the end of the day, this Gigi’s Cupcakes "bankruptcy thing" doesn’t feel like its related to all of that. Even with all of the research I did, and let me tell you…your girl went down a complete “rabbit whole” on this one”...my gut is telling me that this bankruptcy is not the result of decreased demand or a bad product. It really feels like a mismanagement problem on the part of the private equity firm that bought Gigi out back in 2016.

Oh…and to be clear…FundCorp filed Chapter 11 Bankruptcy which does not mean that the company is closing. Without going too far into details, Chapter 11 Bankruptcy is a restructuring of debt. This means that a company is given the opportunity to develop a plan to repay the money they owe but on terms that are more feasible without having to liquidate (or sell off) their assets (i.e. property they own).

Also, to clear up one other bit of misinformation floating around, the Gigi’s Cupcakes bankruptcy is on the corporate level which means that the impact to individual franchise owners is not exactly clear at the moment. To better understand what I mean, you’ll need to understand how franchises work.

As I mentioned before, we discussed this in a Business Term of the Week training in the Sugar Coin Academy. However, to make a long story short, when a business owner enters into a franchise they are granted certain rights like the ability to use brand trademarks, trade-names and possibly business systems and processes to produce and market a good or service.

That being said…yes…you may have a Gigi’s Cupcakes in your neighborhood, but that business didn’t just file for bankruptcy if it is a franchise.

I think Gigi’s Cupcakes of Montgomery, AL put it perfectly in a post on Facebook Wednesday when they said….”Simply put, Gigi’s Cupcakes LLC is the franchisor that owns the rights to the Gigi’s Cupcakes Brand. Our local stores, as well as the numerous “franchisees” across the country, pay Gigi’s Cupcakes LLC monthly what is known as a “royalty” to operate under the Gigi’s Cupcakes name. While we are given some support locally in exchange for the royalty, the financial situation of Gigi’s Cupcakes LLC has no direct impact on our stores. We are a 100% wholly and locally owned completely separate entity.”

So…ALL of that said…let’s all take a breath.

When you see your sugar sisters or sweet friends making comments about how Gigi’s bankruptcy may mean the beginning of the end of gourmet cupcakes…just send them this way, direct them to this post, and let them know that there’s more to the story than meets the eye.

Hopefully, this restructuring will help corporate Gigi’s get their debt under control, but at this point only time will tell.


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Cydni Mitchell is the owner of Sweet Fest the company that helps bakers and sweet business owners in their sweets businesses.

 

About the Author

Cydni N. Mitchell (aka Cyd) is the bakery and Sweet Business Coach behind Sweet Fest®. Based in Atlanta, GA, Sweet Fest® is an online company that supports the business needs of the Sweet Community in the areas of professional development, marketing and branding. By trade, Cyd is an accountant & financial analyst with a Masters from the Kenan-Flagler Business School at the University of North Carolina at Chapel HillLearn more.

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2 Comments

  • Excellent point Sabrina!! It’s kind of like when you hear about how things fell apart after you left your old job, and you just look at your former co-works like…“sucks to be you! Glad I left when I did!” LOL!!

    Cyd on
  • You hit the nail on the head! Gigi’s should have had a long convo with the originator on operations best practices before she went and started sipping on her Margaritas. Now they rolling down the hill trying to pull it all back together. Heck Gigi is probably sitting back with her shades on smiling and shrugging her shoulders 6 million deep. Haha!

    Sabrina on

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