It is probably more subtle than that. You have to have a surplus of goods so there is selection. There needs to be enough pastries on display so that people will be able to find something they want.

And when money was flowing, he could afford to sell pastries at a loss to keep his customers happy. When he couldn't afford it anymore he was forced to change. Perfectly normal. What is out of the ordinary is how he reexamined his assumptions and created a better solution -- instead of hamhandedly cutting pastries altogether.

I think it was more he changed the product mix to something that his customers wanted. He replaced a variety of custom/daily baked goods (cookies, muffins, croissants and whatever else), that he was struggling to sell out every day at likely a buck or two with 25 cent store bought donuts that led to more sales of his higher margin items.

Exactly what the guys above said and more. With a coffee shop, you can't order just-in-time, rather you are forced to order a surplus by the baker. They don't want to deliver 2 donuts and a bagel, rather they make you order a bucket of stuff... every day! Now John doesn't have to do any of it; all he needs is to wake up 20 minutes earlier and put the bread in the oven!