cupcakes

Icing is coming off America’s cupcake craze

Cupcakes became an American cultural and economic phenomenon over the last decade, with gourmet cupcake shops proliferating across the country, selling increasingly elaborate and expensive concoctions. But, the craze for $4 gourmet cupcakes appears to be peaking…
The Wall Street Journal reports that shares of high-profile cupcake player, Crumbs Bake Shop, have fallen sharply, and demand at some bakeries has flattened.

The craze hit a high mark in June 2011, when Crumbs Bake Shop, a New York-based chain, debuted on the Nasdaq Stock Market. Its creations — 4″ tall, with fillings such as vanilla custard, caps of butter cream cheese, and decorative flourishes like a whole cookie — can cost $4.50 each.

After trading at more than $13 a share in mid-2011, Crumbs has sunk to $1.70. It dropped 34% last Friday, in the wake of Crumbs saying that sales for the full year would be down by 22% from earlier projections, and the stock slipped further this week.

Crumbs in part blamed store closures from Hurricane Sandy, but others say the chain is suffering from a larger problem: gourmet-cupcake burnout.

“The novelty has worn off,” says Kevin Burke, managing partner of Trinity Capital, a Los Angeles investment banking firm that often works in the restaurant industry.

Crumbs now has 67 locations, nearly double the number it had less than two years ago. “These are singularly focused concepts,” says Darren Tristano, executive vice president at Technomic, a Chicago research and consulting firm that specialises in the food industry. “You’re not going to Crumbs every day.”

“It’s a short-term trend and we’re starting to see a real saturation,” he adds. “Demand is flat. And quite frankly, people can bake cupcakes.”

Crumbs last week warned that it now expects 2013 sales to reach about $57-million, sharply off its previous estimate of $73-million…

… As a business, making cupcakes has a relatively low barrier to entry and the field has become saturated with competitors, including individual bakeries, chains and grocery stores. Gigi’s Cupcakes USA, based in Nashville, Tenn, has opened 85 stores in 23 states since 2008 through its franchising system.

Crumbs rivals include people like Cynthia Hankerson, owner of the three-year-old Cupcake Salon in Jersey City, NJ. Sales at her bakery cafe are slipping and she said she suspects the cupcake fad may be waning. Last year, a typical Saturday brought in an average of $600 to $700 in sales for her signature cupcakes, which come in flavors like pistachio, amaretto vanilla and strawberry banana. But now “we’re lucky if we get $300,” she says. “People get tired of things,” the 42-year-old adds.

Even so, at least two other specialty cupcake businesses have opened up in her area within the past year, selling cupcakes at higher prices. “It’s very competitive,” she says.

Demand for gourmet cupcakes exploded in the early 2000s after Magnolia Bakery, another popular New York cupcake chain, was featured in the HBO series “Sex and the City.” The sweet treats have since become central characters in TV shows like the Food Network’s “Cupcake Wars” and TLC’s “DC Cupcakes.”

Magnolia, now with seven stores in urban areas of North America and four overseas, remains consistently profitable through “close attention to managing expenses,” according to Sara Gramling, a spokeswoman. Sales are up over last year, she said, though she declined to say by how much. Less than half of sales at the closely held company are cupcakes, which cost up to $3.50 each. The remainder are desserts such as cheesecakes, pies and pudding….

Wall Street Journal: Read the full article