Bummer... This just in from Newsweek:
The Cupcake Bubble
Better enjoy that vanilla cupcake with espresso-ganache icing today. This sugar rush is going to end with a crash.
By Daniel Gross
Aug 14, 2009 | Updated: 5:46 p.m. ET Sep 3, 2009
In recent years, the response to a popped economic bubble has been to create a new one. The pierced dot-com/telecommunications bubble paved the way for the housing/credit bubble. That punctured bubble may be giving way to an alternative energy bubble. But I've got my eyes on a smaller, but no less revealing, one: the Cupcake Bubble.
The current recession, which started in late 2007, laid the groundwork for the recent proliferation of cupcake stores in American cities. Lots of people know how to make really tasty cupcakes, which are simple products with cheap basic ingredients. Baking cupcakes doesn't require a large amount of capital investment, and it's relatively easy to scale up without hiring lots of workers. It takes about as much labor to produce three dozen cupcakes as it does to make one dozen. Meanwhile, storefronts in heavily trafficked areas became cheaper with the decimation of local retail. And so in the past year, casual baking has turned into an urban industry.
The trend started, as most trends do, in Los Angeles and New York. In Los Angeles, Sprinkles, which bills itself as the first cupcake bakery, has expanded from its base in Beverly Hills to five locations in California, Texas, and Arizona—with 16 more outlets in the works. Crumbs, started six years ago on Manhattan's Upper West Side, is up to nearly two dozen locations: five in Los Angeles, and 18 in chi-chi zones of the New York metro area—New Canaan, Conn.; Westfield, N.J.; East Hampton, N.Y.—with three more on the way. Magnolia Bakery, immortalized in Sex and the City, has three locations in Manhattan. Washington, D.C., is getting in on the act, too. As the Washington Post notes, "at least half a dozen cupcake bakeries have opened around Washington in the past 20 months, and more are on the way," with Georgetown Cupcake and Red Velvet out front.
The cupcakeries are succeeding for a few reasons. They're peddling a product that is simple, obvious, and generally affordable. Most of the new joints charge about $3 for a cupcake. And they're certainly a useful rebuke to Starbucks, whose industrialized baked goods are barely edible. (I suspect that the coffee chain's practice of placing sausage and egg muffins in the glass cases and letting them sit there all day must depress sales of the adjacent muffins and scones.) And yet I'm suspicious of the cupcake trend for historical, financial, and, ultimately, gastronomic reasons.
In America, bubbles form because any good business idea gets funded a dozen times over. That's the American way. Cupcakes are now showing every sign of going through the bubble cycle. The first-movers get buzz and revenues, gain critical mass, and start to expand rapidly. This inspires less-well-capitalized second- and third-movers, who believe there's room enough for them, and encourages established firms in a related industry to jump in. In New York, the Crumbs is joined by a cupcake truck, Sweet Revenge, Babycakes, and Sugar Sweet Sunshine. The Post notes that in D.C., "established bakers such as CakeLove, Just Cakes, Furin's, Best Buns and Baked & Wired are all in on the act." Operating in what is essentially a commodity market, newcomers try to distinguish themselves by offering twists on the familiar formula. Hello Cupcake, conveniently located near Slate's D.C. office, specializes in organic, seasonal, and local ingredients. Babycakes offers vegan cupcakes. Coming soon to a precious storefront in a gentrifying neighborhood of Brooklyn: sustainable cupcakes made of flour ground from organic wheat raised in Prospect Park, served in wrappers recycled from old copies of the New York Review of Books.
I'm suspicious of the durability of the cupcake boomlet on economic grounds, too. One colleague says the cupcakes are "sort of the baked equivalent of Bush's tax cuts." Why? "Their economic rationale withstands any and all conditions. When the economy is going well, people can afford little extras like cupcakes. When the economy isn't going well, people can afford only cupcakes." Indeed, they are being pitched as affordable luxuries. In an age when discretionary, feel-good spending is at a nadir, cupcake bakeries are trying to persuade people to trade up from cheaper sugar-delivery vehicles (such as, say, a doughnut). It's telling, to me, that the Crumbs that just opened in Westport, Conn., is in the back of a Tiffany's that opened a few years ago. With employment rising and wages under pressure, the larger trend is for consumers to trade down—not up.
What's more, cupcakes aren't so cheap. With tax, many of these cupcakes run close to $4 a pop. Pair a high-end cupcake with a coffee and your snack costs the equivalent of a satisfying sandwich. Crucially, the sugar rush that $4 buys lasts only as long as it takes to walk back to the office. By contrast, an expensive latte can keep office drones humming for the whole afternoon. And while cupcakes doubtless offer good margins, a baker has to sell a lot of them to make real money. That will surely tempt many entrepreneurs to start mass production. But the minute you start baking at a central location and trucking to the goods over long distances, the value proposition inherent in the product can grow stale, as Krispy Kreme found.
The real problem, though, is that the cupcakes are essentially reactionary. In the last few years, as the dread foodie virus has spread, right-thinking Americans have been forced to become experts about a wider range of products: coffee, cured ham, cheese, and, most recently, chocolate. Chocolate has become more sophisticated, and, hence, more complex and less sweet. Urban chocolatiers have fled from the soothing milk chocolate of our youths to dark, bitter, confections combined with spices and chili peppers. Cupcakes, by contrast, are willfully uncomplex, familiar, and comforting, as the menus of Magnolia and Sprinkles show. But as reactionaries often do, they've gone too far. I've tried a bunch of these new cupcakes and find them to be way too sweet—sugar on top of sugar. This morning, a colleague came in with a dozen small cupcakes from Crumbs, each sweeter than the last. A diabetic would have gone into shock simply looking at the package.
Cupcakes are having their moment, no question, and many could make sweet profits. But remember what always happens after a sugar rush: a crash.
Find this article at http://www.newsweek.com/id/214866
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