Sunday 26 October 2014

Scone-makers delighted as decade-long fad for cupcakes has lost novelty factor

Lauren Coleman-Lochner

Published 13/07/2014 | 02:30

HARD TO SWALLOW: Demand for cupcakes is on a downward spiral
HARD TO SWALLOW: Demand for cupcakes is on a downward spiral

With cupcake-selling bakeries and specialist shops popping up on the Irish high streets and in shopping centres, the trauma suffered by US chain Crumbs Bake Shop could be a salutary tale as consumer trends rapidly change.

The frenzy, which spawned treat-dispensing ATMs and a $42 colossal cupcake that serves eight people, came to a shuddering halt last week when Crumbs Bake Shop shut all 48 of its US stores. After initially planning to open 200 locations nationwide, the chain struggled to expand beyond its home base in New York and a few other pockets of affluence.

The company lost tens of millions of dollars and now faces default on more than $14m in loans.

While Crumbs had unique challenges, including the demands of being a public company, the industry faces a painfully-crowded market for baked goods and is seeking ways to enliven a fad that's lost its novelty. Sprinkles Cupcakes has opened 24-hour cupcake machines in six American cities, aiming to give people a new reason to visit their stores. For most consumers though, the excitement may have run its course.

"When you see something that gains adoption so rapidly, that suggests it might also decline rapidly," said Neeru Paharia, an assistant professor of marketing at Georgetown University who keeps an eye on the line at nearby Georgetown Cupcake in Washington DC. Demand doesn't hold up over the course of the day, she said. "It peaks really early and crashes."

In the 12-month period ending in April, cake servings at restaurants - including cupcake stores - declined 1pc, according to NPD Group. That compares with an 8pc rise in the corresponding period of 2011, when the cupcake trend was going strong.

Typical Americans lack the cash to turn gourmet cupcakes into an everyday purchase, even with celebrities like Oprah Winfrey touting them. That means the market at best was small, according Bonnie Riggs, an analyst at NPD in Rosemont, Illinois.

"You're not going to be buying these discretionary purchases unless you're part of the 1pc," Riggs said."It's not going to be middle America."

Dessert-focused places like Crumbs also suffered competition from restaurants that carry more than just sweets. And while chains such as Dunkin' Donuts has proven staying power, their food is seen as more versatile.

"People are not going to eat a cupcake for breakfast," said Peter Saleh, an analyst at Telsey Advisory Group. "It's not a very sustainable business model where people are going to come in and eat the same thing every day. You eat a cupcake every day and you'll be dead."

Crumbs, which began in Manhattan, has its defenders. Rhonda Barginear, a 62-year-old retiree from Connecticut, has been visiting a midtown Crumbs shop once a week ever since her grandson was born. "We're really disappointed," she said.

Two other chains, Sprinkles and Magnolia Bakery, say they're avoiding Crumbs' fate by expanding slowly and trying new things.

"We've been mindful of where and when we've expanded," said Sara Gramling, a spokeswoman for Magnolia Bakery in New York. "We know it's not always interesting for our customers to have that one product category of cupcakes, so we're always trying to add new items for them to choose from."

Even so, Crumbs' downfall rattled an industry that was hot enough in 2009 and 2010 to spawn two reality TV shows: Cupcake Wars and DC Cupcakes. Crumbs was hailed a "breakout company" by Inc. magazine in 2010 and floated the following year. Crumbs co-founder Jason Bauer vowed to open 200 locations by the end of 2014, saying the company had great economics.

Instead, its losses widened and Crumbs began closing stores, shrinking from 65 locations earlier this year to the final 48.

©Bloomberg

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