This shouldn’t be a surprise to anybody, even those of us who really like cupcakes. Gourmet cupcakes are a terrible business to start or expand for a number of fundamental economic reasons.
One really good cupcake shop was an excellent business when the trend was in full swing, and it’s an OK one now. But trying to make a big chain out of it is a dicey business proposition, which the rapid decline of Crumbs illustrates perfectly.
Low barriers to entry
Anyone with an oven can make a cupcake; it doesn’t take any particular skill. That means that not only can people make their own treats for a fraction of the price, but that any neighbourhood bakery can start baking cupcakes as well.
Interesting flavours, different sizes, and other ways bakeries try to differentiate themselves can only do so much in the face of a dying trend.
Compare that to, for example, pizza. Decent home pizza is fine. But as Slate’s Matt Yglesias points out, you’re not going to make great pizza without spending $10,000 on an oven that can get really, really hot.
The pricing problem
Prices for an upscale cupcake can get pretty high, nearing five dollars at some places. But in the end it’s a commodity product. People are only willing to pay high prices when something’s novel or popular, and even then, only somewhere like New York where everything’s expensive anyway.
And with the trend waning even as more shops open, fewer customers will be willing to pay that high price, which is bad news for larger chains.
The price also means people are unlikely to pick up a box of cupcakes for the office very often. They’re essentially asking people to pay a premium for not having to slice a cake. That’s not a sustainable business model.
Stores can branch out into coffee, lower priced desserts, or other options. But then they’re just entering into an even more saturated market.
High costs, falling sales
Because they’re a highly-priced novelty item, cupcake stores are best suited for densely packed urban environments. That’s why there are 19 Crumbs locations in Manhattan alone.
Highly trafficked locations mean high rent. Declining sales means that’s a big problem. And cheaper, suburban locations are unlikely to be particularly profitable.
The power of habit
The most successful businesses become a habit for consumers. You get your morning coffee at Starbucks, you prefer Coke or Pepsi, and you have particular brands of deodorant or shampoo.
The gourmet cupcake shop sells a perishable product that’s extremely bad for you. People simply aren’t going to go every day.
Cupcakes exploded in the years after Magnolia Bakery was featured on “Sex and the City.” A number of imitators, and even television shows, appeared in the years afterwards.
Now there are dozens of shops and even cupcake trucks. The Wall Street Journal spoke to one Jersey City baker who’s seen two specialty cupcake businesses open in her area in the past two years.
Not only do these stores cannibalise each other, sometimes within the same chain in the case of Crumbs, they just accelerate the speed at which people get sick of the trend.
Big cities can support a few of these shops, but nowhere near the number we have now.
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