July 9, 2014

Is the great American cupcake craze over?

The demise of New York City-based Crumbs Bake Shop Inc., which closed its 48 remaining stores this week, showed the limits of getting Americans to pay almost $5 for a snack.

America’s decadelong cupcake craze, which transformed elementary school treats into trendy desserts, is on the wane.

The demise of New York City-based Crumbs Bake Shop Inc., which closed its 48 remaining stores this week, showed the limits of getting Americans to pay almost $5 for a snack.

After initially planning to open 200 stores 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 $14 million in loans.

Although Crumbs had specific 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 Inc. has opened 24-hour cupcake dispensing machines in six cities, aiming to give people a new reason to visit their stores. For most Americans, 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 in Washington, D.C., who keeps an eye on the lines at nearby Georgetown Cupcake. “It peaks really early and crashes.”

In the 12-month period that ended in April, cake servings at restaurants — including cupcake places — declined 1 percent, according to NPD Group Inc. That compares with an 8 percent 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, said Bonnie Riggs, an analyst at NPD.

“You’re not going to be buying these discretionary purchases unless you’re part of the 1 percent,” Riggs said. “It’s not going to be middle America.”

Dessert-focused places like Crumbs also suffer from competition from restaurants that carry more than just sweets. In addition, doughnut chains such as Dunkin’ Brands Group Inc. have proved their staying power, and 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 in New York. “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.”

One cupcake business on a growth streak is Overland Park-based Smallcakes A Cupcakery. It was founded in 2009 and now has more than 70 locations in more than a dozen states. It expects to add about 15 more shops in the next 12 months.

“You’ll see a shuffle as people taste the difference,” said Kevin Combs, president and chief executive officer of Smallcakes. “The high-quality, baked fresh every day cupcakes are going to be the ones that people will continue to buy. The cupcake places that are struggling are the ones that sell the exact same cupcake you can make at home or purchase at a grocery store.”

Combs said today’s kids — ages 6 to 14 — watch TV’s “Cupcake Wars” with their parents.

“So we have a market that is going to continue to grow for the next 30 years,” he said.

A new Smallcakes in West Des Moines, Iowa, has sold out of cupcakes every day since its Monday opening.

The Star’s Joyce Smith contributed to this story.

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