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The Cupcake Craze Is Not Over

Daily Ticker

Reports of the cupcake’s demise are premature. The popularity of the cupcake – an all-American sugary treat that comes in various (and delicious) fillings, frostings, and decorations – exploded in recent years with gourmet and artisanal shops popping up across the country.

Cupcakes soon became a “trendy” and stylish dessert to indulge in and cable networks aired shows like Cupcake Wars and DC Cupcakes that helped fuel more demand for cupcakes.

Must all good things come to end? According to The Wall Street Journal, the cupcake bubble has burst and the phenomenon that took Americans by storm and shattered people’s diets may be officially over. The paper cites the downfall of Crumbs Bake Shop (CRMB) – a husband and wife owned cupcake chain that opened its doors in March of 2003 on Manhattan’s Upper West Side.

Crumbs cupcakes -- exalted for their enormous size (they’re about 4 inches tall) -- quickly became a fan favorite and the leader in the cupcake craze. But the company’s rapid growth may also be the root of its current problems.

Crumbs cupcakes are now sold in 67 locations in 10 states and Washington, DC. The company debuted on the Nasdaq market in June 2011 and was trading above $13 a share, becoming the public face of a growing cupcake movement. The stock has fallen to $1.37 a share, a decline of more than 55% in the past six months. Crumbs’ net sales fell 2% in the fourth quarter of 2012 and gross profit decreased 8.7% to $5.7 million compared to the same quarter in 2011.

Dana Cowin, editor-in-chief of Food & Wine magazine and an unabashed cupcake lover, says Crumbs’ fate may be unique.

“There are so many Crumbs, it’s like a chain food now,” she says. “Cupcakes as a chain food are not so special. If they don’t feel special you feel like you’re overindulging.”

Cupcakes became so well-loved because of the sentimental factor: “They remind us of our childhood," Cowin explains. Cupcakes quickly transformed from being a mom-and-pop specialty to a mass-produced good – a bad circumstance for any food that is supposed to arouse feelings of happiness and nostalgia. Even though the cupcake may be going through an existential crisis, Cowin says, cupcakes will not go down without a fight.

“I don’t think any cupcake will ever suffer the horrible fate of Krispy Kreme,” she declares.

Krispy Kreme (KKD) was the rage in the late 1990s and early 2000s, when individuals would wait in long lines to bite into the doughy and saccharine dessert. The company expanded too aggressively and Krispy Kreme's appeal – an exclusive, hard-to-find treat – faded. The stock has recently rebounded from its all-time low but it's still down fourfold from its 2004 high.

Cowin says local cupcake shops that focus on being different and unique will continue to draw customers and make a profit. But their future always depends on the fickle consumer, one who has recently gravitated toward specialty doughnuts and French macarons. These goodies cost the same as cupcakes – about $3 to $5 per piece – and are challenging the cupcake’s current reign. And in bad economic times, these feel-good desserts are exactly what consumers crave most.

“It is the ongoing affordable luxury,” Cowin says. Americans may be skipping fancy dinners but everyone can afford to treat themselves to a cupcake, she adds.

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