Candace and Charles Nelson, owners of the Sprinkles Cupcakes chain, have a recipe for surviving the credit crunch: Don?t borrow to open new stores, choose locations in affluent areas and draw crowds with word of mouth.
The husband-and-wife team, both former technology investment bankers, used their own money to start the first Sprinkles store in 2005 in Beverly Hills, California. Now they?re expanding amid the slowdown, stoked by celebrities such as Oprah Winfrey, who promoted Sprinkles? $3.25 cupcakes on her talk show. For now, the economy hasn?t shown signs of curbing appetite for high-end cupcakes. Lines are still forming at Sprinkles and other West Coast chains, such as Kara?s Cupcakes in San Francisco.
While the treats cost more than supermarket fare, customers in the wealthy neighborhoods and suburbs where the stores tend to be located compare them to cappuccinos and lattes?affordable luxuries that provide comfort in a slump. ?It?s one of those things that don?t follow the cycles of the economy,? said Karl Berta, a Sprinkles customer who works as a trader for a small financial firm in San Francisco. ?It?s a lot for a cupcake, but it?s different?it?s new. There haven?t really been stores that specialise in cupcakes before.? As he spoke, Berta stood in a long line outside the Sprinkles in the Silicon Valley town of Palo Alto on October 11?the Saturday after the Dow Jones Industrial Average posted an 18% weekly drop, its biggest ever.
Sprinkles and Kara?s are building on the success of New York cupcake makers such as Magnolia Bakery, which opened in 1996. Unlike Magnolia, popularised by the TV show Sex and the City, the newer chains aren?t full-service bakeries?they just make cupcakes. A variety of single-store cupcake options are also springing up.
About 45% of Americans eat cake at least once every two weeks, said Harry Balzer, a food analyst at NPD Group in Port Washington. So the market is there, he said. The key is keeping buyers loyal after the novelty of cupcake-only stores wears off.
Winfrey?s endorsement has helped as well. She first promoted Sprinkles cupcakes on her show in February 2006 after receiving them as a gift from Barbra Streisand and since has featured them in her magazine, O Katie Holmes, Jessica Alba and other Hollywood celebrities also snap them up.
?Bloomberg