Would you pay $4.50 for a fancy cupcake?
Crumbs Bake Shop, the nation's largest cupcake chain, is going public in a $66 million merger with 57th Street General Acquisition Corp. That got us thinking about how high-end cupcake shops such as Crumbs whip up their prices -- on average about $4 per treat.
There are the obvious costs for ingredients such as flour, sugar, butter, chocolate, food coloring and sprinkles. The finest quality baking ingredients aren't cheap, of course. Decorative sprinkles can cost more than $4 for a 4 oz. supply. Often special baking tools are required for transforming the average bakery dessert into a decadent work of art that can fetch gourmet price.
Plus, loads of materials, including paper and boxes, are needed to dress up the creations and send them out the door. And, lest we forget, someone needs to do the baking. Multiply orders by the hundred dozen required to make a profit, and you've got the makings of a cupcake business.
But the crÃ¨me de la crÃ¨me of cupcake companies pay top-dollar for prime retail locations, so they can be close to their upper-crust patrons. Los Angeles-based Sprinkles, which dubs itself as "the world's first cupcake bakery, the progenitor of the haute cupcake craze," first got its start in Beverly Hills, two blocks from the star-studded Rodeo Drive. Crumbs opened its first store on Manhattan's Upper West Side.
A glitzy marketing campaign and high-impact public relations strategy are the all-important -- and super expensive -- garnishes. Buzz can make a cupcake business rise or crumble. The owners of the popular Georgetown Cupcake in Washington, D.C., for example, starred in a TLC reality show. New York's Magnolia Bakery was featured on "Sex and the City."
Crumbs co-founder and CEO Jason Bauer said, in a press release, he is excited about the company's future. The New York-based gourmet bakery was founded in 2003 and is the largest cupcake chain in the U.S. with 34 stores in six states and Washington D.C.
The money Crumbs raises through the initial public offering will "help us reach our initial expansion to a planned 200 locations in the top 15 markets by year-end 2014," he said.
The question is: Will you be willing to pay $4 for those cupcakes?