Hello Cupcakes. Goodbye Profits?
If you didn't see it, the New York Times chimed in last week on the gourmet cupcake trend. The story takes a look at the difficulties in turning a profit by selling little baked goods at $3 a pop. Reporter Elizabeth Olson gets the owner of Lovely Confections Bakery in Denver to break down the retail price of her cupcake and show how little profit is actually behind those $3 treats:
For each cupcake she sells, Ms. Lovely figures she spends 60 cents on ingredients, 57 cents on mortgage payments and utilities, 48 cents on labor, 18 cents on packaging and merchant fees, 16 cents on loan repayment, 24 cents for marketing, 18 cents for miscellaneous expenses and 4 cents for insurance. That totals $2.45, leaving a potential profit of 55 cents on each $3 cupcake.
Not that Y&H doesn't trust the New York Times, but I thought I'd check with pastry chef and cookbook author David Guas, who served as a consultant for Red Velvet cupcakery and plans to open his own bakery in the near future. Guas couldn't agree more with Olson's reporting.
"Everybody wants to pay $1.75 or $1.50 for a cupcake," Guas says, as if these gourmet versions were the same as the pre-mix kind you buy at the grocery store. But the ingredients are far more expensive for the gourmet variety, he adds. Think Kerrygold butter, Michel Cluizel or Valrhona chocolate, gourmet extracts and oils.
These ingredients add significantly to the price of cupcakes, Guas says. It pushes the food costs into the 30 percent range, whereas most desserts carry a food cost of 7 or 8 percent.
"You'd be surprised what the margins are," Guas says about these upscale cupcakeries. "You really, really got to love what you're doing."
It makes you wonder, I told Guas, how many of these cupcakeries will remain afloat in the years to come.
"I wonder about that," says Guas, who's still scouting locations for his own Bayou Bakery. "I think that the burger thing has got more longevity than the cupcake thing."