Saturday, February 11, 2012

What's the Deal with Cupcakes?

In the last three years, people have been going berserk over cupcakes - as part of the 'return to childhood' movement, apparently.

I noticed it in NYC initially, a couple of years back.  A van was selling cupcakes on the street, and my friend who lives there nodded and told me, "It's the next big thing!"

Since then, cupcakes have gone ape shit.  And in my small town there are now two cupcake shops. Something has to fill in the space formerly occupied by Curves, right?  What ever happened to that?

Of course, cupcakes are horribly bad for you.  A pile of starch topped with sugar, they are a carbohydrate nightmare and a recipe for adult type-II diabetes.  And people are scarfing them up. "Comfort food" they say.  And each one has about 1/4 of your daily caloric intake requirements.  What's not to like?  And like Chinese food, you'll be hungry an hour later.

Like any good trend, it made the rounds, doing talk shows, plugging its book.  It appeared on the covers of all the cooking and Women's magazines, and then was featured in a number of articles in the news.  "What's the buzz on cupcakes?"

Here's the buzz.  It was something you made as a brownie scout.  Get over it.

On MSNBC today, breathless reporting (their only kind) on an ultra-expensive $55,000 cupcake!  Golly gosh gee-whiz!

Now, if you believe that someone paid $55,000 for a cupcake, I cannot help you, you are perennially stupid.  It is a publicity stunt, plain and simple.

And a sure sign that cupcakes have "jumped the shark" so to speak.

Of course, the next "big thing" was also comfort food.   New York started opening Toasted Cheese Sandwich shops.   Macaroni & Cheese made a comeback.   Another place even offered hot dogs and champagne.   Our urge to eat like a child at a birthday party has apparently not been satiated just yet.

The overarching question here is how do these fads get started, and how do they take hold of us, and what makes us all buy into them?  And how do we keep going back to the well on this, again and again, and losing our shirts?

Like I said, in the podunk, jerk-water, Southern town I live in (or near) there are now not one, but two cupcake shops.  Let me ask you, as a rational adult (pretend to be one, for a few minutes), do you think that even one such shop is a viable concern?  I mean, we are not talking about a bakery, but a place that sells nothing but cupcakes.  Is there a sustainable demand for cupcakes that will justify paying $1000 a month in rent and $8 an hour for someone to man the cash register, not to mention pay the light bill, amortize the rent, pay the taxes, etc.

Even at $5 a cupcake, you would have to sell about 656 cupcakes a month, just to cover the rent, utilities and wages (and I am being conservative here).  So you need to clear 20 a day to make the break-even point.    I could see where in New York City, this might work, selling them out of the back of a van - low overhead and thousands of potential customers.  You might sell 650 a day, there.

But like so many things, it doesn't translate into small towns or rural areas.  Cupcake shops.  Curves,  NASCAR collectible shops.  Places that are not well-thought-out and people who go into business without thinking, "Who is my market?  Will they consume my product indefinitely?  How many NASCAR collectibles do I need to sell to pay the rent?"  And like the Coffee shop in Lansing, they go out of business like clockwork, only to be rented out again and again by yet another "true believer" who is certain that they will make money at it, but do little more than squander their 401(k) on a dream-turned-nightmare.

You see this all the time.  A Tattoo shop on Route 17 that stayed in business barely three months.  The tattoo thing is sort of jumped the shark as well, and with one of these shops on every corner (how many do we need?) opening yet another is sort of, well, a waste of money.  I think folks are realizing that scarring yourself for life and making yourself unemployable - and paying for the privilege - are sort of idiotic things to do.  And they also realized that the looks they are getting from people are not looks of admiration, particularly when folks shake their head in disbelief.

There are trends which are long-term and there are trends that are short-lived and then there are trends which are something in-between.  Micro-brewing beer was a long-term trend that changed our beer market permanently.  When I was a kid, beer was sold like gasoline - there were three brands that were largely indistinguishable (and looked and tasted like gasoline as well) and you bought whatever was on sale or what your local bar sold (as a captive seller, much like in Japan).

The microbrew movement changed expectations, and today, people want choice in beer - even if a huge chunk of the market still buys beer like they buy gas.  I think one could say that the bloom is off the rose of the microbrew movement.  Many of the pioneer brands were bought up by major brewers and now are mass-produced.  The market has quickly coalesced into a few major players - but new ones start every day.  While the trend may have peaked, the market has changed, I think, forever.  We will not likely go back to Budwiser/Miller/Pabst/Schaefer as the only choices on the shelves of the local grocery.

Similarly, Coffee has changed forever, due to the explosion in the coffee-house business.  And while this was a big trend in the 1990's and 2000's, I think it has leveled off to some extent.  Starbucks sells more milkshakes disguised as "coffee drinks" than they do actual coffee, and that right there tells you the trend is morphing.  A lot of people, it seems, don't want coffee, but rather want something sweet and milky - just as a lot of beer drinkers want these sort of pretend micro-brews.

But the days of lounging in the coffee shop like on Friends or Frazier are not what they used to be.  For one thing, a lot of people now realize that spending $5 a day on coffee (or worse yet, $10) can add up to $1825 to $3650 a year, which in a few years is enough to buy a good secondhand car.

But the trend has changed the way we view coffee.  My parents swore by Folger's Crystals - instant coffee - and felt that setting up the coffee maker was "too much hassle".  But they switched to a Mr. Coffee in the 1980's and today, we tend to demand better coffee and likely won't be going back to instant anytime soon.

On the other hand, this does not mean Starbucks has 50% expansion left in it.  Rather, the trend has peaked, and will probably slowly level off and decline - as other things catch our fancy.

Cupcakes, however, I don't think has it for the long haul.  Eating cake is fine and all, but eating it every day is, well, so Marie Antoinette - only without her wasp-waist figure.

Our country is headed for a major health crises in the near future - and we are living in denial about it. People shout down Michelle Obama for "telling us what to eat" and in the short-term, we can still deny we have a problem.  But every day, it seems, another friend goes on dialysis, another friend is diagnosed with diabetes, yet another has an insulin pump installed, and yet another is sadly saying goodbye to a limb that is to be lopped off.

Eventually, amputation and the horror of it all has to outweigh the charm of pink icing.  People will wake up - but perhaps only when it is too late, which it may already be.

Figuring out what is trendy and what is a long-term trend is important from an investment standpoint.  Everyone is talking about Facebook, and I have posted here that I think it is a bad bet.  It is trendy?  Yes.  Is is a trend?  Yes, too.  Like microbrews or gourmet coffee, it heralds a long-term trend in the market.  Facebook is just another step in a series of online participation sites that started, years ago, in the dawn of the Internet/DARPAnet - the DOS and ASCII terminal age, with "discussion groups" like and the like, where nerds would post messages to each other and stay in touch online.

And this morphed to BBS sites (Bulletin Boards, remember those?) and things like Prodigy and AOL, which everyone thought was "the next big thing" and slated to "take over the Internet".  Time Warner even thought it was worth more than their own company!  We saw how that worked out.

Then came Friendster, Myspace, Second Life - as well as instant messaging and a host of blogsites, bulletin boards, online forums, and the like.  Facebook was just more successful than most - capturing a large audience and allowing everyone to participate and form their own groups.

But it was not new or original or different, really - It was just a step in a long line of online places to hang out and chat.  And down the road, maybe something else will catch everyone's fancy.  And like Starbucks, Facebook will morph into an ice cream shop - or whatever seems to be selling at the time.  It won't go away, but it won't become your default home page - unless you are particularly dense and suffer from a startling lack of curiosity as to what else is on the Internet.

Small investors and individuals, unfortunately, suffer from myopic vision in this regard.  We are bombarded by the TeeVee every day as to how important very short-term trends, like cupcakes or Facebook, are.  And we see these things and think, "This is the next big thing!  I need to open a cupcake shop!"  Or sell NASCAR collectibles, or whatever.

And the little guy gets creamed, usually, losing his investment, as the trend moves on, or flattens out, or  just turns out to be not big enough to support a whole store devoted to that trend.

Sometimes these things are easy to spot as "flavor of the month."  Cupcakes, for example, is not hard to understand as a flash-in-the-pan trend like hula hoops.  Long-term, we are not going to turn into a cupcake nation, nor are these dessert treats going to become a permanent part of the nation's diet - at least not any moreso that they were in 1960.

And our town's most popular retail store, FOR LEASE will move in where the cupcake shops were, just a year ago.  And someone else's dreams of wealth and success will be shattered, yet again.

You hate to watch these things go down.  But they are inevitable.

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