Linda Nazareth: Are Cupcakes an Economic Indicator?
July 8, 2014
Today’s guest speaker blog comes from Economist, Author and BroadcasterLinda Nazareth. Her latest book, Economorphics is a guidebook to economic change and the ways you can make them work for you.
Are Cupcakes an economic indicator?
Maybe I am reading too much into it, but I was taken aback when I heard that cupcake chain Crumbs is closing shop. In case you are not a big cupcake aficionado, Crumbs is (or rather was) the largest cup-cakery in the United States. Its specialty was over-size treats laden with candy which it sold from 65 stores in 12 sugar-loving U.S. states. At the time the company went public, in 2011, there were only 34 stores in the chain, but the company had plans to expand to 200 by this year.
The fact that the cupcake craze was in full swing in 2011 does not surprise me. That year, the U.S. was technically a couple of years out of recession but still in the depths of it. Housing prices were spiralling downwards, employment was down over 12 million from its previous high and Walmart was making plans to bring back layaway prices for Christmas toys (a practice that had not been widely used since the Brady Bunch was in its first-run). Spirits were low and people were eager for some sweetness and fun. At $4.50 a shot, a fancy cupcake was an indulgence but accessible.
So what does it mean that Crumbs is crumbing in the face of harder times? Maybe nothing. It could simply be a matter of bad management, or over-expansion or any of a dozen things. I would argue, however, that the issues facing the cupcake business illustrate a couple of what I call ‘Economorphic’ trends. That is, they are a live illustration of some of the economic and demographic forces that are morphing the world we have into a different one.
Here are the two I see most clearly:
The Demographic Window is Closing
The demographic window refers to that sweet spot for growth when you have just the right balance of older, younger and working age population. When the window is open, all industries do better. Unfortunately, in the case of the United States and Canada, it is now slamming shut after being open since the early 1970s. Of course, you can always sell cupcakes – but it is harder to do that when the economy is in a slower growth trajectory.
Oh and one more point on demographics: the population aged 25 to 34 has been on the rise over the past decade, creating lots of free-spending sweets-loving cupcake clients. Population in that group is now set to decline, which means figuring out how to sell sweets to a group cutting back on both eating and spending on treats.
The Commodity Squeeze is On
Butter, sugar, flour, eggs – back when Crumbs went public, those cake-making staples were cheap. Those days are done. Thanks to a growing middle class throughout the world (and particularly in China) there are increasing demands for all kinds of commodities. According to Bloomberg Businessweek, U.S. dairy farmers are now making record profits because prices are high – good news to them, but tough for a cupcake maker to swallow.
Those are just a couple of the bigger trends that came to bear on Crumbs. In Economorphics, I talk about twelve trends in all that will re-shape the global economy. A couple may be positive for cupcakes, but the overriding trend is one of hard times for luxury cake makers.
And as the experience of Crumbs show, the proof is in the batter.