Cupcakeries Emerge as Washington's Sweet Spot in a Downturn

By Thomas Heath
Washington Post Staff Writer
Wednesday, August 26, 2009

The line outside tiny Georgetown Cupcake sometimes stretches 100 people or more, all queuing up for one of the shop's distinctive $2.75 treats. Regulars have been known to pay people to hold their place. Others multitask or use their cellphones to check whether their favorites are still available. Passersby wonder what all the commotion is about.

In a recession that has laid low many businesses in the region, from mighty real estate developers to struggling retailers, the pint-size cupcake sector is a bright spot. On a single weekend day, Georgetown Cupcake will bake 5,000 or so of the confections. Many are headed -- in the company's Range Rover -- for Washington's toniest suburbs, destined to fatten the waistlines at baby showers and birthday parties.

The company suddenly has many competitors, all trying to capitalize on a desire for a simple, inexpensive indulgence at a time when the economic news seems so depressing.

At least half a dozen cupcake bakeries have opened around Washington in the past 20 months, and more are on the way. Penn Quarter's Red Velvet will expand next month to Dupont Circle, where it will compete with year-old Hello Cupcake. A shop called Something Sweet opened in Northwest Washington.

There are online-only local cupcakeries, a vegetarian cupcakery, Blushing Bakeshop in Potomac, a Lavender Moon in Alexandria and Rhonda's Cupcakery in Greenbelt. Established bakers such as CakeLove, Just Cakes, Furin's, Best Buns and Baked & Wired are all in on the act. Early arrivals at the 9:30 Club are treated to Buzz Bakery cupcakes.

"They are everywhere . . . like ants," said Leslie Goldman-Poyourow, a 14-year baker who operates Cakes by Leslie in downtown Bethesda.

As if the competition was not already fierce, Georgetown Cupcake this fall is moving its flagship store to a larger, sit-down location a block away on M Street, and it's opening a branch in downtown Bethesda, which is foodie central in Montgomery County.

Even those in the business see a bubble in the works.

"As more and more places pop up that sell cupcakes and try to take advantage of the wave, the more they lose their uniqueness and the aura that you are getting something special," said Something Sweet co-owner Bo Blair, who also sells full-size cakes, milkshakes, ice cream and other goodies for when the cupcake fad dies.

A Shop to Watch

One development being watched closely is Georgetown Cupcake's foray into Bethesda, where it will pay a hefty rent and compete with the likes of Giffords Ice Cream, Bethesda Bagels, Just Cakes, Haagen-Dazs, a French bakery and Goldman-Poyourow's cake store.

If Georgetown Cupcake's Bethesda store is a hit, generating long lines and lots of buzz, it could be a sign that cupcake stores are here to stay, like Starbucks. If the business doesn't take off, it could mean lights out for the fad.

"We are coming close to a bubble now," Red Velvet owner Aaron Gordon said. "One or two more shops is about as much as the public can support. After that, the folks with the highest-quality cupcakes and best locations will be the ones who survive."

For now, fans simply seem to have an appetite for more. There's even a District cupcake group, with its own Facebook page, that meets monthly at cupcakeries and bakeries to conduct taste tests. One member, self-proclaimed cupcake enthusiast Shelley Santora Jones of Arlington, boasted that she has tried samples from nearly every cupcakery, bakery and store in the area.

"For me, it's a personal-size treat. You don't have to share it with anybody. It's a guilt-free, happy treat that takes you back to your childhood," Jones said. "Do I think it's a stable business? No. I wouldn't invest in a cupcake store."

Paul Sapienza, vice president for the Retail Bakers of America, offers his own assessment of the confection's popularity: "They are cute. They are an economic treat, which helps out in the recession. They are a little decadent, so you get cake, frosting and sometimes filling all at the same time."

Georgetown Cupcake is Washington's version of Magnolia Bakery in Manhattan, which opened in 1996 and with the help of cameos in "Sex in the City" turned cupcakes into a destination dessert.

Georgetown Cupcake opened on Valentine's Day 2008 after sisters Sophie LaMontagne, a former venture capitalist, and Katherine Kallinis, a former marketer for Gucci, had worked on a business plan for a year. They initially thought most of their customers would buy cupcakes for events such as bridal showers, with a small number of walk-ins.

"We honestly thought we would have a quiet little bakery," Kallinis said.

There were 100 people lined up on that Valentine's Day. The sisters said they now sell 3,000 to 5,000 cupcakes a day. About 30 percent of Georgetown Cupcake's business is pre-ordered; the other 70 percent is walk-ins. They won't talk financial details.

Guarding Cupcake Secrets

Competitors may snicker at the Range Rover and the shop's home in a quaint townhouse with the awning over the front door. But the sisters are there nearly every day and sometimes stay until 3 a.m. cleaning grease traps. They have a full-time catering manager, and require employees to sign nondisclosure and noncompete agreements to protect cupcake secrets.

"We try to protect our human capital and our intellectual capital," LaMontagne said.

Red Velvet may be their biggest competition. Gordon said he is averaging 1,500 cupcakes sold a day at $3.25 each. He estimates that he will earn a profit of $150,000 to $200,000 this year on $1 million in sales.

Gordon attributed Red Velvet's success to two factors: a prime location at Seventh and E streets NW and hiring pastry chef David Guas to design his menu. "You have to have top quality and a great location to keep up," said Gordon, who sunk $400,000 of his own, as well as money from his sister and father, into the company.

He had no qualms about the chef's fee, which was about $35,000, because he knew that he had to sell a quality product. He also knew that he needed a good location, but the $100,000 a year rent made him sweat.

"I lost a lot of sleep, a lot of sleep before I signed that lease agreement," Gordon said. To make the most of the spot, he keeps the cupcakery open until 1 a.m. on weekends, which created a sub-niche that brings in lots of nightclub patrons and people pouring out of Verizon Center.

He also built a frozen yogurt shop next-door, which helps hedge his bet.

Something Sweet's Blair has targeted a sub-niche, too. A seasoned marketer who owns several District restaurants, Blair dropped his dessert store right in the middle of a restaurant row on Macomb Street, where families who pile out of Two Amys, Cactus Cantina and Cafe Deluxe can stroll a few feet and buy a cupcake for dessert.

"We just feel its a perfect spot for all those people coming out after dinner," said Blair, who hopes to clear a 50-cent profit on each $2.75 cupcake. He is hoping to gross $800,000 his first year and be cash positive by Christmas.

"As with anything in America, things get real hot and tend to die off after a point," he said. "That will happen with cupcakes."