Crumbs, Shmums: Cupcakes as Big as Ever, Says Sprinkles Founder

Sprinkles Cupcakes
Sprinkles founders Candace and Charles Nelson

Charles Nelson, half of the husband-wife team who created the dessert phenomenon, reveals the trade secrets that are growing the company into a global powerhouse.

The sudden collapse on July 7 of the Crumbs Bake Shop empire and shuttering of its 49 locations has many ringing the death knell for the cupcake industrial complex. But as the chain files Chapter 11 in a last-minute bid to save it from extinction, another frosting powerhouse, the Los Angeles-based Sprinkles, shows no signs of slowing down.

The brand founded in 2003 out of a West Hollywood home by Candace and Charles Nelson, a married team from the world of investment banking, is expanding faster than the waistlines of its hopelessly addicted customers. Over the next 12 months, the number of U.S. storefronts will increase from 20 to 30, with plans next in the works to open 34 locations in the Middle East.

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A too-rapid expansion is often cited as what did the publicly traded Crumbs in, but Nelson — who tells The Hollywood Reporter he has no plans to bring Sprinkles to Wall Street (unless you mean the new location at the World Financial Center) — is riding on a sugar high when it comes to his company's future.

In this exclusive conversation with THR, Charles Nelson reveals what's next for the cupcake colossus (and no, it's not becoming the Apple or Starbucks of cupcakes).

The Hollywood Reporter: What was your initial reaction when you heard that all the Crumbs stores were going out of business?

Charles Nelson: I don't know the specifics of their business, so I wouldn't say I had a specific reaction. I just don't know what's going on inside their company.

There wasn't a sense of relief at all that one of your major competitors was off the map?

We just opened our 20th unit in downtown New York at the World Financial Center about three weeks ago. We've always stayed really internally focused on what we're doing. Our focus since we started out of our West Hollywood home in 2003 and launched [our first storefront] in Beverly Hills in 2005 has been to really be innovators.

We were the first bakery to serve nothing else but cupcakes, like a 15-flavor rotating menu of them. We had the first cupcake truck back around the time Kogi came out. We launched a cupcake ATM a couple years ago. And we've since come out with our own homemade, all-organic ice cream that we have in six locations. Like I said, we really look internally when we think about what's going on and what's the next thing for us.

Since the Crumbs news hit, a lot of people are saying the cupcake trend is on the wane or fading out. How do you respond to that? What have you found to be the case with your own business?

When we started Sprinkles in 2003, there was no cupcake craze. One of the chief investment ideas for us is that cake is the number one celebratory dessert in almost every culture around the world — especially in the U.S., where cake is used to celebrate for birthdays, for weddings, for showers, [and that's on top of being] just a sweet indulgence you might have.

In the last 10 or 15 years, we've become such a more customized society. Cupcakes allow a group of 12 people to show their own individuality. Our goal is to become the premium made-from-scratch dessert company in the U.S. We just signed a 10-country deal with 34 units in the Middle East with the group M.H. Alshaya Co., who [brought] Shake Shack, Starbucks, P.F. Chang's and Cheesecake Factory [overseas]. We're slated to open 10 more units [in the U.S.] in the next 12 months. We just opened two of our new flagship units in Las Vegas and Atlanta that have ice cream, cookies and the ATM all under one roof.

Is the ATM more about the novelty of it and the press you get from it than the actual ATM-based cupcake sales?

Oh no, the cupcake sales are pretty compelling. We have people typically on a Friday and Saturday night that will be 20 or 30 deep at midnight wanting to get a treat. The machines hold over 700 cupcakes and are very large revenue generators.

What makes a perfect location? Do you take into account things like whether there's a gym next door?

[Laughs.] It's a complex choice. There are a lot of things that we take into account. Density is one.

A newspaper reported that you were planning on taking over the Crumbs in Glendale. Is that true?

No. Somebody might have gleaned that. Crumbs closed a location at [the Americana in] Glendale, and we're taking another location there.

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So you're not targeting shuttered Crumbs locations?

No. They've been closed at the Americana for nine months, I think. We just took our place over a couple months ago and started construction. We're right by the concierge desk next to Apple, and they were on the far corner over by the Nordstrom. Not even close.

Speaking of Apple, it's always struck me that there's something distinctly Apple-esque about your brand — in the streamlined way the cupcakes look, their coded sugar-buttons and the minimal storefronts. Is Apple an inspiration to Sprinkles?

I wouldn't say so. I'd say that we have been very inspired by clean, modern design, and that's [inspired by] a lot of places. Our inspiration was this: If we were going to reinvent the cupcake using great ingredients and to kind of take it out of the grocery store, we were going to have to reinvent the bakery experience. It couldn't be that same second- or third-generation bakery with the rundown bakery case and not a lot of money invested in it.

We laugh because when we started Sprinkles, we looked at Entrepreneur magazine, and they had one of those, you know, four-quadrant graphs, and a retail bakery was in the quadrant where it was in the lowest chances of success and the lowest return if it was successful. The top right was like "Internet search engine." We were like, "Wow, this is where our MBA is taking us?" But to answer your original question, we have been very inspired by clean, modern aesthetics and trying to bring something completely different to the bakery and dessert business.

You and your wife are both health-conscious Angelenos. Have you taken notice at all of the proliferation of high-end juicing stores opening around the city and elsewhere?

[Laughs.] It would be hard to miss them.

Do you buy their product?

I personally do not. My wife does. I'm not a juice person, but she shops at them.

Have you thought about expanding into juicing?

No, no. It doesn't fit. We want to be the premium made-from-scratch dessert brand. It's a different mindset. Though, I would bet that there's a huge crossover between juice people and cupcake people but at different times of the day. My wife eats all of Sprinkles' desserts, but she may have a juice after she works out. She doesn't grab a cupcake or ice cream when she's done exercising. Clearly, it's an amazing business. The proliferation — it is impressive.

But you're sticking to decadent treats.

We're a dessert brand. People don't come to us every day. We're not a coffee place or even a juice place. Their frequency of visitors is so much higher than ours. We're a special-occasion place. We're an "Oh my gosh, my son got an A on his test," "Oh, it's your birthday," or "We got this big account, let's order cupcakes for the whole office." We're that infrequent celebration that you want to say thank you or have a little fun.

And it seems that you're not looking to have customers linger.

It's a place to buy the cupcake and take it elsewhere to wherever the celebration or break time is meant to be. The cupcake's very portable. We're in high-rent districts. I can't afford to create a third place like Starbucks-style in some of these locations. People buy their cupcakes and go somewhere else. But a lot of people unwrap their cupcakes right there and go for it. You can walk down the street and not stop moving and enjoy it.

But I don't typically see chairs and tables in your stores.

It depends. In Beverly Hills, we have four seats inside and four seats outside. In Newport Beach, there's a whole bunch of seating out front. We don't have as much [in downtown L.A.]. We're always trying to work in small spaces — most of our spaces are under 1,000 square feet, a lot of times under 700.

What's your all-time best-seller?

Red velvet. It far outsells all the other ones.

Would you ever go the way of the IPO?

As a former investment banker, I would never say never. But I think in the food business, it's challenging to be a public company in any business you're in. We're happy being privately held. I would never say never, but I wouldn't say it's at the top of our list.