25 Sep 2009
Stores selling the humble cupcake are popping up all over Dubai as the city goes on a major sugar rush and entrepreneurs clamber aboard the bandwagon. The trend reflects the go-getting nature of Dubai and the eagerness of its citizens and residents to latch on to any business opportunity. And the emergence of all those new outlets could be seen as a response to the economic downturn as people seek new financial opportunities in a weakened jobs market.
But though the little iced treats are selling like hotcakes some experts warn the craze could turn out to be half-baked. They say the cupcake economy reflects a classic get-rich-quick business pattern where a new type of product emerges and everyone immediately tries to grab a slice of the action.
As a result the segment grows too quickly and becomes too large, businesses over-extend themselves financially, supply greatly exceeds demand and eventually the bubble bursts. Comparisons are being drawn with the dotcom crash of 2000 and the proliferation of coffee shops in London a few years ago that left a number of people with burnt fingers.
Emirati entrepreneur Ahmed bin Shabib said the cupcake market was already saturated, while Prashant K Gulati, the head of the local arm of an entrepreneurs’ organisation, said new ideas were copied quickly in Dubai. “A lot of entrepreneurs do not put enough thought into market research,” added Gulati. “Instead they copy fads. I would be extremely careful not to ride another fad.”
However, store operators remain unfazed. Indeed, a rising tide of entrepreneurs and home business operators, buoyed by heightened demand, are drawing up business plans and sorting out their finances, while some are already making expansion plans. The global rise in cupcake uptake started in New York as a reaction to the recession. Experts there say the cakes are considered an “affordable indulgence” and are being lapped up by people looking for an instant sugar high. But in Dubai, the trend is being driven by the novelty factor.
Dalia Dogmoch, a partner in Kitsch Cupcakes, which opened last November, said: “Our sales have risen by 15 to 20 per cent each month. We have been very well received ever since we opened. In a climate like this, that is extremely fortunate.” The number of outlets trying to grab a slice of the cake in the UAE is difficult to determine as the segment is largely unorganised, with many suppliers operating from home – but competition is growing, say those in the industry. In the UK, researcher TNS Worldpanel values the cupcake market at £7.3 million (Dh43.8m).
Emirati entrepreneur Shayma Al Fardan, who claimed she and partner Fatima Al Abbas were the first to offer cupcakes with their Sprinklez business in 2006, said she was not surprised by the boom. “When there is a good idea everyone will catch on, and the number of new players has just been astounding,” she said. The company operates out of a kitchen and is planning to open its first outlet soon.
Canadian-born Farah Gokal-Ghazzawi, who runs Sweet Stuff with her sister Aaliya, dismissed the “fad” accusation. “Cupcakes have been around for the past 60 years or more,” she said. “If it was going to fade it would have done so. Also, Dubai is so competitive and businesses thrive on competition.”
Dana Jallad, who owns the Dubai franchise of Amman-based Sugar Daddy’s Bakery and is managing director of Sugar Daddy’s International, said her Dubai outlet had done better than the original store in Jordan. “As long as you put a quality product out there people will come to you, recession or no recession,” said the marketing executive-turned-entrepreneur, who opened her store last December. “But behind all of that there has to be a proper plan, a definite business model, for how one wants to take the brand forward,” said Jallad. “It has not been easy to start up the business but we have had a pretty good journey so far and we have had fantastic acceptance for our product.
Both Gokal-Ghazzawi and Jallad are already eyeing GCC expansion opportunities. Kitsch Cupcakes, however, does not want to “spread itself too thin”, said Dogmoch. “We would love to expand eventually but it is not about expanding quickly, but expanding properly,” she said. An increasing number of home-based cupcake bakers are jumping into the fray.
Lily Tejeda, who has been taking orders from home since February, is looking at a possible store opening next year with her business partner and friend Rima. Tejeda, who bakes under the name Lima’s Treats, does not think the cupcake industry in Dubai is undergoing a bubble cycle. “Cupcakes have been around for a long time, it is just that now they have gotten more exposure thanks to movies such as Sex and the City,” she said. “And no, I do not think it is going to go bust. Each cupcake store has its own identity, its own speciality and there is plenty of room for everyone.”
The emirate’s cupcake story, it would seem, is following hot on the heels of New York, with many outlets even replicating names. And that worries Gulati, President of the Dubai arm of The Indus Entrepreneurs (TiE), a global non-profit group dedicated to fostering entrepreneurship. Gulati admitted he knew very little about the cupcake industry, but said new ideas were copied very quickly in Dubai. “If one idea is successful elsewhere everybody thinks it is easy to do. That is when it becomes a bubble. Today, in every industry, you will find ‘me-toos’.”
He said Dubai’s aspiring entrepreneurs should carefully consider the nature of the business environment before starting out. “There are a million other elements such as rent, hiring people, getting permits, the cost of licensing et cetera. Then there is the whole issue of branding, advertising and differentiating yourself from the growing competition. Small businesses might not be able to afford that.”
Businessman bin Shabib, who publishes the bi-monthly lifestyle magazine Brownbook, said the cupcake craze was already over. “Let’s say you are targeting a population of 170,000, which is a generous estimate. And let’s say about 10 per cent would buy a cupcake, that is roughly 17,000 people who are potential customers. Of that, how many would buy cupcakes regularly? Compare that to the estimated number of players, and I am not so sure. “They need to make sure they are organising themselves in a way that will cultivate a regular clientele, a regular audience. All of this goes beyond just selling cupcakes.”
Mixing fashion and cupcakes, Kitsch opened in November last year on Jumeirah Beach Road following the concept’s success in Beirut.
Sugar Daddy’s Bakery
Opened in December last year, this outlet on Jumeirah Beach Road’s The Village Mall has already eclipsed the original store in Amman, say its owners.
Started by sisters Farah Gokal Ghazzawi and Aaliya Gokal, this is Jumeirah Beach Road’s third cupcake outlet and opened in June this year.
Not to be confused with New York’s Springkles, this is one of the first cupcake companies to take off in Dubai in 2006, according to its owners. Still working out of a kitchen, Sprinklez recently signed a partnership with Emirati animated television franchise Freej .
A home-run business by friends Lily Tejeda and Rima, Lima’s Treats is eyeing a store opening some time next year. Currently, their biggest orders come from corporate event organisers.
Run from home by mother-of-two Karen Van Zyl, Sweet Secrets currently caters for private parties and events. Van Zyl says she has no immediate plans to open a store.
Another home initiative, the owners of Scrumptious Cupcakes have been catering for birthday parties, weddings and themed events.
This article originally appeared on Emirates 24/7.