🧁 Making Millions from Cupcake ATMs

Read time: 5 minutes

Good morning! It's Tuesday, April 2nd. Today's post looks at Sprinkles, the world’s first cupcake-only bakery that generates millions per store.

THE FEATURE

Making Millions from Cupcake ATMs

Over the past decade, cupcakes have gotten a makeover. What used to be a cheap dessert for a kid's birthday party can now be sold as high-end treats for a premium. 

That's all thanks to Candace Nelson and her bakery chain, Sprinkles Cupcakes. She reshaped the perception around the dessert, and now millions of consumers are willing to pay nearly $5 a piece for her cupcakes.

Let's see how she pulled it off!

So, What's the Business?

When Candace Nelson stepped into the cupcake business, it came at a low point in her life. She had worked in investment banking, switched to a position in the tech world, and then subsequently lost that job during the dot com bust. 

While she no longer had a job, she did still have a talent and love for baking. Rather than getting an MBA, she went to baking school and started baking high-end cupcakes in her kitchen with her husband. 

Her idea was that the cupcake market was due for disruption as it was oversaturated with supermarket cupcakes loaded with shortening, additives, and waxy sprinkles. She wanted to introduce cupcakes that consumers valued, akin to gifting a beautiful candle or bouquet of flowers. 

Having proven demand for her concept from her kitchen, she spent all her savings on a storefront in Beverly Hills in 2005— $200K for 600 sq. feet. That was the first Sprinkles bakery and the world's first cupcake-exclusive bakery. 

Though she initially dealt with customers who were outraged at $3.75 a cupcake, her store eventually gained traction. She focused on making Sprinkles THE niche desert spot in LA, winning her the favor of celebrities like Oprah, Paris Hilton, and Tom Cruise, who all publicly endorsed the brand. 

That celebrity attention skyrocketed Sprinkles' brand awareness nationally, letting her expand to a second location after being in the business for just one year. 

Today, Sprinkles has 40 locations nationwide and recently announced plans for a strategic franchise expansion into South Korea. While we don't know total revenue numbers, we do know that the top third of its bakeries generate over $3M a year!

How They Win: Cupcake ATMs

Candace Nelson was pregnant in 2012, and had strong cravings for her chocolate cupcakes at random hours of the day. 

One night, when that craving hit her, an idea emerged. If she pays rent at her locations 24/7, why isn't she monetizing and distributing cupcakes all those hours?

While it wouldn't be profitable to run a store at all hours of the day, that wasn't necessary. Her idea was to install cupcake vending machines, "Cupcake ATMs," outside her stores to serve everyone's midnight craving. 

The ATMs started as a fun idea for supplemental revenue, but they turned out to be a cash cow. 

In an interview, Nelson said her ATMs hold 600 cupcakes and go through two turns a day. At popular locations, like the original Beverly Hills ATM, selling out isn't uncommon. Seeing how the average cost of a Sprinkles cupcake is now $4.50, that would be $5,400 from a single ATM in a single day. 

Multiply that across 50 locations, and you're looking at 8 figures in annual revenue from just Nelson's Cupcake ATMs.

Key Observations

Sprinkles’ success comes down to three primary things: 

1. Finding a product in need of a makeover/innovation

2. Becoming a local sensation to get national attention 

3. Strategizing ways to monetize every hour of the day and every sq. foot of property

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