The Great Cupcake Wars

"Oh, great! Another cupcake shop!"
I hear these words as soon as I step onto M Street, the posh, townhouse-lined retail thoroughfare in Washington, D.C., and most lately the raging epicenter of the great American cupcake pandemic. I'm standing in front of an outpost of Sprinkles, a California cupcake chain that joined the fray just the week before. The words (shouted by an upscale-looking man into his Bluetooth headset as he tore down the street, his fine-leather messenger bag flapping behind him) foretold my future, at least for the next 36 hours. I had traveled down to the nation's capital to investigate the cupcake craze—to find out who eats them, and more important, who sells them, how, and why.

Cupcake shops are everywhere, and the craze has perplexed me. I mean, I knew cupcakes growing up. Back then, the whole family was two flavors, chocolate and vanilla, and a preservative-addled cousin, Hostess, that loitered around truck-stop and gas-station snack racks. But I hadn't seen them much since. That is, until a few years ago.

The cupcakes showed up at an office party, looking prettier than I remembered. Then, again, at a stylish wedding. They had new names—vanilla was now Madagascar Bourbon Vanilla; chocolate came with a sophisticated-sounding topping called ganache. Everywhere an affluent crowd gathered, cupcakes seemed to be popping up. They had appeared on an episode of Sex and the City, someone told me. And they cost a fair bit of money, three or four dollars apiece. A lot of people were making them and making a living—sometimes, a killing—selling them.

Many of those people are in our nation's capital. Washington doesn't just have dozens of cupcake bakeries; it also has a TV show, TLC's DC Cupcakes, currently in its second season. Inevitably, perhaps, cupcake chains from elsewhere are moving in to lay claim to the city's aficionados. New York City—based Crumbs has three locations. In early March, the most aggressive cupcake company of all, Los Angeles's Sprinkles, opened a location in the Georgetown neighborhood. When I arrived the following week, a Mercedes Sprinter van called the Sprinklesmobile, the tip of the Sprinkles spear, had been blanketing the city with free cupcakes for four straight days. I tried one of Sprinkles's peanut butter chocolate cupcakes. It was damn good.

Sprinkles's co-founders, Charles and Candace Nelson, are former Silicon Valley investment bankers who fled the profession in 2001, after the dot-com bubble burst. The two regrouped in the world of cupcakes and opened their first store, near Rodeo Drive in Beverly Hills, in 2005. They got their cupcakes into the hands of celebrities such as Tyra Banks and Barbra Streisand and Oprah, whose adoration has since echoed in Sprinkles's press releases. To lend an air of preeminence, the Nelsons started calling Sprinkles The World's First Cupcake Bakery, a statement that's technically true, but only if you disqualify the star of the seminal Sex and the City cupcake episode of 2000, Magnolia Bakery, and another landmark bakery called, as a matter of fact, Cupcake Café, because both make other baked goods in addition to cupcakes (as Sprinkles does not). Then Candace got onto the Food Network show Cupcake Wars, not as a contestant but as a judge, cementing her place over any would-be competitors. And finally, just in case any competitors got too close, the Nelsons engaged the powerful Silicon Valley law firm Wilson Sonsini Goodrich & Rosati to attack any dessert purveyors they felt were encroaching on their turf. So far, they have sued three, for infringing on their name or their cupcakes' distinctive fondant dot, and sent cease-and-desist letters to more.

So when Sprinkles arrived in D.C., it didn't pick just any location; it threw down the gauntlet, opening three blocks from Washington's current cupcake champion, Georgetown Cupcake, whose customers form lines that snake up the street. Here in D.C., the battle was on.

But before we go any further, let me point out something funny about cupcakes. Maybe because the recipe is so simple—flour, sugar, eggs, butter, milk, and salt—it gives the entrepreneur room to project. Cupcakes turn out to be one of those products that are a Rorschach test for their makers. No two cupcake companies are alike. As I made my journey, eating my way through the trenches of D.C.'s cupcake wars, I would find the city's bakeries operating and competing in very different ways.

The Corporate Cupcake
After a slightly uneasy night's sleep (I had overdone it that evening at Baked & Wired, a well-entrenched Georgetown cupcake establishment), I start the first full day of my trip at Crumbs Bake Shop in downtown D.C. Crumbs is the nation's largest cupcake company, with 35 locations and $31 million in annual revenue, and also the most corporate, with plans to trade shares on the Nasdaq starting in May. This store, on 11th Street NW near F Street, opened last November. I'm scheduled to have a 9 a.m. breakfast meeting with Gary Morrow, the new vice president of store operations for Crumbs Holdings LLC.

When I meet Morrow, he's dressed in a style I would call business casual with cupcake flair: His open-collared dress shirt, though tucked into the usual chinos, is bedecked with pink buttons and has pastel ornamentation inside the placket. He brings over a plate of three cupcakes, one red velvet, one peanut butter cup, and one chocolate, and hands me a fork. I shovel up some sweet and light red velvet and try the chocolate—it's buttery but also a little dry. Morrow has a fork, too, but quickly forgets the cupcakes in front of him; he's preoccupied with explaining the new systems he needs to implement, his expansion plans, and his always-present question, "How do we make this faster?"

Morrow is a lifelong corporate restaurant executive, one who has worked at Ruby Tuesday, at Mick's, and, for the 10 years before he joined Crumbs, at Starbucks, a job that influenced him so deeply that he laminated the classified ad that led him there and still carries it in his wallet. Crumbs's co-founders, a New York City couple named Jason and Mia Bauer, hired Morrow last May as part of an effort to make the chain scalable, which means reducing the bakery down to a defined set of reproducible parts and instructions. The Crumbs kit includes store decorations (a selection of nostalgic photos of children and cupcakes, blown up and framed), a standardized company history to be learned by all new hires, and cupcake flash cards that describe the components of each of Crumbs's 75 varieties.

The Bauers' cupcake business got its start shortly after the Bauers' relationship did, in 2002. Mia was a lawyer with a knack for baking. Jason was a dreamer from Staten Island, a struggling entrepreneur whose business (a company that licensed celebrity names for grocery products such as Olympia Dukakis' Greek Salad Dressing and Britney Spears Bubble Gum) had recently sold off its modest assets.

That summer, at a time-share they split with friends in the Hamptons, their relationship just a few tender months old, Mia brought a dozen of her jumbo-size vanilla coconut cupcakes to the beach—and Jason smelled an opportunity. The idea of a bakery began to form. The following March, Mia and Jason opened the first Crumbs, on the Upper West Side of Manhattan. They got married soon after that.

Less than a year into business, Jason already wanted to expand. He had spotted a location he liked on New York City's posh Upper East Side, but he needed $200,000 to lease the space and build it. He found a bank, but it would extend only $50,000 of credit and only with his personal guarantee. So he signed up. Then he did the same thing at three more banks. Over the next five years, Jason used the same tactic to finance five more locations.

Still hungry for more growth, the Bauers, in 2008, took on an outside investor, Edwin Lewis, who paid them $10 million for a 50 percent share in the company. In January, a special acquisition corporation led by investor Mark Klein acquired the chain for $27 million in cash and an additional $39 million in stock.

Now, the company's goal is to have more than 200 locations. Mia still focuses on the cupcake flavors and marketing, although she's branching out into other creative outlets, like children's books. (Last year, she published her first, Lolly LaCrumb's Cupcake Adventure.) On the day I speak with Morrow, Jason is on a road show, wooing potential investors to the Crumbs stock. His goal as CEO is to increase earnings before taxes, interest, and depreciation tenfold by the end of 2014.

Crumbs, accordingly, is built for efficiency. Since the beginning, it has contracted out its cupcake production to commercial bakers. That means that, though all the recipes are Mia's, not one of the Crumbs bakeries is really a bakery. Not one has, or ever has had, an oven. That gives the company the flexibility to open anywhere. Expect future Crumbs in malls and other places with considerable daytime foot traffic. "It takes more than a cupcake recipe to run a successful business," Jason Bauer says. "After eight years of perfecting this model, our business comes down to real estate and people."

My meeting with Morrow ends when an old business associate of his arrives: Kambiz Zarrabi, the owner of Federal Bakers, which once made all the treats in the glass cases of D.C.-area Starbucks stores. Now, he makes cupcakes for D.C.-area Crumbs stores, as well as local Costcos and Marriotts. They tour the store, then take off to the other new locations. It's hard to imagine thoughts of massive growth like Starbucks's aren't dancing in their heads.

One Cupcake Ahead of the Cops
Just a few blocks away, amid the office towers of 12th Street NW and G, there's a smaller operation. It's a bright pink truck with minimalist graphics of coffee cups and cupcakes. The name Sweetbites is emblazoned across the side. In the window, there's a slim fiftyish woman with blond hair, in jeans and a long-sleeved T-shirt. She is Sandra Panetta, a former Environmental Protection Agency policy analyst.

I order a red velvet cupcake and tell Panetta about my mission. She agrees to let me sit in her truck for a while. The cupcake's airiness belies how buttery it is, and when I finish eating, my fingers are shiny.

Panetta, a single mother of two, started her business last May, after 23 years at the EPA. Program cuts by the Bush administration had left her feeling jaded and powerless. Worst of all, she says, she felt guilty—her aimless attitude toward work was setting a cynical example for her 13-year-old son and 14-year-old daughter.

She had been catering part time for years but itched to create a business of her own. The low overhead costs and freedom of a food truck attracted her. So, against the advice of a financial adviser, who told her to stay at the EPA, she put together a business plan and got a $150,000 loan from a bank. She bought a broken-down mail truck for $15,000, paid $35,000 more to fix it up, and built a commercial kitchen attached to her house in McLean, Virginia. She posted an ad on Craigslist for bakers and hired two. Then, when the EPA offered a buyout to senior employees, she took it.

Her day starts at 5:30 a.m., when she gets her kids ready for school. Then she joins the bakers, who have been working since 4 o'clock. When they all finish, they load the truck with 30 dozen to 40 dozen cupcakes, and she heads out after 9. At the end of the day, she drives to her son's school, then drives him home, in the bright pink truck.

As customers step up and order and she takes cupcakes from plastic trays, nests them in bakery tissue, and boxes them, she explains the ins and outs of her work.

Then, out of the corner of her eye, she spies a police officer. Food trucks operate in a gray area of city law. There's a regulation in D.C. referred to as the ice cream truck rule. It states that a food truck can't stop unless someone waves it down and can't remain in place unless there's a line of people outside. "These are professional people; they don't wave down a truck!" says Panetta. She steps outside. Luckily, this time it's just a meter maid. Panetta dutifully feeds the meter.

Even though she's financially less secure, and technically now an outlaw, this little truck is hers. She's starting to have regulars, and she has 2,800 followers on Twitter. She's working on getting a permit to sell near her son's school, so she can be closer to him.

Is she worried about the roving Sprinklesmobile? "I was a little nervous at first," Panetta says. But so far, its presence hasn't hurt sales. "I still have my loyal customers," she says.

Sometimes You're Up, Sometimes You're Down
At Panetta's insistence, I buy a carrot cupcake for the road. I spend the rest of the day marching through Washington's streets, eating more: a vanilla cupcake with chocolate icing from Hello Cupcake in Dupont Circle and a cookies-and-cake cupcake at Sticky Fingers Sweets & Eats up in Columbia Heights. My blood sugar redlining, I head into the subway to check out Red Velvet Cupcakery in Penn Quarter. Counting my share of the cupcakes I split with Morrow, I'm about to eat my seventh cupcake of the day.

Red Velvet Cupcakery is not much more than a very pretty vestibule. The owner's not there, and there's no place to sit, but I order a cupcake anyway, a Southern Belle—the bakery's signature red velvet. I take it next door to the frozen yogurt place, which is decorated in stark white with oscillating light boxes in the middle of the floor. I bite into the cupcake straight on, attacking the side of it like Jaws. The sugar rush hits me. Then comes the crash, a serious one. As the light boxes in the yogurt place go purple green red yellow blue, I slip into a daze. The top-heavy cupcake in front of me slumps over, like a drunk sliding off a barstool. It's now face down in the napkin, its delicate cake betrayed by its weighty icing.

At which point, a thought crosses my mind: Isn't this whole cupcake thing a total fad? Is it about to experience a crash of its own?

I never raised these doubts with D.C.'s cupcake entrepreneurs. But I never had to. Almost all of them brought up the subject—either asked me what I thought or volunteered that the company had some sort of Plan B. (Sprinkles, for instance, is drawing up plans for a frozen dessert place.) Some entrepreneurs even accused me of being coy, saying I must really be working on a story about the death of the cupcake trend. It's easy to understand the worry. The American fascination with cupcakes, a dessert that has been around for decades, seems euphoric, too good to be true.

I stagger outside. I need to find a place where I can buy a salad. I do. I eat it, savoring the cold, crisp lettuce and the dressing's acidity. Then I head back to my hotel and collapse.

"Your Cupcakes F---in' Suck!"
That night, after regaining my strength, I find myself in a drab commercial area north of Georgetown, inside a basement bar unmarked outside except for a small, illuminated sign and a chalkboard easel reading Cupcake Wars, Tonight! It's almost 9 p.m., and—I'm not kidding—there are about 200 rowdy fans staring up at TVs blasting the Food Network. That's when Doron Petersan, the tattooed, raven-haired owner of Sticky Fingers Sweets & Eats, where I had had the cookies-and-cake number earlier, leaps onto the top of the bar and shouts for attention. Tonight, Sticky Fingers, an all-vegan bakery, will be one of the contestants on Food Network's Cupcake Wars. She thanks the crowd, which has come out to support Petersan and her eggless, milkless cupcakes.

"I want you to enjoy the cupcakes!" Petersan shouts, gesturing to the boxes she's brought. "And I want you to drink!" She hoists her own glass of straight rye whiskey. The crowd roars.

Petersan founded Sticky Fingers almost nine years ago. Back then, cupcakes were incidental to the enterprise, just another item in her display case. Then, around 2007, the cupcakes started selling like never before. So she made more.

But veganism was still the main thing. Petersan has been a vegan since 1995, when she was inspired by an internship at PETA. She opened Sticky Fingers in the gentrifying neighborhood of Columbia Heights, in part to serve the students, artists, and activists who were moving in, but also to prove something: Vegan food can be delicious when done right. "I wanted to dispel the stereotype of vegan cardboard," she says.

To Petersan, tonight's episode is a chance to help prove her political point on a national stage, the same thing her business does locally every day. As the show's first elimination round approaches, the crowd, fueled by Pabst Blue Ribbon and hefeweizen and whiskey, shouts at the screen. It boos loudly when the contestant from Worcester, Massachusetts, describes her cupcakes as "very Sex and the City." When Mona Zavosh, a perky lady from Los Angeles, begins to speak about her cupcakes onscreen, a guy in the back shouts over her, "Your cupcakes f—-in' suck!"

There is a moment of tension during the second round of the competition. Zavosh gets the thumbs-up, leaving Petersan and the Worcester lady to face elimination. And there, staring them down from the judges' table, is Candace Nelson of Sprinkles—who, as of a few days earlier, is Petersan's newest competitor in D.C.

"Did you use seltzer water in this chocolate cupcake?" Nelson asks. The answer is no. "I think you should have!" she says. "I was missing that fluffiness, and the lift from the first round, and this one didn't hold together well."

Petersan grimaces. But Nelson ends up being mostly complimentary, as are the other judges. Maybe Nelson was just toying with her. Petersan survives.

She carries the third round. Her hip cupcake igloo structure overwhelms Zavosh's dowdy curtain-and-stage setup, and as the host announces that Sticky Fingers is the winner, the crowd at the bar erupts again. "Tonight," says Leah Nathan, a friend of Petersan's from the animal protection community, "we showed everyone veganism is not just about weirdo food." They celebrate.

I hop into a taxi a little after 10 p.m. and head back to my hotel. From its corporate managers to its foodie activists to its scrappy food truck drivers, D.C.'s cupcake panorama had revealed itself to me. But could anyone compete with Sprinkles's strategic discipline? The week before, I had interviewed Charles Nelson. Though he happily told me the same anecdotes I had heard him and his wife say in every press interview—her lifelong love of baking, the L.A. landlord who hung up on them at the sheer outlandishness of a cupcake bakery, the Cinderella story of how Barbra Streisand ate their cupcakes, fell in love, and sent them to Oprah—he stopped me short when I asked to get the inside story of their business. "We're really not interested in anything behind the scenes," he said. From celebrity endorsements to polished talking points, the Nelsons had the pieces in place to market a high-end, national brand. The Washington store would soon be followed by a New York outpost. They weren't about to take any chances opening up to some nosy cupcake reporter.

There was only one cupcake place left in D.C. I could think of that could possibly rival Sprinkles. As I went to bed around 11, my appointment there—to observe the baking of the next day's first cupcakes—was only two hours away. I tried to get to sleep. The sugar in my blood was turning sickly.

1,080 Cupcakes Before Dawn
When I wake up at 12:40 a.m., I despise cupcakes. I struggle into my coat. Outside, it's frigid.

When I arrive at Georgetown Cupcake a few minutes after 1 a.m., a crew of six has just started setting the cupcake assembly line in motion. One person does nothing but mix batter. Another scoops the batter into large cupcake trays. Another watches the ovens, another makes frosting, and another two, once the first cupcakes come out and cool, will do nothing but frost. After this first batch, a gluten-free Chocolate Lava, they will continue baking cupcakes until around noon, having made batches of all 17 flavors offered in the Wednesday column of the Daily Cupcake Menu, an 8-by-8 card handed to each customer in line.

Two workers on the line this morning are Georgetown Cupcake's co-founders, sisters Katherine Kallinis and Sophie LaMontagne. Though they look very different—Katherine is a year and a half younger and several inches taller, with brown hair and angular features; Sophie is blond and has a rosy, round face—they speak in the same upbeat patter, bouncing off each other's thoughts and completing each other's sentences. "We were voted 'best couple' in high school," Kallinis quips. "Crazy, but it's true," says LaMontagne.

Georgetown Cupcake sells 10,000 cupcakes a day out of this store. Every day, there's a line of people stretching up the block, anywhere from a dozen to as many as 200, from when the store opens, at 10 a.m., until it closes, at 9 p.m.

Though they are just three years into the baking business, the sisters are now also television stars. Since last summer, they have been the main characters of DC Cupcakes, the first reality show all about daily life in the cupcake business. The second season has just begun airing, and they tirelessly do press, fanning the flames of America's cupcake obsession.

Kallinis and LaMontagne weren't supposed to have this life. They grew up outside of Toronto, and their parents, both immigrants from Greece, let the sisters know that they could be whatever they wanted when they grew up: a doctor or a lawyer. "At a very young age, it was made known to us that that should be our career path," says Kallinis.

Because the parents worked long hours, the sisters spent much of their time at their grandparents' house down the street. The grandmother, who had come from Greece, was one of the few housewives in the Kallinis family. While the other Kallinises were at their jobs, she would clean and cook and bake, and the two sisters would help her, learning her exacting standards in the kitchen. When their grandfather died, in 1996, and their grandmother grew sick, the two girls, then in high school, moved in to take care of her. She passed away three months later. For a long time, they both say, they had the same dream about her—that she was still alive, and they had neglected her.

LaMontagne went to Princeton and majored in molecular biology. Kallinis went to Marymount University in Arlington, Virginia, and majored in political science, with the intention of going to law school. Both got jobs, LaMontagne at the venture firm Highland Capital and Kallinis ultimately as an event planner for Gucci in Toronto. But whenever they were home for the holidays, the two would reminisce and talk about someday starting a bakery, to carry on their grandmother's tradition.

They finally made their move on Mother's Day in 2007. The two sisters took their mother out to dinner in New York City and started talking again about the idea. "We were like, 'Let's just do it! What are we waiting for?' " LaMontagne says. Each said she would do it if the other was in. Their mother still thought they were joking. Then Kallinis called them both the following day to say she had just quit her job.

Nevertheless, no one in their family took their dream seriously. LaMontagne's husband dismissed it out of hand. "He thought the two of us just wanted to play bakery," LaMontagne says. So while he was away on a business trip, the sisters signed a $4,800-a-month lease for a tiny store on Potomac Street, just off M Street, in Georgetown.

Georgetown Cupcake opened on Valentine's Day in 2008, to immediate long lines. That was, in a way, a lucky break: They had put themselves at the nexus of the growing cupcake trend and another surefire money source: the throngs of dumb, procrastinating men looking to buy their way out of Valentine's Day. But the lines kept growing longer and longer.

I stop their story. "Why?" I ask. It's a little before 2 a.m., and the first batch of chocolate cupcakes is coming out of the oven. Katherine hands me one. I bite into it. It's slightly crusty on the outside, and the middle of the cupcake, still finishing baking in its own heat, is gooey. The chocolate flavor is deep and rich. And even though I spent the past day gorging on cupcakes, even though I went to bed on a second epic sugar crash and woke up two hours later hating cupcakes and myself, this unfrosted chocolate cupcake, newborn and naked, just washes away my and the whole cupcake craze's sins. Which makes me realize something. Even if this cupcake thing is a passing trend, a total fad, people are using it to create things that are good. Very, very good.

In November 2009, the sisters opened a second location, in Bethesda, Maryland. Because of growing demand from people outside of D.C., they built a bakery next to the Dulles airport. It bakes cupcakes that go immediately onto FedEx trucks to be shipped all over the U.S. overnight. (Customers pay a flat $26 in shipping on top of $29 per dozen cupcakes.) And that was how they won their family over. Their constant appearances in the press, the volume of work involved in running the business, and the exploding revenue the business was bringing in spoke louder than they could. LaMontagne's husband quit his job as a policy analyst and became Georgetown Cupcake's chief financial officer. The sisters' mom helps out, too. They had taken their grandmother's legacy out of the kitchen and into the world and turned it into a business.

Tray after tray of cupcakes comes out of the oven. By 5:30 a.m., a car arrives to take them to the airport. They have a TV appearance today in Los Angeles. They are thinking about building a store there, in Sprinkles's hometown.

When they walk out to the waiting car, 24 trays—some 1,080 cupcakes, or the amount that will be gobbled up in around an hour after the bakery opens later that morning—sit iced and perfect in the store's front two racks. Down the street, Sprinkles has been baking for a couple of hours. In the deceptively sweet world of cupcakes, competition never stops.

Lindsay Price Zoe Saldana Rachel Perry Mary Elizabeth Winstead Piper Perabo