Cronut-onomics: Inside The New Dessert Craze

We're all hoping the economy is on the rise, but are things so good that some New Yorkers can afford to shell out $40 for a single pastry?

By now, you've all probably heard of the Dominique Ansel Bakery in Soho, home of the ingenius chef Dominique Ansel, who has recently gained fame for creating the cronut, a hybrid cross between a classic croissant and a doughnut. According to GrubStreet, these yummy treats are made from pastry dough that has been sheeted, laminated, then fried like a doughnut and rolled in flavored sugar. Ansel changes the flavor every month.

Hundreds of New Yorkers have been lining up every day to try this confection, so early Thursday morning I made the trip to the Spring Street bakery to get to the bottom of the cronut craze. I arrived shortly after 7 a.m., an hour before the bakery is schedule to open, to find the line so long it was already wrapped around the next street corner. The first person in line told me he arrived at 5:30 a.m.

At 8:00 a.m. sharp, the line began to move, and by 9:00 a.m. I'd made it to the front. I bought two Cronuts (the new daily limit), and found I hadn't arrived a moment too soon- within two minutes after my purchase, the cronuts were gone. I guarded the bright orange bakery bag with my life and headed back to TheStreet offices to sink my teeth into the delicious, flaky, fried pastry. The consensus? Definitely worth the wait.

However, what caught our attention wasn't how these delicious pastries are made or even the extent of their wild popularity, but instead the going rate for one of these items on black markets such as Craigslist. Scalpers on the black market have been able to take advantage of the scarcity and low cost of the cronuts (Ansel refuses to raise the cost of the pastry from its original price of $5), and have sold them for up to 800% more than their original going rate.

In an article published by New York's Daily Intelligencer earlier last week, Kevin Roose argued that Ansel was making the wrong move by not increasing the price of the pastry and ceasing production of all other bakery items. Roose also contended that by keeping the price of cronuts locked at $5, Ansel was all but endorsing black market activity.

But when asked his reasoning for keeping the price locked, Ansel told MainStreet it was simple.

"I wouldn't want to go to a shop that raises prices on a hot item just because it is popular, and I don't want to be that shop," he said. "I think offering customers the best price possible is the only way to run an honest business. There needs to be a better justification for raising prices than thinking perhaps it may decrease the amount of scalpers."

While the existence of the black market isn't enough to make Ansel raise prices, he does caution customers who are thinking of purchasing cronuts through middlemen looking to turn a quick profit.

"My only concern with people who purchase from scalpers is that they may not be getting a fresh cronut," he said. "It could be days old and stored in an unhygienic way. I wouldn't recommend buying food from a stranger."

Yahoo! Finance came out with a video earlier this week about the Cronut, in which The Daily Ticker's Aaron Task and Henry Blodget describe the cronut craze as a "text-book case" of what you do when you have something that is marketed well:

"The economists, of course, would say this is the absolute best definition of supply and demand. The Dominique Ansel Bakery...makes 200 to 250 cronuts a day... so the lines—and demand for the hard-to-get-item—have followed."

So how did these cronuts become so popular, and are they a flash-in-the-pan fad or here to stay?

Ansel told MainStreet he's still trying to figure these answers out himself.

"I went to sleep with just one photo and a small article on Grubstreet about a new item (same as we do for all our new items) and woke up with 140,000 links to that picture and an email from the reporter saying they had dramatic traffic spikes. I don't know if it's a long-term craze or a fad. I am fine with it either way."

A study by Mintel may also offer answers as to why these cronuts have been doing so well.

According to the study, the dessert segment dominates bakery sales with a 47.9% market share in 2012, but the breakfast bakery segment, with a 22.1% share in 2012, has seen the strongest growth between 2010 and 2012. The hybrid cronut fits into both of these categories.

Also according to Mintel, as the economy heats back up, stand-alone bakeries like Dominique Ansel's are facing increasing competition from in-store bakeries that are more convenient for shoppers with new jobs and little spare time. Only 46% of adults said they'd visited a stand-alone bakery in the past year, as opposed to the 81% who said they've visited an in-store bakery. However, in addition to fresh offerings and customer service, it is certain segments like the cronut that are keeping stand-alone bakeries in business and giving in-store bakeries a run for their money.

This is certainly the case for Ansel's bakery, as each week he is working to produce more and more cronuts. He started with a humble contingent of 50 cronuts, but his batch sizes have grown markedly.

"Keep in mind, we're not a cronut shop, and this was just meant to be a fun new item out of the 30-something other pastries we do," he said. "We've since quadrupled production. Last week it was 200, this week is 250, and soon it'll be 300. We need time to staff up and make sure we're maintaining quality in the items we do."

--Written by Sarah Lindner for MainStreet

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