Page 193

SPRINKLES CUPCAKES:
A CASE STUDY OF CREATING A SUCCESSFUL
INTERNATIONALIZATION STRATEGY

Dennis C. Chen, Belmont University

Jeff Overby, Belmont University
Barry L. Padgett, Belmont University
Neda Long, Belmont University
Lauren Hills Mellott, Belmont University
Lauren Vandermark, Belmont University
Nickolette Kennedy, Belmont University
Leah Boone, Belmont University

CASE DESCRIPTION

The primary subject matter of this case concerns developing an internationalization

strategy for a growing business, Sprinkles Cupcakes. The business owners, Candace and
Charles Nelson have grown their business from one store in 2005 to 17 stores in the US and
1 in the Middle East under a licensing agreement. Their innovations include using the
highest quality ingredients (e.g. sweet cream butter, bittersweet Belgian chocolate, pure
Madagascar vanilla, fresh bananas, carrots, real strawberries, and natural citrus zests)
baked fresh daily in small batches, and the creation of a 24-hour cupcake ATM machine.
Questions that students should consider include how should Sprinkles continue to grow their
business? What types of internationalization strategy could they consider? Should they
focus on domestic growth first? Which countries could they target for growth? What changes
if any could/should they make to their business/product when they expand internationally?
What considerations should they take into account if licensing or entering wholly owned
operations when expanding internationally? The case has a difficulty level appropriate for a
junior or senior level course, although it may be used at a first-year graduate level,
depending on the amount and complexity of the background information that is assigned.
The case requires one hour (if the goal is class discussion only) to three hours (if the
instructor’s goals involve presentations by individuals or teams of students). This is relevant
topic to students studying international business and how to successfully create and
implement an internationalization strategy.

Journal of the International Academy for Case Studies, Volume 21, Number 3, 2015
Page 194

CASE SYNOPSIS

Everyone loves a good cupcake. Sprinkles Cupcake owners, Candace and Charles
Nelson, have created over 20 delicious cupcake recipes. They have grown their business
from one store in 2005 to 17 stores in the US and 1 in the Middle East under a franchising
agreement. Now they need to consider an internationalization strategy to continue to grow
their business. This case raises several internationalization strategy questions. How do they
develop an internationalization strategy? How does an internationalization strategy differ
from their corporate strategy? Should they continue to expand internationally or instead
focus on growth domestically? If they do decide to continue international expansion, what
countries should they target first and why? Finally, how should they expand internationally,
by franchising or by wholly owned subsidiaries?

The Birth and Growth of the Sprinkles’ Cupcake

During a visit in 2002 to New York City, Candace Nelson, and her husband Charles
Nelson, tried the cupcakes at a well-known bakery. As Candace explained, “I get the cupcake
thing – cupcakes are awesome, but the cupcakes aren’t that great.” Candace believed that it
was “time for cupcakes to stop being the backup dancer to cakes,” and that cupcakes “could
taste so much better.” Candace and Charles took it upon themselves to create a better
cupcake, and over the next two years, the couple developed over 20 cupcake recipes. (Cava,
2007)

The decision to start a cupcake bakery was a high-risk venture; especially since the
bakery business was in a four-year decline in the U.S. Despite the odds, the Nelsons pursued
their dream. In April 2005, the Nelsons opened the first Sprinkles store on Little Santa
Monica Boulevard, in Beverly Hills, California. On their first day of operation, the cupcakes
sold out in just one hour, and in the first week, the Nelsons sold over 2,000 cupcakes. Based
on this success, the Nelsons quickly decided to open more stores. (Davidow, 2007)

The Nelsons wanted their stores to reflect a sophisticated image, so they sought out an
architect from Vienna to design Sprinkles’ “sleek, minimalistic” storefronts. The company’s
modern theme is carried through to its logo and packaging, which were created by a former
Martha Stewart employee (see Exhibit A). In fact, the company’s cupcakes are most
recognizable by their traditional “modern dot” topping. Candace Nelson hand-crafted her
cupcake recipes by using the highest quality ingredients including sweet cream butter,
bittersweet Belgian chocolate, pure Madagascar vanilla, fresh bananas, carrots, real
strawberries and natural citrus zests. All of the cupcakes are baked fresh daily, in small
batches, and contain no preservatives, trans fats or artificial flavors. Sprinkles has a
"sophisticated" take on the classic cupcake and even sells specialty offerings like vegan and
gluten-free cupcakes and dog-food cupcakes.
Journal of the International Academy for Case Studies, Volume 21, Number 3, 2015
Sprinkles is credited with being the world’s first exclusive cupcake bakery by The
Food Network and as “the progenitor of the haute cupcake craze” by the Los Angeles Times.
Sprinkles’ business concept is often where many cupcake entrepreneurs take their inspiration.
 Page 195

Since 2005, the Nelsons have expanded their cupcake business into twelve U.S. locations. In
2011, the company entered into a franchise agreement with M.H. Alshaya Co. - the same
company that has helped brands like Cheesecake Factory and Starbucks expand
internationally – to help them expand into the Middle East. Sprinkles’ first international store
opened in Kuwait City in December 2012. In the coming years, the company plans to open
stores in 15 more cities, including London and Tokyo. (Craig, 2013)

More than One Way to Eat a Cupcake: Current Products

As of 2013, there are four options for customers to purchase these high-end cupcakes:
the traditional retail storefront in 12 locations, a mobile cupcake truck, a cupcake vending
machine, and cupcake mix sold online and in stores. In the retail cupcake stores, flavors are
rotated throughout different days of the week, along with seasonal offerings. Sprinkles
cupcakes are a premium product, with single cupcakes priced at $3.75 and a dozen priced at
$42.

Stores are located mainly on the West coast: Beverly Hills, Los Angeles (2), Newport
Beach, Palo Alto, and La Jolla. Other branches are in Chicago, Dallas, Houston, Scottsdale,
New York City, and Washington, D.C. The interior of the store has been fashioned as a
“bar” setting. The store is set up to “[evoke] the memory of European bakeries flooded with
the smell of baked goods and awash in natural light.” (www.sprinkles.com/about/design)
Patrons are encouraged to sit and stay in the store to enjoy their cupcakes. About 1,500
cupcakes are sold in every retail store every day.

Sprinkles has a mobile cupcake truck in California, known as the Sprinklesmobile.

The company uses social media, such as Twitter, to let customers know where the truck is
located for the day. It is set up in high traffic areas and at public events and festivals around
Los Angeles. The truck only stays in each location for four or five hours at a time. The
Sprinklesmobile can be rented for private events. L.A. is currently the only city with the
cupcake food truck.

In keeping with the trend of bringing the product to the customer, the newest
inception is the “cupcake ATM.” It is basically a vending machine for “cupcakes on the go.”
The first one was located outside of the original retail store in Beverly Hills. A second
cupcake ATM opened up in downtown Chicago in 2012. Each vending machine is restocked
nightly with a variety of flavors to keep the offerings fresh and is open 24 hours. This new
idea sells around 800 to 1,000 cupcakes a day (per locale) and has received very positive
fanfare from customers.

Finally, consumers can enjoy Sprinkles at any time by purchasing the cupcake mix,
sold on shelves and online. The mix is presently distributed exclusively through Williams-
Sonoma. It is packaged in sixteen ounce containers priced at $14.95. A set of two is sold at
$19.95. Each container will make 12 cupcakes. The mixes are made up of the same high
quality ingredients used to bake the cupcakes in retail cupcake stores and are offered in

Journal of the International Academy for Case Studies, Volume 21, Number 3, 2015
Page 196

limited flavors of dark chocolate, red velvet, vanilla, and lemon. These different means of
product distribution allows Sprinkles to conveniently reach a wide range of customers.

International Growth: Dealing with Obstacles

After finding great success with their first store in the heart of Hollywood, Sprinkles
Cupcakes was approached by leading franchise operator M.H. Alshaya. M.H. Alshaya had
helped franchise household names such as Starbucks, American Eagle Outfitters, Victoria’s
Secret, Cheesecake Factory, and Pinkberry. With the help of their new partner, Sprinkles
began to look overseas for potential growth opportunities.

Charles Nelson saw the potential in the Middle East as a growth economy. He also
noted an emergent affinity in the Middle East for goods from the Americas, particularly
among the younger generation. As a result, Sprinkles and M.H. Alshaya decided to open
their first international cupcake store in Kuwait. When the store opened its doors in
December of 2012, it would only be the first in a plan to open an additional 34 stores in the
Middle East. Although areas of the Middle East may seem risky for new business ventures,
Sprinkles took into account a solid market analysis and cultural norms before moving
forward with the expansion into the Middle East. According to the International Monetary
Fund (IMF), the Middle East economy was expected to grow at 3.6% during 2013, a good
deal higher than the 2.6% forecasted growth for the United States.

Sprinkles international market expansion has not been without obstacles and
modifications to its products and services. Many of the early issues stemmed from cultural
differences between the United States and the Middle East. For instance, alcohol is forbidden
by Islam and is illegal in several Middle Eastern countries. Therefore a substitute for vanilla
extract (which contains alcohol) had to be found. Sprinkles also faced difficulties when trying
to import ingredients such as butter for its Kuwait operation. Countries in the Middle East
can often take up to three weeks to approve such imports because of various administrative
barriers and red tape or simply wanting to ensure the integrity of the supply chain. Sprinkles
also altered their cupcake offerings to include custom items that symbolized local holidays
and monuments.

With an additional investment from KarpReilly LLC, a private investment firm, in

January 2013, Sprinkles will forge towards additional product offerings and growth. This in
addition to the product offerings of the Sprinkles “automated” cupcake ATM, Sprinkles Ice
Cream and the mobile Sprinkles food truck. Sprinkles Cupcakes has immense opportunities
ahead of them but they will need to balance globalization with maintaining their small
cupcake store roots.

The Future: Goals for Growth

Sprinkles Cupcakes has several goals on the horizon as they look for different ways to
expand their business. With the success of their franchise agreement with M.H. Alshaya Co.,
Sprinkles Cupcakes has plans to have thirty-four new locations spread across Egypt, Jordan,
Kuwait, Lebanon, Morocco, Oman, the Kingdom of Saudi Arabia, and the United Arab

Journal of the International Academy for Case Studies, Volume 21, Number 3, 2015
 Page 197

Emirates (Urban). However, one major question is whether they should capitalize on their
Middle East growth and seek more franchise agreements in the area or in other parts of the
world.

Another potential avenue is to expand on the success of the Sprinkles Cupcakes

baking mix and pursue a larger distribution network in conjunction with or beyond William
Sonoma. Williams Sonoma, also partnering with M.H. Alshaya Co., began their international
expansion in 2010 with locations in Dubai and Kuwait and currently ships to over 75
countries. There are obvious synergies that these companies could exploit. Sprinkles could
also pursue distribution agreements with other specialty food stores or larger food chains
such as Whole Foods. Sprinkles could also pursue other opportunities to deploy their
Sprinklesmobile and/or their vending machine domestically or internationally. Remaining
innovative is critical to continued growth in a more and more saturated cupcake market.

Lastly, Sprinkles could begin to diversify their product offering internationally. For
example, instead of just selling cupcakes, they have begun to sell ice cream domestically.
This broadens their customer base and is an easy item to sell within their current store format
as well as to grocery stores. Their first ice cream store opened in Beverly Hills, California,
next door to their existing cupcake store. Sprinkles Cupcakes plans to open more ice cream
stores in Newport Beach, California and Dallas, Texas. Not only is this another way to grow
their sales, but the additional products will also help to increase brand recognition and drive
more sales for their existing cupcake business. Success with the ice cream product does not
necessarily translate to a successful product internationally, so Sprinkles will need to
determine what will work in their international target markets.

The Nelsons have a lot to consider. Should they pursue an internationalization

strategy, and if so, how do they develop such a strategy? How would an internationalization
strategy differ from their corporate strategy? Should they continue to expand internationally
or instead focus on growth domestically? If they do decide to continue international
expansion, what countries should they target first and why? Finally, how should they expand
internationally, by licensing and franchising or by wholly owned subsidiaries?

Journal of the International Academy for Case Studies, Volume 21, Number 3, 2015
Page 198

Exhibit A | Sprinkles Photos

Beverly Hills, California Storefront

Source: www.metainteriors.com

Kuwait City, Kuwait Storefront

Source: FOXBusiness

Journal of the International Academy for Case Studies, Volume 21, Number 3, 2015
 Page 199

Trademark Modern Dot Cupcake

Source: anyluckypeny.wordpress.com

Cupcake Truck

Source: bestfamilytraditions.com

Journal of the International Academy for Case Studies, Volume 21, Number 3, 2015
Page 200

Exhibit A | Sprinkles Photos

Beverly Hills, California Storefront

Source: www.metainteriors.com

Kuwait City, Kuwait Storefront

Source: FOXBusiness

Journal of the International Academy for Case Studies, Volume 21, Number 3, 2015
 Page 201

Trademark Modern Dot Cupcake

Source: anyluckypeny.wordpress.com

Cupcake Truck

Source: bestfamilytraditions.com

Journal of the International Academy for Case Studies, Volume 21, Number 3, 2015
Page 202

Sprinkles ATM

Source: www.huffingtonpost.com

Journal of the International Academy for Case Studies, Volume 21, Number 3, 2015
 Page 203

Exhibit B | Sprinkles’ Locations

 Arizona
o Scottsdale

 California
o Americana at Brand
o Beverly Hills
o The Grove
o La Jolla
o Los Angeles
o Newport Beach
o Palo Alto
o Westlake Village

 Georgia
o Atlanta

 Illinois
o Chicago

 Nevada
o Las Vegas

 New York
o New York City, Downtown
o New York City, Upper East Side

 Texas
o Dallas
o Houston

 Washington (Georgetown), D.C.

 Kuwait
o Kuwait City

Journal of the International Academy for Case Studies, Volume 21, Number 3, 2015
Page 204

REFERENCES

Almendrala, A. (2012). Sprinkles Cupcake ATM: See How It Works (VIDEO) (March 6), The Huffington Post.
Retrieved March 19, 2013 from http://www.huffingtonpost.com/2012/03/06/sprinkles-cupcake-atm-
see_n_1324305.html.

Cava, M. (2007). Cupcake bakeries cater to the kid in us (October 30). Retrieved March 1, 2013, from
http://usatoday30.usatoday.com/life/lifestyle/2007-09-18-cupcakes-cover_N.htm.

Chen, J. (2012). Sprinkles Cupcakes to Open 34 Stores in the Middle East, Just Months After, ‘Cupcake Automats’
Launch (June 21), New York Daily News. Retrieved on August 26, 2014 from
http://www.nydailynews.com/life-style/sprinkles-cupcakes-open-34-stores-middle-east-months-cupcake-
automats-launch-article-1.1099423.

Craig, V. (2013). Sweet Success: America’s Cupcake Craze Goes Global (February 22), Fox Business. Retrieved
March 12, 2013, from http://www.foxbusiness.com/industries/2013/02/19/sweet-success-americas-
cupcake-craze-goes-global/#ixzz2NlKxlmId

Davidow, A. (2007). So, Sweetie, I Quit to Bake Cupcakes(June 3), The NY Times. Retrieved March 10, 2013, from
http://www.nytimes.com/2007/06/03/fashion/03cupcake.html?pagewanted=all&_r=0.

Karp Reilly (2013). Sprinkles Cupcakes Poised for Growth as it Announces Partnership with KarpReilly (January
17). Retrieved on August 26, 2014 from http://www.karpreilly.com/news_01_17_2013.html.

Urban, B. (2012). Sprinkles Cupcakes to Open 34 Location in the Middle East (June 19), Business Wire. Retrieved
on March 19, 2013 from http://www.businesswire.com/news/home/20120619006452/en/Sprinkles-
Cupcakes-Open-34-Locations-Middle-East#.U_zhAmPgXf4.

Williams-Sonoma (2009). Williams-Sonoma, Inc. Announces International Expansion Agreement M.H. Alshaya
Co. to Franchise Brands in Middle East (July 29). Retrieved on August 26, 2014 from http://www.williams-
sonomainc.com/files/press-releases/WSM-Alshaya-Announcement.pdf.

www.sprinkles.com, Design information, retrieved on September 9, 2014, from

http://www.sprinkles.com/about/design.

Journal of the International Academy for Case Studies, Volume 21, Number 3, 2015
Copyright of Journal of the International Academy for Case Studies is the property of Jordan
Whitney Enterprises, Inc. and its content may not be copied or emailed to multiple sites or
posted to a listserv without the copyright holder's express written permission. However, users
may print, download, or email articles for individual use.