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Cupcake Chain Looks to Add Middle East to Mix

Seven years ago, Sprinkles Cupcakes Inc. struggled to find a landlord willing to lease space because the idea of a cupcake-only bakery was too out there. Now, it’s expanding all the way to the Middle East.

The Beverly Hills company announced last week that it signed a deal with international retail franchise operator M.H. Alshaya Co. of Kuwait City, Kuwait, to open 34 stores over the course of five years. Its first international store will open in Kuwait City at Avenues Mall in December. The second will open in Dubai in early 2013, most likely within the Dubai Mall.

“We think of Sprinkles as an international dessert brand,” said Sprinkles President Charles Nelson, who co-founded the chain with his wife, Candace, in 2005.

The company, which opened its second store in 2006 in Newport Beach, now has 10 locations across the United States, including shops in Chicago; Washington, D.C.; and New York.

With its expansion into the Middle East, Sprinkles will join other locally based food chains that have signed with Alshaya, including L.A.’s Pinkberry Ventures Inc.; Calabasas’ Cheesecake Factory Inc.; and IHOP, a pancake chain owned by Glendale’s DineEquity Inc. L.A.-based California Pizza Kitchen Inc. has stores in the Middle East under a franchise deal with Gourmet Gulf Co. LLC of Dubai.

Under the deal with Alshaya, the Kuwaiti firm will fund construction costs for the new stores. It will also pay Sprinkles a per-shop unit fee as stores open and a percentage of sales once they are operational, said Nicole Schwartz, the company’s vice president of marketing.

Sprinkles would not disclose specific numbers; it might adjust its Middle East expansion plans based on the results of the first stores, Nelson said.

Mohammad Alshaya, executive chairman of Alshaya, in a press release called Sprinkles an “innovative and iconic” brand that will add to his company’s existing franchise portfolio.

Ready to expand

Why the Middle East? Sprinkles’ offerings, including its signature chocolate red velvet cupcakes, have proved popular among Middle Eastern visitors to the United States, Nelson said. The region’s economies also are growing and the population skews younger, with many residents favoring Western brands.

In addition, the Nelsons have visited the region and tasted the food at restaurants Alshaya has franchised there, including Scottsdale, Ariz.-based P.F. Chang’s China Bistro Inc. Charles Nelson said the food quality was exactly the same as in the United States, because Alshaya uses the same ingredients and processes as in the United States, though it must adapt to local customs. IHOP, for example, doesn’t serve pork products at its Middle Eastern restaurants.

“Alshaya is very committed to maintaining a brand exactly as they are in their home market,” said Nelson, who met Alshaya, the executive chairman, about three years ago and started serious discussions about the franchise deal last summer.

Nelson said he also was excited about the expansion after talking to Chief Executive Pinkberry Ron Graves about the yogurt chain’s expansion in the area. Graves could not be reached for comment.

G.J. Hart, chief executive for California Pizza Kitchen, said his company opened its first Middle Eastern store in 2009 in Dubai. While Alshaya is well respected in the region, Hart said he is satisfied with the job Gourmet Gulf is doing.

His advice to those expanding internationally is to do it slowly, opening stores in one country at a time. He noted that the Middle East market is a great one that loves U.S. brands and he’s confident the Nelsons will succeed.

“They have a great product and they’re delivering on it,” he said.

Future growth

Charles Nelson said Sprinkles might expand beyond the Middle East. The company is looking at Asian, European and South American markets and is already in talks with franchise groups in those regions.

Meanwhile, the company has plans to open another Sprinkles store in Los Angeles County in October and its second Sprinkles Ice Cream store in Orange County early next year.

Sprinkles Ice Cream might someday go to the Middle East, but for now the franchise deal with Alyasha is focused strictly on cupcakes.

As former investment bankers, Nelson said he and his wife enjoy running a private company. They’re not planning on taking the company public anytime soon. And they’re not planning to franchise in the United States.

“It’s been an amazing seven-and-a-half years,” he said. “We’re excited to keep going.”

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