Luxury Bakeries Thrive as Consumers Cut Bigger-Ticket Indulgences

As consumers cut major expenses, many continue to spring for small luxuries like baked goods.

Leslie Polizzotto, co-founder and owner of New York City doughnut shop The Doughnut Project in Manhattan’s West Village, said that the products’ premium status has been protecting the store from inflation-related trade-down.

“My doughnuts’ prices have increased,” she said. “My brand is not like Dunkin’ and Krispy Kreme. They’re not my competitors. I like to say we’re the Prada of doughnuts, not H&M. [The doughnuts] range from basically $4.75 to $6.75 in price range each. So, you’re paying a premium to get my product, and the price doesn’t seem to faze people.”

Some of the brand’s customers, including corporate buyers and high-earning Manhattanites, are the sort who would not be paring back their expenses at all. Others, however, are tourists who would not typically spring for a nearly $7 doughnut.

“There are the visitors to New York who are from pretty remote places, and they mention, ‘This is the most I’ve ever spent on doughnuts in my entire life, but it’s worth it,’” Polizzotto said.

The strong performance of the shop comes after a period of major cutbacks during the pandemic, when Polizzotto closed the brand’s second location and laid off staff. Now, the shop runs on a highly limited schedule, open five hours a day five days a week, and the brand is out of debt and profitable.

The shop has a sizable Instagram following (155,000), making it a destination for many. Polizzotto said premium bakeries that do not have pre-established brands are having a more difficult time weathering this inflationary period.

Certainly, consumers are tightening their belts. Research from PYMNTS’ study “Consumer Inflation Sentiment: Inflation Slowly Ebbs, but Consumer Outlook Remains Gloomy,” which drew from a survey of more than 2,100 consumers, found that 70% have cut down on nonessential retail purchases, and a moderately lower 62% have reduced nonessential grocery spending.

Plus, the PYMNTS study “Consumer Inflation Sentiment: In It for the Long Haul,” which surveyed more than 2,300 U.S. adults, said that consumers on average believe it will take another 20 months before inflation returns to 2021 levels. Moreover, about three-quarters of those surveyed are very or extremely worried about the U.S. economic situation.

“A lot of businesses are closing,” Polizzotto said. “There was a bakery on the corner that popped up, and I was like, ‘Oh, no. Are they going to take some of my business?’ And they literally closed within three months. [At] this point, it’s hard to really get [a brand] off the ground right now.”

Indeed, small foodservice businesses’ optimism is waning. For instance, in the first half of 2022, the share facing immediate closure surged. Research from PYMNTS’ study “Main Street Health Q3 2022: SMBs Battle Inflation” found that the share of businesses in the food, entertainment and lodging sectors that consider it “less than somewhat likely” that they will continue to operate for the next two years surged from 4.6% to 8.2% between January and July.