Most people can't discriminate between a cupcake made with margarine or butter or even oil for that matter.
They see Gourmet and they'll pay a little more.
But, with the current economy being in shambles in most places Mom and Pop shops simply can not compete with the Supermarkets.
The Mom and Pop shops make a better product (most of them) using better ingredients (more love and care as well I might add) than the supermarkets but when people are looking for a bargain they'll choose the Supermarket because the prices is a little better.
Many people wouldn't know the difference between a true butter cream icing and something out of a can.
Supermarkets have serious buying power. The really BIG Supermarkets (chains with distribution centers) can buy by the truckload or railroad containers.
Small shops can't compete with the ingredients price. Eggs, Flour, Milk, Chocolate, Baking Powder / Soda, all of these things are cheaper by the truck load than buying them in solo 50lb bag quantities. Supermarkets can afford the 80 quart Hobart / or other brand mixers, the rotary ovens, conveyer systems, etc.
In most cases the supermarket can put out a finished product for about the same price that the ingredients cost the Mom and Pop shop.