Gimme A Bagel With Legs

It's 8 a.m. at Bruegger's Bagel Bakery in Denver. Polly E. Parson, a doctor at Denver General Hospital, picks up a sackful of bagels for the interns and resident physicians she oversees. "They're excited to get bagels," she says. "I brought doughnuts once, and they left them."

Who doesn't love these chewy, doughnut-shaped rolls? Once, bagels were just boiled bread, a Jewish delicacy as foreign to heartland Americans as matzoh balls. But now, from Boise to Biloxi, they're the snack food of the '90s. Fast-growing bakery chains offer bagels in unorthodox flavors that would bewilder the immigrants who brought them a century ago from Eastern Europe: sun-dried tomato, spinach pesto, papaya, and chocolate chip. And instead of cream cheese and lox, they're being slathered with "lite" cheese and jalapeos or bacon. Sales of packaged bagels, with a shelf life of two weeks instead of two days, are on the rise, too. Now, some big food franchisers are taking a closer look at the bagel boom.

Like cookies, muffins, and cinnamon rolls, bagels are a portable snack food--but, says Carol Kroskey, senior editor of Bakery Production & Marketing, with a guilt-free difference: "They're healthy treats. Bagels have less of an evil profile than a high-fat cookie." Made with no shortening and never more than a pinch of sugar, bagels are low in fat.

Americans are expected to buy $2.3 billion worth of bagels this year, up 33% over the past five years, says Kroskey, who predicts a 50% increase in the next five. Bagel shops, whose sales should total $450 million this year, are the fastest-growing segment of the market.

McBAGEL'S? That increase comes in large part from chains such as Bruegger's, the industry giant, which projects that its 207 stores will grow to 1,000 by 1998. Privately held Bruegger's Corp. doesn't break out results but says that company-owned and franchised stores had total sales last year of $81 million and predicts that will climb to $145 million this year. Publicly traded Manhattan Bagel Co. earned $506,585 last year, on revenues of $6.2 million, primarily from sales of raw bagels and spreads to franchised stores plus franchise fees. The number of stores has more than doubled this year, to 131, mostly in the East, but Manhattan is expanding into California. Fast-growing Big Apple Bagels adds bagel dogs, pizza bagels, and chocolate-covered bagel chips to its menu, and it is testing bagel drive-throughs.

Supermarket bagel sales are booming, too, helped by the market-building done by the chains. Last year, more than $1.2 billion worth of bagels rolled out of supermarket doors. Kraft Foods Inc. sold its bakery operations in June--but held on to Lender's Bagel Bakery, the No.1 grocery brand. Both Kraft and Sara Lee Corp. have introduced fresh supermarket bagels, a fast-growing segment.

"CREDIBILITY." Such hot expansion has attracted the attention of some savvy food marketers. In March, Starbucks Coffee Co. paid $11 million for 20% of Noah's New York Bagels Inc., a California company with 27 outlets near San Francisco. Now, Noah's is expanding into Los Angeles, where industry sales are growing nearly fivefold a year. "Starbucks gave us financing, a great strategic partner, and credibility with landlords and bankers," says Noah's president and CEO, William B. Hughson. He has a dozen stores in development adjacent to Starbucks coffeehouses.

Meanwhile, Boston Chicken Inc., which pushes home-style prepared dinners, is lending as much as $80 million to Progressive Bagel Concepts Inc. in exchange for options on more than half the company's stock. "Bagels in the morning is the same thing Boston Market is doing for dinner," says Mark W. Stephens, CFO of Boston Chicken, which will provide capital and support services but stay out of management. Progressive Bagel, a merger of four independent chains, has just opened its prototype einste!n bros. bagel store in Ogden, Utah, and plans to convert all 53 of its outlets to einste!n's. It will add some 300 more by the end of 1996. The company uses a contemporary cafe format and also serves lattes, herbal teas, and sandwiches. In fact, despite their New York names, most of the new bagelries, with their crisp, clean lines and bright graphics, look more like California coffee bars than Big Apple delis.

Is the market big enough for all these bagel arrivistes? When Bruegger's opened a store in Bethesda, Md., on the same block as Bethesda Bagels, a longtime local bakery that makes bagels by hand, the outcry reached the front page of the local paper. But Bethesda Bagels is doing fine despite the new competition. Its newest plan: franchising, of course.

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