Question: The Rise of Finagle A Bagel

Would bagels sell in Hong Kong? Laura Beth Trust and Alan Litchman planned to find out. Trust was in Hong Kong working in the garment manufacturing industry, and Litchman was in real estate, but they were eager to start their own business. They were particularly interested in running a business where they would have direct customer contact and be able to get first-hand feedback about their products and services. And no matter what kind of business they started, it would be a family undertaking: The two entrepreneurs recently had decided to get married. Looking around Hong Kong, Litchman and Trust noticed numerous Western-style food chains such as McDonald's, Pizza Hut, KFC, and Starbucks but no bagel places. Yet they believed that Hong Kong's sophisticated, multicultural population would welcome authentic New York-style bagels. Although both the entrepreneurs had MBA degrees from the Sloan School of Management, neither had any restaurant experience or knew how to make a bagel. Still, because they sensed a profitable opportunity and possessed solid business skills, Trust and Litchman decided to move ahead. The two incorporated a company, found a partner, and then returned to the United States to investigate the bagel business. As part of their research, they approached two knowledgeable experts for advice. One of the bagel experts was Larry Smith, who in 1982 had cofounded a tiny cheesecake store in Boston's historic Quincy Market. When business was slow, the store began selling bagels topped with leftover cream cheese. By the late 1980s, this sideline was doing so well that Smith and his partners changed their focus from cheesecakes to bagels and changed the store's name from Julian's Cheesecakes to Finagle A Bagel. They relocated the store from a cramped 63-square-foot storefront into a more spacious 922-square-foot space in the same busy market complex. Soon, so many customers were lining up for bagels that the owners began opening additional Finagle A Bagel stores around downtown Boston.

NEW OWNERSHIP, NEW GROWTH

By the time Trust and Litchman met Smith, he was operating six successful bagel stores, was ringing up $10 million in annual sales, and was looking for a source of capital to open more stores. Therefore, instead of helping the entrepreneurs launch a business in Hong Kong, Smith suggested that they stay and become involved in Finagle A Bagel. Because Litchman and Trust had roots in the Boston area, the opportunity to join a local bagel business was appealing both personally and professionally. Late in 1998, they bought a majority stake in Finagle A Bagel from Smith. The three owners agreed on how to divide management responsibilities and collaborated on plans for more aggressive expansion. Within a few years, Trust and Litchman completed a deal to buy the rest of the business and became the sole owners and copresidents. The business has grown every year since the conversion to bagels. Today, Finagle A Bagel operates twenty stores in downtown Boston and the surrounding suburbs. Because Finagle A Bagel outgrew its original production facilities, the owners recently purchased a new corporate headquarters and production center in Newton, Massachusetts. This is where tens of thousands of bagels are prepared every day, along with enough cream cheese and cookies to supply a much larger network of stores.

BRANDING THE BAGEL

Over time, the owners have introduced a wide range of bagels, sandwiches, salads, and soups linked to the core bagel product. Bagels are baked fresh every day, and the stores receive daily deliveries of fresh salad fixings and other ingredients. Employees make each menu item to order while the customer watches. Some of the most popular offerings include a breakfast bagel pizza, salads with bagel-chip croutons, and BLT (bacon-lettuce-tomato) bagel sandwiches. Finagle A Bagel is also boosting revenues by wholesaling its bagels to thousands of universities, hospitals, and corporate cafeterias. In addition, it sells several varieties of bagels under the Finagle A Bagel brand to the Shaw's Market grocery chain. Shaw's has been expanding in New England through mergers and acquisitions, opening new opportunities for its bagel supplier. "As they grow, we grow with them," comments Litchman. "More importantly, it gets our name into markets where we're not. And we can track the sales and see how we're doing." If a particular Shaw's supermarket registers unusually strong bagel sales, the copresidents will consider opening a store in or near that community.

THE BAGEL ECONOMY

Although Finagle A Bagel competes with other bagel chains in and around Boston, its competition goes well beyond restaurants in that category. "You compete with a person selling a cup of coffee; you compete with a grocery store selling a salad," Litchman notes. "People only have so many ‘dining dollars' and you need to convince them to spend those dining dollars in your store." Finagle A Bagel's competitive advantages are high-quality, fresh products, courteous and competent employees, and clean, attractive, and inviting restaurants. During a recent economic recession, Boston's tourist traffic slumped temporarily, and corporate customers cut back on catering orders from Finagle A Bagel. After the company's sales revenues remained flat for about a year, they began inching up as the economy moved toward recovery. Now the business sells more than $20 million worth of bagels, soups, sandwiches, and salads every year.
SOCIAL RESPONSIBILITY THROUGH BAGELS

Social responsibility is an integral part of Finagle A Bagel's operations. Rather than simply throw away unsold bagels at the end of the day, the owners donate the bagels to schools, shelters, and other nonprofit organizations. When local nonprofit groups hold fund-raising events, the copresidents contribute bagels to feed the volunteers. Over the years, Finagle A Bagel has provided bagels to bicyclists raising money for St. Jude Children's Research Hospital, to swimmers raising money for breast cancer research, and to people building community playgrounds. Also, the copresidents are strongly committed to being fair to their customers by offering good value and a good experience. "Something that we need to remember and instill in our people all the time," Trust emphasizes, "is that customers are coming in, and your responsibility is to give them the best that you can give them." Even with 320-plus employees, the copresidents find that owning a business is a nonstop proposition. "Our typical day never ends," says Trust. They are constantly visiting stores, dealing with suppliers, reviewing financial results, and planning for the future. Despite all these responsibilities, this husband-and-wife entrepreneurial team enjoys applying their educational background and business experience to build a company that satisfies thousands of customers every day.

1. How has the business cycle affected Finagle A Bagel?

2. What is Finagle A Bagel doing to differentiate itself from competitors that want a share of customers' dining dollars?

3. Why would Finagle A Bagel donate bagels to local charities rather than give them away to customers or employees?

4. If you wanted to open a bagel restaurant in Hong Kong, would you license the Finagle A Bagel brand? Why or why not?