Bruegger's Bagels Research Paper

History of Bruegger's Bagels:

Bruegger's Bagels was founded in 1983 in Troy, New York by Nord Brue and Mike Dressell. They were the first people bringing New York-style bagels to neighborhoods all over North America. To make their recipe and baking process perfect，Brue and Dressell learnt with a professional bagel baker from New York City for two years and half. And they make the bagel have a crisp shell and soft, chewy center. Until that time, bagels were known mostly as a local food and not recognized outside of New York. At that time, less than 30 percent of Americans had ever tasted a bagel.

"From their home base in Burlington, Vermont, Nord and Mike developed Bruegger’s into a fast casual bagel bakery, a comfortable place to enjoy breakfast, lunch or a mid-day coffee break." Bruegger's Bagels not only baked fresh authentic New York-style bagels throughout the day, but also offers a variety of menu items to its guest: fresh-baked breads, proprietary Vermont cream cheese varieties, custom-roasted coffee, breakfast sandwiches, garden-fresh salads, hearty soups, lunch sandwiches, panini and desserts. In addition, the menu changes frequently which can reflect seasonal and geographical specialties.

In June 1996, Quality Dining bought Bruegger's Bagels for $ 142 million in stock; in addition, the founders of Bruegger's Bagels joined the Quality Dining board. However, this merge did not satisfy the founders, in a short time, "Brue and Dressell became concerned with the ongoing operations and scope for growth, leading to a critical U.S. Securities and Exchange Commission (SEC) filing alleging a lack of strategic direction." Since Brue and Dressell are holding a combined 26% stake, they called for reorganization of Quality Dining. As a result, Bruegger's Bagels was resold to Brue and Dressell in October 1997 for $45 million. Nordahl Brue called this merge as "My biggest mistake" The Wall Street Journal described Quality Dining's purchase of the Bruegger's Bagel Bakery chain as "One of the most immediately disastrous acquisitions in American business"
In May 2003, James J. Greco and Sun Capital Partners acquired the company from the founders. Today, almost 30 years after the first Bruegger's opened, there are more than three hundred Bruegger's bakeries in twenty six states, the District of Columbia and Canada.

Advantages and disadvantages of franchising:
The first advantage of franchising is reducing capital requirements.

The parent company can have extremely low costs than the company-owned restaurants or stores. In the franchising model, "the independent business owner typically assumes all the costs of opening and running the franchised business, leaving the corporate headquarters responsible for activities such as marketing and administrative activities."

The second advantage of franchising is rapid expansion. Due to the lower costs to start franchising businesses compare to opening corporate-managed companies, the franchising has a much greater rate of expansion. The entrepreneur has limited ability to raise capital when start a new business, therefore, franchising is the most effective way to expand rapidly into new markets.

The first disadvantage of franchising is increased variation. The markets in different area may require increased variation in prices and products. For example, a food restaurant located in Texas may have customers with different tastes than those in California or in East Coast. "This may make branding and marketing more difficult to manage on a national

basis."
The second disadvantage of franchising is lack of control over quality. Because of the franchising business always expand quickly; it is difficult to control the "numerous business operators working independently from one another." “In a corporate-owned location, service, cleanliness and other areas of quality can be more closely regulated and monitored than in independent franchises.”Once a significant defect in quality happened in one store, the entire organization and other stores will have a detrimental effect as well.

Marketing/Advertising:
Marketing strategy:
The first Bruegger's Bagels was opened in 1983 in Troy, New York. It was used to be a local store at that time. However, Brue and Dressell's plan was to "grow six-by-six-by-six: adding six stores in six separate markets in six years." It showed that they were ambitious to expand their business cross America. But it took longer than anticipated for them to reach their goal. By the early 1990s, Bruegger's Bagels was growing rapidly. "There started to be a rising tide of interest in the bagel business." The competition among Starbucks, fast food service companies and bagel market became fierce. Today, almost 30 years after the first Bruegger's opened, there are over 300 Bruegger's bakeries in 26 states, the District of Columbia and Canada. However, I still see Bruegger's Bagels as a national business since there are only a few stores opened outside America and they are all neighbors of the United States. This strategy is a very good choice for Bruegger's Bagels since it is a local food from New York; it can satisfy the need of busy white collars in America. However, in other countries, people might be difficult to accept this food. For example, English people prefer enjoy afternoon tea with scones and sandwiches; Japanese people have sushi, takoyaki, and fish balls; Chinese people have tons of snacks which are tastier than bagels. Therefore, bagel is more likely to be an American food and it is wise decision to not expand Bruegger's Bagels into the international market.
Advertising fee:
The advertising fee arrangements for the franchisees is 2% of the gross sales which is used to promote Bruegger's both nationally and locally. The advertising fee of subway is 12.5% per week, 4.5% per year for KFC, and 4% per year for McDonald's. Comparing to the high advertising fees of the other food franchise companies, Bruegger's Bagels advertising fee is much lower than them. Of course, its advertisement and fame is not as good as the others. However, it makes entrepreneurs easier to start their business.

Operations Management:
Supply chain and procurement strategies:
"The proprietary dough must be purchased from a nearby commissary, an approved vendor, or produced in your own commissary. Bruegger's requires that you purchase most other supplies from authorized vendors and designates the use of specific products in your bakery-café." This is the requirements Bruegger's Bagels gives to the franchisees. They can buy supplies from authorized vendors instead of central procurement of supplies.
The advantage of this strategy is that it can save some money since the franchisees can buy materials from nearby approved vendors. In central procurement, they have to spend more money on transporting and some of the store may be far from the central procurement location. Also, this strategy can make the company have some business alliance with the authorized vendors and commissary; they can make profit together. The disadvantage is also because of the vendors. They may provide the low quality materials which will decrease the reputation of the franchise company. The central procurement can guarantee the quality of the raw materials.

Costs:
The estimated initial development costs of a single bakery-café range from $404,600 to $591,600, which includes the franchise fee but does not include the lease or purchase of real estate. The franchise fee is $30,000. The square footage of Bruegger's Bagels' real estate is always between 1800 to 2200 square feet. The store should be located in a high population area where people are highly educated, high percentage of white collar workers and high daytime population. Therefore, center city is the most appropriate place to locate stores. According to my research, a retail storefront in downtown is around $3500 per month. The Baker's net monthly average salary is $1500. Therefore, the total fixed cost is about $7000 per month. The raw material of one unit bagel is about $0.2 adding the 5% gross sales royalty fee and 2% of the gross sales advertising fee, the variable cost of a bagel is about $1. The price of one bagel is about $4.
The break-even point = Total fixed costs / price of one unit - Variable costs of one unit = $7000 / $4 - $1 = 2300 units
The Bruegger's Bagels' break-even point is about 2300 units which means every month, as long as they sell 1000 units of bagel, 1000 cups of coffee, and some salad and soup, they can earn money from the business.
The franchisees will need to demonstrate financial stability, with liquid assets available to devote to this project of $150,000 and a minimum net worth of $335,000.
Bruegger's Bagels does not provide financing to the franchisees. "Bruegger's is registered with the SBA Franchise Registry, which expedites the processing of SBA loans should franchisees decide to apply for SBA financial assistance. Bruegger's also has developed relationships with a number of lenders, both conventional and SBA, who are comfortable lending to the franchise restaurant owners." In other words, Bruegger's Bagels does not provide any loan or financing to franchisees directly. The franchisees have to get the capital and starting cost by themselves. However, the parent company can help the franchisee get loan from SBA or other lenders by its relationship and influence among the lenders.
The royalty fee is 5% gross sales.

Human Resource Management:
Before the franchisee open the first two bakeries, Bruegger's dedicated trainers will make sure that the owner and the employees are familiar with the proven and effective operating concepts. The franchisees and their operating partners will be train in one of the Training Bakeries for up to 8 weeks before the opening of your first bakery-café. In addition, one of the experienced Franchise Operations Consultants will be assigned to assist the new franchisees with the first two bakeries they open and provide ongoing site visits, training and operational assistance.