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How To Start A Bagel Shop

How To Start A Bagel Shop

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How To Start A Bagel Shop

How To Start A Bagel Shop

Who doesn’t love bagels? The allure of a warm, freshly baked bagel, complete with its delightful crust and soft interior, has tempted taste buds worldwide.

If you’re considering diving into the world of bagelry and opening a shop of your own, you’re not only offering a beloved food staple but also a gathering spot for morning routines and lunch meet-ups. Starting a bagel shop might seem overwhelming, but with the right guidance and understanding of the business, your dream can become a reality.

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Business Overview

A bagel shop is a specialized bakery focusing on producing and selling bagels, often accompanied by an assortment of toppings, cream cheese or other spread options, and sometimes other bakery items. Depending on the shop, some shops also serve coffee, tea, and other beverages to complement the meal.

Bagel shops can range from quaint nooks in busy city streets to larger establishments with a more expansive menu, including sandwiches, soups, and salads. Some bagel shops are designed mainly for takeout, but most have seating and other amenities to create a relaxed community-focused eating experience.

Industry Summary

The bakery industry, with bagel shops being a niche segment, has seen consistent growth. The bagel industry has averaged 0.7% growth over the last five years and in 2022, generated $1.4 billion in sales. Bagels are generally not vulnerable to economic fluctuations since they are inexpensive and convenient, so economic downturns should not have a major impact on the market.

The success of a bagel shop hinges on factors such as location, product quality, variety, and the overall customer experience. While chain stores like Dunkin’ and Einstein Bros. dominate the bagel scene, there’s significant potential for independent shops that offer authentic, high-quality products.

The largest risk in the bagel store industry is competition. Bagel shops are very popular, and other types of gourmet coffee shops and food shops offer bagels as well, so having a distinct, appealing brand is critical.

As with any other industry, trends come and go in the bakery world. Here are some key trends to consider as you plan your bagel shop:

  1. Health consciousness: More consumers are looking for healthier options, even when it comes to bagels. Offering whole-grain, gluten-free, or low-calorie bagels could attract a wider customer base.
  2. Artisanal and craft baking: There’s a growing demand for artisanal products, including bagels. Emphasizing the craftsmanship that goes into making each bagel can help differentiate your shop.
  3. Sustainability: Consumers are becoming more environmentally conscious. Using locally sourced ingredients, employing sustainable practices, and minimizing waste can not only help the environment but also attract like-minded customers.

Target Market

The target customer for bagels is not income specific because they are inexpensive, so the market is broad. Here are some key segments:

  1. Busy professionals: These individuals often seek quick, convenient breakfast or lunch options, and bagels fit the bill perfectly.
  2. Health-conscious consumers: With the rise in health consciousness, many people are looking for healthier alternatives. Offering options like whole grain, gluten-free, or low-calorie bagels can attract this demographic.
  3. Foodies and artisanal food lovers: This group appreciates unique, high-quality food experiences. They are likely to be attracted to a bagel shop that offers artisanal, handcrafted bagels with innovative flavors and fillings.
  4. Students: Near schools or universities, students can form a significant part of the customer base. They often look for affordable, filling, and convenient meal options.
  5. Families: Bagels can be a hit with families, especially for weekend brunches or quick weekday breakfasts. Offering a kid-friendly menu can attract this demographic.
  6. Local community members: Depending on the location of the bagel shop, local residents and workers will likely form a significant part of the regular customer base.
  7. Morning commuters: People stopping in on their morning work commute represent a major segment, fueling up for the day with coffee and bagels.
  8. Office workers: For shops located in downtowns or business parks, office employees represent a steady weekday rush hour clientele.
  9. Event organizers: Bagel platters are popular for morning meetings, conferences, and other events. Catering to this need can attract a subset of business clientele.

A bagel shop’s exact target customer mix will vary based on location, menu, and whether they focus more on eat-in dining or grab-and-go convenience. But generally reaching busy, weekday morning crowds with fast counter-service and quality bagels is key.

Checklist To Start A Bagel Shop

If you’re thinking about starting your own bagel shop, there are a few things you should keep in mind. Here is a checklist of the essentials to get started.

Step 1: Assess the Market

Starting a bagel shop – or any business – on mere intuition can be a risky gamble. The upfront investment in equipment, real estate, supplies, and manpower is considerable. So, before plunging into the entrepreneurial waters, it’s wise to test the depth, and that’s where market research comes in.

While knowing that a business will be successful is impossible, this research helps you better understand whether the market would support a new bagel shop, identify potential customers, and tailor your business to meet their needs. Some ways to research include:

Social media: Social media platforms can provide valuable insights into what potential customers like or dislike about existing bagel shops. Look at reviews, comments, and discussions related to bagel shops.

Local area research: Visit potential locations for your shop. Observe the foot traffic, nearby businesses, and local demographics. This can help you determine if there’s sufficient demand in the area.

Competitor analysis: Visit competitor locations to understand what they offer and how they operate. Look at their menu, prices, store layout, customer service, and overall customer experience. Also, search review sites like Yelp to find feedback on their bagel quality, pricing, service, and atmosphere. Look for recurring complaints that your shop could improve upon.

Talk with other bagel shop owners: Interview owners of other bagel establishments (not your competitors) to gain insights on the industry, feedback on your shop, and learn from their mistakes.

Local Chamber of Commerce or economic development offices: They often have data on local businesses, new businesses coming to the area, and traffic count data.

Check with suppliers: Local food suppliers or distributors can provide information on how many businesses they supply with bagel-related ingredients, giving you an idea of the competition and market size.

While market research cannot guarantee success, it significantly reduces the risks associated with starting a new venture.

Step 2: Write a Business Plan

Opening a bagel shop is an exciting endeavor, but like any business, its foundation lies in thorough planning. Even though business plans are necessary when looking for funding, they also serve another purpose. Writing a business plan is like charting a map for a cross-country journey; it offers clarity, direction, and preparation for the challenges ahead.

While every section of a business plan is important, some parts are particularly relevant for a bagel shop seeking funding:

Market analysis: This section should detail your findings from your market research, including information about your target customers, an evaluation of your competitors, and an analysis of industry trends.

Marketing strategy: How will you attract and retain customers? This section should outline your marketing and sales strategies, including your branding, pricing, advertising, promotional activities, and customer service.

Management team: The strength and experience of the management team can be a significant factor for lenders and investors. Highlight the qualifications, experience, and roles of each team member. Emphasize any prior experience in the food industry, business management, or other relevant areas.

Financial projections: This section is especially important as it will detail the projected income and expenses. Lenders and investors will want to evaluate your numbers to see that they are reasonable and whether the business is profitable.

Related: How to write a business plan

Step 3: Search for a Location

Finding the ideal location for a bagel shop can greatly influence its success. The right spot can boost visibility, drive foot traffic, and enhance the customer experience. Here are factors to consider when scouting for the perfect location:

Foot traffic: Look for areas with high pedestrian activity, such as near schools, offices, or busy streets. Morning foot traffic is especially crucial for a breakfast-focused business like many bagel shops.

Accessibility: The location should be easily accessible by car, foot, or public transport. Ample parking or proximity to parking facilities is a bonus.

Visibility: A spot that’s easily noticeable, whether from the road or to pedestrians, can attract impulse buyers. Large storefront windows and space for clear signage can help.

Demographics: Understand the demographics of the area. Are they likely customers for a bagel shop? For instance, areas with a lot of offices might mean a steady flow of morning customers looking for a quick breakfast.

Competition: It’s essential to survey the competition. While being near other food establishments can draw food-centric traffic, being too close to another bagel shop might split the customer base.

Size and layout: Ensure the space is adequate for your operations—baking area, storage, seating, restroom facilities, and possibly a small office. Consider future expansion or additions to your menu.

Safety: Choose an area that’s safe for both customers and employees, especially if you plan to operate during early morning or late hours.

Neighboring businesses: Being near complementary businesses, like a coffee shop (if you don’t serve coffee) or a bookstore, can lead to shared customers.

Future developments: Research any planned developments in the area. While ongoing construction might deter customers temporarily, a new commercial complex or residential area can boost future foot traffic.

Zoning and permits: Ensure the location is zoned for your type of business. Acquaint yourself with any restrictions or regulations and ensure you can obtain the necessary permits.

Infrastructure: Check for essential utilities and infrastructure. For instance, does the area have a consistent water supply and electricity? Is there reliable internet connectivity?

History of the spot: Has any other business operated there before? If yes, find out why they left. A history of failed food businesses at the same location might warrant investigation.

Aesthetics and ambiance: Beyond functionality, the location should align with the brand’s image and vibe you’re aiming for. A cozy side-street might appeal to those looking for a quiet breakfast spot, while a bustling city center location might attract the on-the-go crowd.

it might be beneficial to consult with a real estate agent who specializes in commercial properties. They can assist you in finding a location that meets all these requirements.

Related: Choosing a business location

Step 4: Secure Funding

Starting a bagel shop requires capital, which can come from a variety of sources. The type of funding you choose will depend on several factors, including your personal financial situation, the amount of money you need, and the risk you’re willing to take.

Personal savings: Personal savings is often the first source of funding for new businesses. The benefit of this funding method is that you don’t have to worry about loan repayments or interest rates. However, it’s essential not to spend everything you have to maintain a financial cushion for unexpected expenses.

Friends and family: A more personal route to raising funds is to seek help from friends and family. This method can be advantageous because these are individuals who believe in you and are willing to support your vision. However, mixing business and personal relationships can be tricky. To prevent misunderstandings and strained relationships, it’s necessary to put all agreements in writing, outlining terms, expectations, and repayment plans.

Traditional lenders: Banks and credit unions often provide a majority of funding for bagel shops. Qualification can be difficult for first-time business owners as banks typically require borrowers to invest at least 15% of their own money into the business, have a credit score above 650, and provide collateral such as a home or other valuable assets. If a bank considers the loan risky, they might be more willing to lend if the loan is backed by a U.S. Small Business Administration (SBA) guarantee.

Microloans: If your funding needs are low, or you can’t secure a traditional loan, consider applying for a microloan. Microloans are small loans typically issued by economic development organizations.

Angel investors: Angel investors are individuals or groups who provide capital in exchange for ownership equity or convertible debt. They tend to be local individuals with high net worth who have an interest in supporting certain types of businesses. However, securing angel investment can be challenging. Most angel investors look for high-growth, scalable businesses, which a bagel shop might not necessarily be.

Remember, each funding source comes with its own advantages and disadvantages. It’s important to thoroughly evaluate your options and select the one that best aligns with your business goals and financial situation.

Related: Finding the money to start a business

Step 5: Register the Business

Starting a bagel shop involves several legal steps to ensure your business is registered properly. These steps can vary by state, but generally include choosing a business structure, registering your business name, and obtaining necessary licenses and permits.

Choose a business structure: There are four main types of business structures: Sole proprietorship, partnership, Limited Liability Company (LLC), and corporation. The choice of structure depends on factors such as the number of owners, desired level of liability protection, and tax considerations.

Most bagel shops operate as sole proprietorships or LLCs due to simplicity and lower costs. Corporations provide liability protection but have more complex registration and maintenance.

Related: Comparison of business structures

Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.


Some popular LLC formation services include:


IncFile - $0 plus state fees & free registered agent for 1 year!

ZenBusiness - Best for beginners. $0 plus state fees & free registered agent for 1 year!

Northwest - Best privacy protection. $39 plus state fees & free registered agent for 1 year!

Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.

Related: Tips & ideas for naming a bagel shop

During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.

Related: Finding a domain name for your business

Obtain business licenses and permits: To legally operate a bagel shop, you’ll need to apply for several licenses and permits. Depending on your location, this typically includes a business license, food service license, health department permit, signage permit, and possibly others.

Related: State guides for general business licensing

Step 6: Design & Set Up the Shop

With the registrations progressing along, the next step will be to lay out the floor plan and start setting up your shop. In this phase, you aren’t just looking to have a warm and inviting space but also one that allows for efficient operations.

Begin by sketching a clear floor plan, considering the flow of both employees and customers. Dedicated space for food preparation and storage should be considered, besides leaving ample space for product displays, counters, seating areas, and decor elements. Try to plan for high-traffic areas and bottlenecks.

The type of equipment needed will depend on your menu and the size of your shop. Generally, you’ll need bagel-making equipment like mixers, dough dividers, and ovens, as well as refrigeration for storing ingredients. Additional equipment may include coffee machines, toasters, and display cases.

In addition, the checkout area should include a point of sale (POS) system, as it not only aids in transactions but can also offer insights into sales patterns and inventory management. A few popular options include Square, Lightspeed, and Quantic.

Seating arrangements, if provided, should be designed to maximize space while ensuring comfort. Ambient elements such as lighting, decor, and music can significantly influence a customer’s dining experience. When setting up your first bagel shop, it’s beneficial to visit successful shops to observe and learn. Also, getting your Health Department and Building Code enforcement involved early on will help from making mistakes that may delay the opening of your shop. Before renovating, research local requirements for permits and inspections that need to be made for electrical, plumbing, ventilation, grease traps, etc.

Step 7: Prepare a Menu & Source Suppliers

Preparing a menu and setting prices for a bagel shop is both an art and a science, requiring careful consideration of costs, competitors, and the perceived value to customers.

Start by creating a diverse yet concise selection of bagels and accompanying items, ensuring a mix of classic flavors as well as current trends like specialty grains or unique combinations to differentiate your shop. Consider both simplicity and variety. Don’t rush menu development. Take time to test bagel consistency, flavor, and process.

Once the menu items are identified, begin the process of costing out recipes. This entails breaking down every item into individual ingredients and determining the cost for each serving. Suppliers can be very helpful at this stage, as they will often help calculate ingredient costs and might even assist in pricing based on their experience with other establishments. It’s essential to understand the total cost, factoring in not just ingredients, but labor, overhead, and desired profit margins.

When researching potential suppliers, start with a basic online search for wholesalers and distributors who specialize in bakery or restaurant supplies. Consider asking bagel shop owners or other local businesses in the food sector for recommendations. People in the industry often have insights on which suppliers are reliable and offer good value. While national or large-scale suppliers might offer better prices due to bulk buying, local suppliers can often provide fresher ingredients, quicker delivery times, and more personalized service. Restaurant supply stores are good for necessities like bags, boxes, napkins, aprons, and cleaning products.

Step 8: Hire Staff

Hiring the right employees is an integral aspect of running a successful bagel shop. Employees not only help in day-to-day operations but also significantly impact the customer experience, shaping the shop’s reputation and success in the community. Common types of employees a bagel shop might hire include bakers, who are responsible for crafting the bagels and pastries; baristas or cashiers, who handle customer orders and transactions; and kitchen or prep staff, who manage sandwich assembly, ingredient prep, and dishwashing. Some larger establishments might also hire managers to oversee operations and ensure smooth functioning.

Before diving into the hiring process, business owners need to understand the legal prerequisites.

First, they need to obtain an Employer Identification Number (EIN) from the IRS, which is necessary for payroll tax reporting. All prospective employees must be eligible to work in the U.S., so business owners should familiarize themselves with the I-9 form, which verifies an employee’s work eligibility. Additionally, it’s vital to adhere to federal and state labor laws, which encompass whether worker’s compensation insurance is needed, minimum wage requirements, overtime, and breaks.

Related: Guide to hiring in every state

Step 9: Create a Marketing Plan

Marketing a bagel shop effectively involves tapping into both traditional and modern promotional techniques, catering to a diverse customer base.

One timeless method involves leveraging word-of-mouth, offering promotions like ‘buy one, get one free’ or discount days to encourage initial foot traffic and spark conversations in the community. Additionally, consider hosting events or partnering with local businesses for special offers, spotlighting your shop as a community hub.

Online, there’s a world of opportunity. Social media platforms, especially visually-oriented ones like Instagram, can be instrumental. Sharing daily specials or flavors/creations, behind-the-scenes glimpses of baking, and customer testimonials can cultivate a following and drive traffic. Email marketing, though often overlooked, can be highly effective for announcing promotions or introducing new menu items to a list of interested subscribers. Also, don’t underestimate the power of online reviews; after establishing your presence, claim your business on online directories such as Yelp, TripAdvisor, and, of course, Google Business Profile. Positive reviews can considerably boost your shop’s reputation and attract more customers.

If offering catering services, don’t overlook listing your shop as a catering vendor and network with nearby businesses to be the go-to bagel provider for meetings. Also, partnering with food delivery apps like Grubhub and DoorDash can create exposure to new audiences, and collaborating with local coffee roasters or bakeries can be effective to cross-promote brands.

Last, joining the local Chamber of Commerce can offer networking opportunities and provide resources to further amplify your shop’s reach in the community. By blending these strategies, a bagel shop can effectively connect with its target audience and cultivate a loyal customer base.

Related: Low-cost ideas to market a new business

Step 10: Prepare to Open!

Starting a bagel shop business involves numerous steps to ensure its smooth operation and eventual success. Every business is going to have different needs, but here’s a roundup of some of the easy to overlook, yet essential elements to address before officially opening the doors:

Business insurance: This ensures that you’re covered against unforeseen circumstances, whether it’s property damage, liability claims, or worker-related injuries. A food business, in particular, should consider product liability coverage due to potential claims related to food illnesses or allergens.

We recommend getting at least three insurance quotes, including local insurance agents and online providers like Coverwallet or Hiscox to get the best coverage and price.

Bookkeeping: Setting up an organized system early on will save headaches during tax season and provide a clear picture of your financial health. Consider using software like Wave Accounting (FREE) or Quickbooks to aid in tracking expenses, revenue, and taxes.

Banking: Opening a dedicated business bank account is essential to separate your personal finances from your business. This makes financial tracking easier and appears more professional to customers and vendors.

Credit card processing: If not integrated into your POS system, ensure you have a reliable system in place to accept credit card payments. Popular providers include Square or Stripe

Grand opening preparations: Plan out your inaugural day with promotional deals, advertising, and perhaps a local event or collaboration to attract a large crowd and generate buzz.

This material is property of StartingYourBusiness.com

Greg’s Tip: Ingredient costs are the biggest expense for a bagel shop, so get very specific cost data when developing recipes. Know your exact costs for every item to price profitably. Don’t estimate and continually update.

Greg's Business Tip

Common Questions When Starting A Bagel Shop


 

How much does it cost to start a bagel shop?

Starting a bagel shop requires a considerable financial investment, with costs ranging typically from $50,000 to $300,000. Startup costs vary depending on factors like location, size, and specific business choices.

The initial costs involved in opening a bagel shop typically include:

Location lease and renovation: Depending on your area, leasing a commercial space can cost anywhere from $1,500 to $15,000 per month, with urban areas generally being more expensive. Upfront costs might include a security deposit. Depending on the extent of renovations or improvements to build out the kitchen and dining areas can easily reach $75,000.

Equipment: Essential equipment like ovens, mixers, display cases, refrigeration, and point-of-sale (POS) systems can total between $30,000 and $100,000. The cost varies depending on whether you opt for brand-new or second-hand equipment. It can be hard to resist the temptation to save money by purchasing consumer appliances and furnishings, but durability is critical.

Licenses and permits: Health department permits, food handler’s licenses, and business licenses are critical. These can cost anywhere from $500 to $5,000, depending on the state and municipality.

Initial inventory: Your starting stock of ingredients, packaging, and other supplies can range from $2,000 to $10,000, based on the variety and quality of products you intend to offer.

Insurance: The upfront cost for business insurance, including property insurance, liability coverage, and, if hiring immediately, workers’ compensation, might range from $1,000 to $5,000 for the initial setup.

Marketing: Pre-launch marketing efforts, which could involve signage, local advertising, a basic website, and a grand opening event, may set you back $1,000 to $10,000.

Business registration: Legal consultations, accounting setup, business formation, and licensing can cost between $500 and $5,000.

Miscellaneous costs: This includes decor, furniture, uniforms, dishes, and other miscellaneous startup items, which can add an additional $5,000 to $20,000 to your budget.

Summing these ranges provides a rough estimate, but each business will have its unique set of costs. What’s also recommended, however, is setting aside three to six months of operating expenses as a financial safety net. This buffer will give your business a fighting chance to find its footing in the market without immediate financial pressure.

How profitable is a bagel shop?

The profitability of a bagel shop depends on various factors such as location, operational efficiency, pricing strategy, and customer volume. Industry statistics reveal that most bagel shops mark their bagels up by about 300-400%. For example, if the cost of making a bagel, including ingredients and labor, is $0.30, it might be sold for $0.90 to $1.20. But revenue isn’t the only factor in determining profitability; expenses play a significant role.

Let’s assume a moderate-sized bagel shop sells 1,000 bagels daily at an average price of $1.00 each. That’s a daily revenue of $1,000 or monthly revenue of $30,000.

Monthly Revenue: 1,000 bagels/day x $1.00/bagel x 30 days = $30,000

Then there are expenses:
– Ingredients, supplies, and labor to make the bagels might cost around $0.30 per bagel, totaling $9,000 monthly.
– Rent for space could be $3,500.
– Utilities, insurance, and miscellaneous expenses might sum up to $2,000.
– Marketing expenses could average out to $500 per month.
– Wages (excluding the owner’s salary) might amount to $10,000 monthly for a few staff members.

Total Monthly Expenses: $9,000 + $3,500 + $2,000 + $500 + $10,000 = $25,000
Now, subtracting expenses from revenue gives:

Monthly Profit: $30,000 – $25,000 = $5,000

Thus, in this scenario, the bagel shop owner would make an average profit of $5,000 monthly or $60,000 annually. It’s worth noting, however, that this is a simplified example. Actual profits can vary widely based on regional variations in costs, seasonality, competition, and the shop’s specific offerings and efficiencies.

What skills are needed to run a bagel shop?

You don’t need a culinary background or a degree in business to run a bagel shop, but there are specific skills that can help.

Bagel making experience: Even if you only have experience making your own bagels at home, you’ll have an advantage as long as you are good at it. If you’ve worked in a bagel shop before, that’s an extra bonus.

Knowledge of trends: If you are a bagel consumer, you follow what creative new flavors are trending, and you can create your own bagels that are in line with those trends.

Business knowledge and experience: While a bagel shop is not overly complicated to run, it’s good to have some knowledge of marketing, contracts, finance/accounting, and human resources.

Customer service: You’ll need to be able to build rapport with your customers and make your shop an inviting place to dine.

Food service experience: If you have experience in any type of food service, you’ll have a better understanding of what customers expect.

What is the NAICS code for a bagel shop?

The NAICS code for a bagel shop is 722515, which is categorized under Snack and Nonalcoholic Beverage Bars.

The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.

Related: What is a NAICS code?

How To Start A Bagel Shop

How To Start A Bagel Shop

Greg Bouhl

Greg Bouhl

Welcome! My name is Greg Bouhl, and I am a serial entrepreneur, educator, business advisor, and investor.

StartingYourBusiness.com is here because of the many clients I worked with who made decisions based on inaccurate and outdated information.

Starting a business is hard, but here you will find the practical tools, resources, and insider tips to help you successfully start a business.

If there is a question about starting a business or help finding a resource, I'm here to help!

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