Hole in One Bagels.

Fuller, Barbara K. ; Burns, Michelle

CASE DESCRIPTION

The primary subject matter of this case concerns the purchase of an established bagel business during a period of economic recession and industry consolidation. The case focuses on the examination of financial strategies with an emphasis on cost analysis and the development of marketing strategies. The secondary issues include decisions dealing with relocation and growth. This case has a difficulty level congruent with entrepreneur majors with junior or senior status. In order for students to examine this case effectively they should have background knowledge in analyzing financial statements, and developing marketing strategy. The case is designed to be taught in one class session of approximately 1.25 hours and is expected to require four to six hours outside preparation time from the students.

CASE SYNOPSIS

In June 2002 Phillip McGuthry, a long time resident of Fort Mill, SC, purchased Hole in One Bagels, a small independent bagel shop with a great reputation in the community and a good customer base. The economic environment at the time of the purchase showed signs of weakness. In addition, the 911 terrorist attacks, and the low-carb diet trend were also somewhat worrisome. However, the bagel shop offered McGuthry a way to get out of the corporate world of advertising and step into what he thought would be a quieter more relaxed environment. He felt that with a few adjustments in the store's operation, he would make a reasonable profit. Overtime, he would learn more about the business thus increasing efficiencies and margins. Currently the only type of promotions was word of mouth. Certainly he could make improvements in the marketing area. However, after a mere five months McGuthry found that running the business was more challenging than he originally thought. Some months the business was profitable and other months cash flow was negative. He also found it necessary to hire a weekend manage so that he was not working 7 days a week. This added to his current labor expenses. McGuthry loved his new business, but was faced with some serious decisions if he is going to make the business profitable. He must either cut expenses or increase market share and customer demand. The case looks at the challenges that face McGuthry as the new owner of Hole in One Bagels. His initial objectives were to increase efficiency in operations and to retain his current customer base while attracting new customers to the shop. Decisions about location and possible expansion of the business would need to be addresses after tackling the initial operational issues.

COMPANY HISTORY

McGuthry took over Hole in One Bagels on June 1, 2002. The original Hole in One Bagels was located in Colorado; where the previous owners, the two Smith sisters, bought the first franchise from a successful local bagel shop in 1996 and opened in Fort Mill, South Carolina. The Smith sisters ran the business for six years. The business was franchised for several years, but the franchise was terminated when the franchiser could not meet the required commitments of the contract. In 2002 the two sisters put the business on the market because they lacked the time needed to run the business efficiently. During the initial six years, the Smith sisters developed a loyal customer base and a reputation for quality products.

Phillip McGuthry, grew up in Fort Mill, South Carolina. He spent thirty years of his career in advertising and twenty-five of those years with the Charlotte Observer. His dislike for big business politics and the opportunity to buy a local business led him to become the new owner of Hole in One Bagels. He states, "I like owning a local business because of the close relationships I form with my customers and the people of the community."

The business was located in a mixes use neighborhood off of one of the side roads in Fort Mill, SC. In an effort to get started, McGuthry purchased the business and equipment, but leased the building with the intent of purchasing at a later time. This gave him time to evaluate the location without tying up his resources. It also allowed him options for growth and expansion at another location. The current site along a side street near the university received some traffic, but not the volume of the main commercial strip through the center of town. There was also a new retail development receiving a lot attention on the other side of town. Several new restaurants were attracted to Fort Mill because of the population growth in this area. However, McGuthry liked the current location and atmosphere of the business. It was in a small brick house with ample parking and an outside patio area where customers could enjoy the landscaped garden area and have a relaxing lunch. The environment was very "comfortable," "friendly," and "down to earth." Before purchasing the business he had enjoyed coming to the shop with his family and business associates. In addition McGuthry had the advantage of Hole in One Bagels being the only bagel specialty store in the town with a reputation for excellent customer service and quality products.

The menu for Hole in One Bagels included fresh bagels with a variety of cream cheese, bagel sandwiches, and beverages such as fresh brewed gourmet coffee, cappuccinos, lattes, iced tea and soft drinks. McGuthry added sausage egg and cheese bagels to the breakfast item menu soon after purchasing the business. He was also considering an item called "Bagizza," which was a cross between a bagel and a pizza. However, additional equipment and trademarking of the name would have to be purchased before adding this item to the menu. Fresh Hole in One Bagels fulfilled a niche providing specialty food items prepared quickly with excellent customer service. The menu was in colored chalk on the back wall of the shop. The full menu is located in figure 1.

[FIGURE 1 OMITTED]

Other that the addition of the breakfast sandwich mentioned above, the menu and the pricing structure had not been changed in three years. McGuthry was considering changes in the menu selection that would consolidate items into broader categories and provide added value for the customer. This would allow him to increase the price points of some of the menu items. He knew that Hole in One Bagels offered excellent customer service and great quality products, but questioned raising prices with the sluggish sales in the bagel industry over the last several years and the economy still somewhat in recession. He was all to aware that customers could go to a gas station on the way to work, and buy a donut and a cup of coffee for $2.00 rather that his bagel and cafe latte for more that double the price. He continually questioned whether customers would sacrifice a friendly greeting and a quality product for the convenience and savings they found at a gas station fast mart?

Another issue McGuthry and the entire bakery industry faced was increased popularity of the low-carb diet. It was estimated that as many as 40% of Americans were eating significantly less bread because of the low-carb diet. Predictions in national trade magazines indicated a sales decline in bread and pasta products of up to 10 to 15 percent (Cole 2004).

ORGANIZATIONAL STRUCTURE AND OPERATIONS

Phillip McGuthry served as the sole proprietor and owner of Hole in One Bagel. His employees included a weekday manager, a weekend manager, a prep chef, a baker/roller, and several cashiers/waiters. One of the changes McGuthry made when he took over was the addition of a weekend manager so that he would not have to work every weekend. With the addition of the weekend manager there was a combined total of thirteen full-time and part-time employees. These employees equaled seven full time equivalents. All employees except the managers and prep chef were hourly employees. The manager and prep chef were on salary, but the hourly employee's wages range from minimum wage to $7.50 an hour. A full organization chart can be viewed in figure 2.

[FIGURE 2 OMITTED]

On a typical weekday morning usually three employees were scheduled. For closing during the weekdays two employees were usually scheduled. Shifts varied depending on the employee's schedules, since most of Hole in One Bagels' employees were college students. On Saturdays five employees were scheduled to open and stay until it was time to close. On Sundays four employees were scheduled to stay for all operating hours. This was an average of five employees every workday.

Hole in One Bagels was open seven days a week. Monday through Friday they were open from 6:30 AM till 5:00 PM. On Saturdays, hours were from 6:30 AM till 2:00 PM and on Sundays the hours of operation were from 8:00 AM till 2:00 PM. Hole in One Bagels did 49% of their business between the hours of 6:00 AM and 10:00 AM, 44% of their business between the hours of 10:00 AM and 2:00 PM, and only 7% between the hours of 2:00 PM and 5:00 PM.

There were seventeen suppliers that provided the bagel shop with quality products such as coffee, cream cheese, deli meats, flour, sugar, vegetables, syrups, ice, and beverages. The previous owners established most of these suppliers and a good relationship had been maintained. McGuthry paid all of his suppliers in a timely manner and had established Monday as his accounts payable day. He also tried to set up draft accounts when possible to save time and money.

Hole in One Bagels had an operations manual with established operational procedures for the business. Many of the policies were posted in the kitchen and work areas to keep day-to-day routines in line and employees on task. These included morning start-up (figure 3); how to greet and serve customers (figure 4); closing duties (figure 5); daily checklist/guidelines (figure 6); guidelines for various operations such as sandwich construction, register calls, refrigerator guidelines, daily side-work, answering the telephone, taking to-go orders (figure 7); employee appearance (figure 8); and employee discounts and sick policy (figure 9). Even though McGuthry had these employee policies posted, he admits he did not strictly hold his employees to the rules. He enjoyed the casual, informal atmosphere of a small business rather than the formal hierarchy of the corporate world he had dealt with for most of his life. Working with his staff early in the morning getting everything in order for the day and greeting customers as they came into the shop brought him great satisfaction.

Bagels were made fresh every morning and each customer of Hole in One Bagels got a customized bagel, made to order. An extensive amount of tender loving care was put into every customer order, thus distinguishing Hole in One Bagels from their competitors. Labor costs for Hole in One Bagels were at 34% of sales compared to the fast food industry average of 27.6% (Government Census 2002). The size of the average purchase ($4.39) was in line with or slightly higher than the fast food industry average ($4.33). However, Hole in One Bagels did not have the high traffic volume that a fast food chain is accustom to receiving. With bagels, the customer is involved in creating a customized order with each purchase. Everything is made-to-order when the customer arrives thus creating a more intensive labor activity. In the preparation of orders, sales associates sometimes found themselves stumbling over each other trying to get to the same food items. In an effort to provide better customer service and move people thorough the line as quickly as possible, McGuthry assigned employees to specific stations such as beverage service and the cash register. However, bottlenecks still occurred during morning rush hours. McGuthry wondered if his staff was performing as efficiently as possible and whether his labor costs were in line with other bagel shops.

CUSTOMER PROFILE

According to McGuthry, Hole in One Bagels had two target markets: 1) the consumer market made up of students and professional adults and 2) the business market consisting of local firms catering meals for employees and clients. He described the consumer group as ranging in age from 18-55 years old. The younger side of this age segment included students from the nearby university and local high school students. The older customer segment consisted of white-collar professionals mainly: teachers, lawyers, accountants or doctors from the local community. Most of Hole in One Bagel's customers fell into the white-collar professional group with middle to upper incomes and sufficient disposable income to afford quality products including quality bagels, specialty coffee and a unique atmosphere.

An ORC International (2002) report asking adults to name their favorite breakfast food indicates that bagels are preferred more by women (15%) than men (9%) and bagels are more popular with 18-34 year olds (17%) than with older consumers (10%). Also, the heaviest consumers of bagels in the United States were white-collar professionals with household incomes of $40,000 or more. They were college graduates or had attended some college (MediaMark Research Inc., 2002). These statistics were very favorable to McGuthry's bagel shop. On the other hand, this same research indicated that individuals in the southeast were 20% less likely to purchase bagels that in the high sales areas such as the Northeast and Mid-Atlantic states. These areas enjoyed a high level of marketing and a high concentration of bagel shops (Harter 2001). Although located in the southeast, Hole in One Bagels had the advantage of being the only specialty bagel shop in the area.

The second target market was the business customer. Hole in One Bagels also catered functions such as office luncheons, seminars, and group meetings. Some of the main business customers of Hole in One Bagels were government offices, school districts, assisted living centers, attorney's offices, textile mills, doctor's offices, and non-profit agencies in the area. McGuthry took orders before 11:00 am and delivers box lunches to the business. Catering made up 20 % of the business. Although catering was a small percentage it has proved to be very profitable. This was one area that McGuthry felt deserved more attention, and he needed some ideas on how to market to the business segment.

COMPETITIVE ENVIRONMENT

Hole in One Bagels was the only retail specialty bagel shops in the Fort Mill area. The closest direct competition from a specialty bagel shop was in Charlotte, North Carolina approximately twenty miles away. In the Charlotte Metropolitan Area there were thirty-five bagel shops in fifty different locations (Reference USA 2002). Hole in One Bagels does not draw business from the Charlotte market. However, McGuthry was concerned about a sizable group of Fort Mill residents that commuted into the Charlotte area to work. Daily commuters working in the Charlotte metropolitan area had a choice of purchasing their bagels at Hole in One Bagels before leaving Fort Mill, or purchasing their bagel from one of the Charlotte bagel shops closer to work. McGuthry understood that the quality and service he provided must be competitive with the Charlotte bagel shops.

In the Fort Mill area Hole in One Bagels' competitors consisted of gas stations with convenience stores and fast food restaurants. These establishments provided similar products usually of lower quality, but with convenience. According to Reference USA (2002) there were 55 establishments in the gasoline/convenience business in Fort Mill. These establishments represented a substantial threat to Hole in One Bagels since morning commuters could stop by a convenience store on the way to work and buy a cup of coffee and a bagel cheaper and more conveniently than making an extra stop at a specialty bagel shop. Fast food restaurants were also adding bagels to their menus. The Fort Mill area had 167 fast food and casual dining restaurants that provided additional competition as well as a donut and coffee shop. These establishments offer the convenience of drive through windows and lower prices. Customers would have to drive out of their way and pay more in order to have the Hole in One Bagels experience. McGuthry knew that the atmosphere of the store and the quality of his product were essential elements in attracting and retaining his customer base.

BACKGROUND ON THE BAGEL INDUSTRY

The Rise of the Bagel Industry

The bagel industry became popular in the early 1990's and witnessed a tremendous boom in terms of growth. Independent businesses as well as chain and franchised operations entered the bagel business. The nation began to see bagel shops locating on virtually every street corner in cities across the U.S. Many factors contributed to this growth. In addition to being a healthy hand-held convenience food, Casper (1997, p. 118) indicated that "Bagel shops appeal to restaurant operators because of highly favorable unit economies, relatively low entry costs, fairly simple operations and, for the time being almost limitless growth." The bagel craze reached its peak somewhere between 1995 and 1997. During this growth phase the bagel industry moved past its ethnic boundaries to become a regularly accepted food product in the mass market much as the pizza industry had done a couple of decades earlier. As bagels became more of a generally accepted, everyday food product the number and type of distribution channels increased.

Bagel sales were estimated at $2.3 billion in 1996. The top five-bagel chains in 1996 were Bruegger's with 450 units and sales of $191.0 million, Einstein/Noah's with 315 units and sales of $146.0 million, Manhattan Bagel with 296 units and sales of $86.0 million, Chesapeake Bagel with 156 units and $95.00 million, and Big apple Bagel with 118 units and sales of 30.0 million (Casper 1997). In addition, there were many other contenders in the process of building their bagel companies such as New York Bagel Enterprises, Inc., Big City Bagels, Great American Bagel Co., etc. As the craze continued many different types of players entered the market. Although the quality varied significantly, consumers could also purchase bagels from fast food restaurants, convenience store and supermarkets at lower price points and with greater convenience. In 1996 Dunkin Donut entered the market with 3200 stores thus substantially increasing the availability of fresh bagels in the marketplace. Because of the large number of outlets Dunkin Donuts became the largest distributor of bagels in the country. It was followed by the fast food giant McDonald's adding an additional 8000 outlets to the marketplace in 2000 (Spinelli 2000). Other fast food restaurants also increased their breakfast offerings including Dairy Queen, Chick-fil-A, Jack in the Box, Hardees, Cinnabon (Silver 2001), Starbuck, and Krispy Kreme (Unrein 2003). In addition, convenience store added the bagel sandwich as part of its morning menu for customers wanting to make only one stop for gasoline and a "to-go" breakfast item. Supermarkets also contributed to the plethora of bagel options with roughly 50% of all bagels (fresh, refrigerated and frozen) being sold by grocers (Casper 1997).

Consolidation of the Industry

Unfortunately the growth trend wasn't to last. From around the middle to later half of the decade, bagel companies began filing for Chapter 11 bankruptcy. Mergers and acquisitions also began to be common occurrences in the industry. It was basically a case of too much supply and not enough demand. The market was saturated with individual bagel shops, franchise operations, and lower price point distributors. Research by Technomic Inc. indicated that from 1999 to 2001 the top four-bagel chains closed 169 restaurants (Dietrich 2000). In addition, significant consolidation occurred as these major chains moved to restructure for better efficiencies. Bruegger's Bagels was sold to Quality Dining Inc. Unable to make a profit, it was purchased back at one-third of it value by the two original founders. One of the largest consolidations was New World Restaurant Group who purchased several struggling bagel chains including: Einstein Bagel, Noah's Bagels, Manhattan Bagels, and Chesapeake Bagel Brands. Big Apple Bagels is owned and operated by BAB Holdings Inc.

The closing or consolidation of numerous stores in the late 1990's seemed to ease the strain on the over-stored bagel industry. However, the slowdown in the economy and sluggish bagel sales in a maturing market required business owners to look closely at how they were running their businesses. To bolster sagging profits these owners began to closely examine operating procedures. Those who survived were forced to cut overhead costs, especially labor and payroll. Many reduced the number of suppliers and partnered with the remaining vendors to increase efficiencies. In addition to cost issues, they also examined the revenues side of their operation. Pricing was a critical issue, especially with competition from low-end retailers. Many owners sought to provide quality products and unique environments that would allow them to increase prices. Other owners looked at the distribution of the population within a 15 to 20 minute drive from their business to make judgments about eliminating present locations and opening new ones. With the bagel industry maturing as a product category many bagel shops closed and others were struggling to survive. A breakdown of U.S. bagel sales volume can be seen in figure 10. The figures suggest that retail sales of bagels from 1999 to 2002 showed slight increases in sales while units sold remained constant or slightly declined (bakingbusiness staff July 1).

Resurgence of the Bagel Industry and Quick Casual Dining

After the market readjusted, customers were still out there, but the market had changed. Customers continued to seek dining options but wanted something different and unique. Many were opting for healthier food choices. To meet these demands bagel shop owners looked at all aspects of the business from the quality of the products and service, to the atmosphere and marketing mix in an effort to improve sales and profits.

The 911 terrorist attacks and the struggling economy, created an environment were people tended to staying at home more. As the fear subsided, people began to reappear, but they had changes. Americans still wanted to eat out, but their values had shifted. They needed a middle ground where they could trade down in terms of price but increase the value they received in terms of quality. This resulted in a decline in the mid-scale sit down white-table-cloth dining experience and a growth in the self-service casual dining experience (Malovany 2002). Out of these trends came a new type of customer that was losing interest in the fast food scene but didn't have the time or resources to move to the full-service restaurant. To meet these needs, a new industry segment began to grow.

This new industry called the "quick casual" industry combined "low price, high speed, and convenience with more upscale fare than a fast-food restaurant would offer" (Zion 2001, p.24). Quick casual restaurants are defined as "... eateries from bakery/cafes to burrito shacks that delivered a casual dining experience, minus the waiters, in a compressed time frame." (Sperber 2002, p.1). This emerging niche-is projected to have $4-5 billion in annual revenues and with only 2% market share. This leaves significant room for growth with projections as high as $50 billion in the casual dinning sector within the next ten years. (Sperber 2002)

In the quick casual dining segment customers perceive quality and service as an important added value. Average ticket sales are lower than casual dining ($10-$15) and higher than fast dining (less than $5). The food is usually healthier than the normal fast food but consumers can still pick up a meal in a hurry. Most of this industry's customers are between the ages of 18-34, with an annual income above $50,000. (Sperber 2002). Despite the recession this group is more likely to dine out, but they demand higher quality food preparation and better customer choices.

The bagel market, which is part of this new trend of "quick casual dining", has benefited from its growth. The industry continues to grow but at a slower pace that during it boom. In keeping with the quick casual trend, some analysts recommended diversification with the addition of specialty products to the menu (Dietrich 2003). The large national bagel chains have tried a variety of options to diversity the product offerings and distribution channels. Franchises such as Big Apple Bagels sought out unconventional distribution outlets such as Host Marriott, and Sam's Clubs. Big City Bagels negotiated a deal with Northwest Airlines to provide bagels for their flights. One of the largest bagel franchises, Manhattan Bagel developed a major promotional campaign asking customers to "Come Back for Lunch." In addition they developed licensing agreements to provided bagels to US military installations. Spinelli (2000, p.1) suggested that bagel shops needed to "expand their concepts by adding new products from soups, to non-bagel sandwiches, to smoothies, to teaming up with coffee bars and yogurt operations in multi-branding ventures, to building non-morning menus." But these changes were not enough to return the industry to its previous growth levels.

Recent survey results on the bagel industry from several research consulting firms indicate a renewed interest by consumers in the bagel market. Data from bakingbusiness.com (2002) indicate that 38% of all households purchased fresh bagels in 2001. In addition, average consumers purchased fresh bagels every 35 days at an average transaction cost of $2.50. Trends also indicate that consumers had become more convenience-oriented especially in the area of breakfast foods. Overall bagels are listed as seventh among the top 10 breakfast foods eaten. According to NPD Group bagels ranked fifth among the top 10 carried breakfast foods, and fifth among the top 10 restaurant breakfast foods eaten off premise in 1999 (Davidson 2000).

The Food Marketing Institute reports that in 1996, 41% of takeout food came from fast food restaurants and 5% from deli/bagel/donut shops, whereas, in 2001 those percentages changed to 25% from fast food restaurants and 28% from deli/bagel/donut shops (Unrein 2002). And according to the NRD Group, a Chicago based research firm, bagel industry revenues continue to grow at a rate of 5% annually (Dietrich 2003).

MARKETING ISSUES

All of this information on the bagel industry left McGuthry a little overwhelmed. Even the major bagel franchises were floundering. As outlined above, they were experimenting with a variety of different positioning and marketing strategies trying to survive in an economy that was still in recover. With the bagel industry in a state of flux, McGuthry questioned what direction he should take his business and what promotional avenues would be the most effective in increasing demand. Since McGuthry had little business experience, he sought help from the Small Business Development Center. He knew that his product was excellent and the reputation of the business was outstanding. However, Hole in One Bagels lacked a marketing plan. He had a number of ideas about variations of the product offerings and promotional ideas that Hole in One Bagels could offer. Among these were loyalty cards, coffee merchandise, offering fresh bread to the local grocery stores, bagel burgers or bagel pizzas, bulk sales to grocery stores, opening in the evening, class tours, build a customer data-base, raise prices, advertise coupon specials, and faxing specials to schools and offices. Many of these ideas required more money than McGuthry felt he could invest immediately into the business. He was focusing on the bagel pizza and increasing his large ticket sales to schools and offices.

At the time the business was purchase, the marketing expenses were .21% of sales, and McGuthry wanted to see it increase to at least 2% of sales. He felt that increasing the promotional budget would also increase sales. Recently he had becoming a member of the Regional Chamber of Commerce, and started placing ads in the local newspapers, and Mail Right. He began placing an advertisement in the local newspaper on Mondays promoting Hole in One Bagels' lunch menu. Some slogans McGuthry uses in the ads were "Mmmmmm Good, Homemade Vegetable Soup," "A Bagel a Day Keeps the Hunger Away," and "Everybody Knows Your Name." To introduce the "Bagizza" McGuthry ran teaser ads. These ads were aimed at drawing interest by revealing what exactly the "Bagizza" was over several weekly ads in the paper. An example of one of Hole in One Bagel's ad is located in figure 11.

[FIGURE 11 OMITTED]

Another marketing idea McGuthry wanted to implement was loyalty cards. With these cards customers would receive their eleventh bagel free or their eleventh dozen of bagels free. This would promote customer loyalty and also hopefully increase the customer patronage. McGuthry had a number of ideas but needed help in deciding which of the ideas would be most effective in increasing his sales. Were his ideas taking the business in the right direction to produce the long-term profits potential he felt were possible?

FINANCIAL ANALYSIS

In order to evaluate his current position and make decisions about the future, McGuthry pulled together all of the financial statements he could find from both before the purchase and for his first five months of ownership. Income statements for the fiscal years of 2001 and 2002 are shown in figures 12 and 13. For the year 2002 only the months of January thru April are shown since the year had not ended. These statements show detailed expenses and sales. Figure 14 shows the most current income statements since Mr. McGuthry took over the business. Now that he has gathered all of the figures, the job of decipher them in a meaningful way could begin. He knew they would provide the insight he need to get a better understanding of his business and how to make it more profitable. Some immediate observations indicated that expenses were decreasing, but gross profit was also decreasing. He was also aware that each month expenses fluctuates drastically making cash flow figures difficult to predict. What did these numbers say about his business and how could he use them to help him make decision for the future?

CONCLUSION

Phillip McGuthry liked the idea of owning a small business. He enjoyed the long hours and the hard work, but he wanted to see some financial rewards. The business was holding steady in his opinion, but not growing. As a sole-proprietor he wanted to see success and this success was measured by the bottom line. Many questions still haunted him. Would it be more profitable to increase the catering business for groups or to increase store traffic from individual customers? Should he revise the menu with value added items and consolidate menu items? What about the pricing issue? The lack of a marketing strategy also bothered him. Was he spending the few dollars that he had for promotion effectively? He would certainly feel better if he had a written marketing plan for the future?

Being an entrepreneur was more challenging than McGuthry originally thought. After only a few months of operations, reality has set in. He found that some months he was profitable and other months he had losses. In addition he was only one person not two as the Smith sisters had been. The addition of a weekend manage added to his labor expenses which he had not anticipated when he purchased the business. McGuthry loved his new business, but was faced with some serious decisions if he is going to make a profit in the future.

REFERENCES

Bakingbusiness Staff. (2002, July 1). Grain-based statistics: Bagel. Retrieved March 10, 2003 from http://www.bakingbusiness.com/co_article.asp?ArticleID=45341&PF=print.

Casper, Carol (1997, May 15). A hole in one, Restaurant Business, 96(10), 109.

Cole, Wendy (2004, May 3). Is Bread Toast?, Time, 163(18), 50-51.

Davidson, Gordon. (2000,December 5). Convenience on-the-go eating boosts bagels. Retrieved March 10, 2003 from http://www.bakingbusiness.com/co_article.asp? ArticleID=37429&pf=print.

Dietrich, Heidi (2003). Back to bagel basics. Retrieved July 13, 2003, from http://seattle.bizjournals.com /seattle/stories/2003.03/03/smallb1.html?t=printable.

Dun & Bradstreet (2002). Industry Norms & Key Business Ratios. Murry Hill, NJ: Dun & Bradstreet, Inc.

Government Census. (2002, Sept. 21). Economic Business Statistics on Restaurant Industries. Retrieved Nov. 1, 2002, from http://www.census.gov.html

Harter, Besty. (2001, July 1). The Evolution of Bagels. Retrieved March 10, 2003, from http://www.bakingbusiness.com/archives /archive_article.asp?ArticleID=45373&PF=print.

Malovany, D. (2002, July, 30). Setting a New Table. Stagnito Publishing Company. 117, 91. Retrieved Nov. 19, 2002, from LEXISNEXIS ACADEMIC database.

MRI 2000. (2000, May 15) Female House Makers Demographics: Bagel Consumers. Retrieved Nov. 20, 2002, from Media Mark Research Inc.

ORC International (2001 Summer). Breakfast Favorites, Caravan Saray Newsletter, Retrived Nov. 19, 2002 from OCR International website http://www.opinionresearch.com/us/omnibus/newsletter/SaraySummer2001.pdf

Profit gap. (Fall 2001). RBA Insights. Retrieved March 10, 2003 from http://Reference USA (2002). Business database, Reference USA: An info USA service, Retreived January 2, 2002 from http://0-www.referenceusa.com.library. winthrop.edu/index2.asp?si=22640146461274

Sperber, B. (2002, Sept. 2). Fast Dining Ahead. Brandweek. p. 109DP4. Retrieved Nov. 19, 2002, from LEXISNEXIS ACADEMIC database.

Spinelliu, Anthony (2000). Once-burgeoning bagel industry now spread thin, The Connecticut Post, Retrieved January 2, 2002, from http://www.s-t.com/daily/01-00/01-02/d06bu143.htm.

Technomic Inc. (2002, August 6). Technomic, Inc. Unveils Study Results on Quick Casual Foodservice Segment. PR Newswire. A90164906. Retrieved Nov. 19, 2002, from Expanded Academic ASAP database.

Tonnies, Mac. (2001, April 1). Rush Job. Retrieved March 10, 2003, from http://www.bakingbusiness.com /archives/archive_article.asp?ArticleID=41247&PF=print.

Unrein, John. (2001, October 1). Coupon clippers. Retrieved March 10, 2003, from http://www.bakingbusiness.com/archives /archive_article.asp?ArticleID=47317&PF=print.

Unrein, John. (2002, May 1). Help Yourself. Retrieved March 10, 2003, from http://www.bakingbusiness.com /archives/archive_article.asp?ArticleID=53559&PF=print.

Unrein, John. (2002, June 1). Shifting Gears. Retrieved March 10, 2003, from http://www.bakingbusiness.com /archives/archive_article.asp?ArticleID=54066&PF=print.

Unrein, John. (2002,October 1). Pricing Postures. Retrieved March 10, 2003, from http://www.bakingbusiness.com/archives /archive_article.asp?ArticleID=57690&PF=print.

Unrein, John. (2002, December 1). Top 15 Retail: New World. Retrieved March 10, 2003, from http://www.bakingbusiness.com /archives/archive_article.asp?ArticleID=57690&PF=print.

Wolf, Barnet, W. (2002, July 4). Casual Feeding Frenzy. The Columbus Dispatch. p. 01F. Retrieved Nov. 19, 2002, from LEXISNEXIS ACADEMIC database.

Zion, Lee (2001). Einstein Bagels Launches Major Growth Blitz, San Diego Business Journal, 22(44) 24.

Barbara K. Fuller, Winthrop University

Michelle Burns, Winthrop University

Figure 3: Morning Start-Up

By 6:30:

1. Grind and brew coffee in the following order: Black Canyon, flavor and decaf. Grind 8 more filters of black Canyon and flavor and place them in their bins for back up during the day. Grind one or two filers of decaf.

2. Turn on the espresso machine by hitting the orange button on top.

3. Bring the urn of iced tea to the front. Make sure to search the walk-in cooler for the tea made FIRST. If it was made no more than 2 days ago (no yesterday, but the day before that), use the oldest tea first. Pay special attention when putting the nozzles on the teas and coffees. They must be screwed on all the way with the manufacturer's name facing forward to prevent dripping. Place the towel under each to catch the drips.

4. Put all ice cream scoops and the cream cheeses in a spreader for the butter pan. Bring knives to the front.

5. Unwrap all containers in the sandwich unit and change out cream cheeses by transferring them to clean pans. Put the new cream cheese on the BOTTOM of the OLD. (Lite mixes are placed on the right side of the unit, with plain lite (left) and plain (right) on the front.

6. Make sure there are back-up pans in the bottom of the sandwich unit for the cream cheeses most frequently used (pineapple, strawberry, plain, and lite).

7. Check for to go orders.

8. Place signs on special bagels (signs are in the drawer to the left of the sandwich unit).

9. Stock 8oz. cream cheese containers, plastic knives, and egg containers on the top of the sandwich unit and cups and lids on the counter below the drink machine.

10. Stock the condiment center with napkins, utensils, sugar, sweeteners, lids, stirrers, creamers, hot tea bags, cocoa, and cinnamon. Check to be sure the nozzles on the cream dispensers have been cleaned. Fill a plastic bucket with warm water and a capful of bleach. Place a clean rag in it and place the bucket in the cabinet below the espresso machine. Fill a small pan with water and one cap of bleach and place it in the sandwich unit for cleaning knives with making eggs.

11. Bring ice to the front.

12. Turn on all lights and fans. Turn thermostats in the front and back to 74 during warm weather and to 70 in cold weather. When appropriate, turn on the fire.

13. Make sure tables are clean and level. Check the chairs for crumbs and straighten the chairs and tables.

14. Unlock the patio furniture, wipe down the tables and sweep the patio. Empty the ashtrays.

15. Clean the windows on the front and back doors.

16. Fill up the three basin sinks in the kitchen with soap water. Rinse water and bleach water.

17. Take temperatures of the cream cheeses in the sandwich unit. It should be around 40-45 degrees. Alert the manager if it is not within range.

18. Assign duties for the drink station, condiment center and tables for the morning.

Mornings are important times. You are the first person our customer sees at the start of their day. Remember they have chosen to drop by on their way t work, school, etc. You have the ability to send them on their way positively or negatively. Consider it you job to solve their problems, make them feel welcome, laugh with then and provide their breakfast. Food is only a part of what we are selling at Hole in One Bagels. Even if it is early, it is your job to smile and to greet the customers with enthusiasm. WE WANT OUR SERVICE TO BE QUICK, CONSISTENT, AND PLEASANT!!!!!!!

Figure 4: Serving Customers

When serving a customer:

1. Begin by saying, "Good morning. How may I help you?" Or any other pleasant and cheerful greeting.

2. Get the bagel or muffin with a wrap sheet. Toast or slice the bagels, as requester.

3. If cream cheese is requested, slice and quarter the bagel then fill the metal scoop with the cream cheese. Place the cream cheese on the bagel half and replace the top matching the quarters then wrap tightly with a large deli wrap.

4. Ask if the order is here or to go. If it is for here, you may place it on a tray to transport it to the table. If it is to do, place it in an appropriate sized bag.

5. Tell the register person what was ordered. Be sure to include the drink sizes and specific information about the bagel and cream cheese (special, lite mix, etc.) so the customer does not have to repeatedly give their order.

6. Wrap cookies and muffins tightly in large deli warps.

7. Place cinnamon rolls on large deli wraps. If the order is "to go," place it in a large bag so nothing is on top of it. If the order is for more than one cinnamon roll, look for a box soothe rolls can be packed in a single layer.

8. If a customer asks for cream cheese on the side, divide a scoop of cream cheese into two small containers.

9. After each bagel or sandwich preparation, use the small wrap sheet to clean the knife you used. It is most unpleasant to taste garlic in a cinnamon raisin bagel!

Figure 5: Closing Duties

1. Bag left over muffins, cinnamon rolls and cookies in the small plastic bags. Clean out the display case thoroughly and place the baked goods back into the case, but do not stack them. Bag the left over bagels in bags of 13, being careful to keep "sweet" bagels separate from "spicy" bagels. If necessary, you might bag 6 sweet bagels and tie the bag to another bag of 7 spicy bagels. Place the bags of Jell over bagels on the shelf beside the drink cooler. Write number on each item left over on the baker's sheet.

2. With a bleach rag, wipe down all counter spaces (under and behind the cups, coffee machines, espresso machines, and syrups) where it tends to get sticky. Wipe down and wash all parts of the toaster and microwave. Wash the ice bucket and store it upside down.

3. In the dining area, wipe down all tables, the condiment counter and the ordering counter with Windex. Level the tables with "shuv-its."

4. Take out trash from the cans in the dining area, the patio, the bathrooms, and the serving area. Put bags in the dumpster behind the building and put clean liners in all the cans.

5. Switch all meats and veggies to new containers. Take all meats and veggies out of the sandwich unit and place on the rolling cart. Push the cart into the walk-in cooler to ensure that they stay cold. Wipe down the entire sandwich unit with a bleach rag. Take the cream cheese out of the bottom of the sandwich unit and place them back on top. The unit should no look like it does when you open the shop in the morning. Wipe down the bottom of the sandwich unit with a clean, fresh rag. Bring the meats and veggies back to the front. Wrap and place them in the bottom of the sandwich unit. Put the veggies back up top where they belong. While cleaning the sandwich unit, be sure to fill all meats, veggies, and cream cheeses that are low. (Putting the new products at the bottom of the pan and the older products at top). Be sure the necessary back up pans are in place.

6. Wash the front and back of the cutting board in the back in hot soapy water and bleach water. Pull out the sandwich unit and sweep underneath and behind it. Take out the floor mats so the entire serving area can be sweep and mopped with warm water and a capful of bleach. Take the mats out the back door and hose them down to clean them.

7. Clean the bagel rack to remove any excess seeds or toppings. Wipe the racks thoroughly top to bottom with a bleach cloth.

8. Backwash the Cappuccino machine and wipe it own top to bottom thoroughly. Be sure to take off the grate at the top and wipe down the top. Empty the Cappuccino bucket. Be sure to change the towel on the top of the machine. Turn off the machine.

9. Wash all espresso machine dishes. Backwash the machine and wipe it down thoroughly. Empty the bucket underneath the machine that collects liquid from the machine's drain. This bucket is located on the bottom shelf underneath the machine. Place a clean towel on top of the machine and place the clean dishes on top of it.

10. Take the urns of tea to the back and pour them into the 3 gal. Tupperware buckets. Make sure to label each tea with its type and the current data. Take the nozzles off the tea urns, wash both the nozzles and tops of the urns, and wash all parts thoroughly. DO NOT PUT THESE POST IN BLEACH WATER!!! Make sure to turn off all coffee warmers.

11. Take the half and half and whole milk containers to the kitchen. Take the nozzles off and wash them (use the small brush to scrub the narrow opening). Wash the containers, but DO NOT SUBMERGE THEM IN WATER!!!

Figure 6: Daily Check List for Everyone

* Is the music playing at an acceptable level?

* Is the temperature pleasant in dining room?

* Are all tables/chairs clean?

* Is the condiment center clean and stocked?

* Cigarette butts?

* Are the bathrooms clean and stocked?

Figure 7: Daily Guidelines

* Opening list complete by 6:30 AM

* Side-work complete by 12:00 noon (this includes any dishes that were used during the morning shift) please pay special attention to the cookie and cinnamon roll pans.

* 12:00-2:00 PM Serve customers and keep the restaurant spotless as best you can (check bathrooms, tables, and condiment center frequently). Closers all dishes done by 3:00 PM

* Change out meats by 3:00 PM

* Cappuccino machine done by 4:30 PM. Sweeping done by 4:00 PM

* Mopping done by 4:30 PM

Figure 8: Employee Appearance

* At Hole in One Bagels, employees are asked to wear the Hole in One Bagels T-shirt provided. Khaki slacks or shorts are preferred, but denim is fine as well.

* Each employee must wear a hat, which is provided, at all times during his or her shift. The purpose of the cap is to keep hair out of our face and the out of the food. The Department of Health and environmental Controls (DHEC) requires that a cap or hairnet be worn when preparing food.

* Employees are not allowed to wear open-toed shoes.

* Please use common sense and good judgment when dressing for work. Employees are expected to look neat and clean when arrive for their shifts.

Figure 9: Employee Sick Policy

At Hole in One Bagels the shift, schedules are posted in advance of the week. Each employee is responsible for finding a replacement for his own shift before the shift begins. Notify the manager for the change.

Please keep a current list of co-workers with phone numbers at their homes so you can fill your shift as soon as you become ill or realize that you will need a replacement. DO NOT WAIT UNTIL THE MORNING OF OUR SHIFT TO CALL SOMEONE TO COVER FOR YOU!!!!!!

Figure 10: U.S. Bagel Sales Volume (in millions)

 2002 2001 2000 1999

Dollars $751 $744 $710 $707
Units 382 $392 393 432

52-week period ended in April, in all retail outlets (excluding
WalMart) Source: ACNielsen. (Bakingbusiness Staff 2002, July 1)

Figures 12 and 13: Income Statements

 January to January to
 December 2001 April 2002

Sales $649,228.62 $205,662.46
Cream Cheese $24,603.84 $8,395.79
Raw materials $26,952.18 $8,560.44
Deli $49,845.62 $13,978.47
Flour & Ing. $43,741.52 $12,574.38
Beverages $57,694.97 $19,534.98
Store Wages $208,196.52 $66,842.79
Total $411,034.64 $129,886.85
Gross Margin $238,193,98 $75,775.61
Charity $376.73 $375.00
Taxes-Income $37.50 $37.50
Officers Wages $26,182.16
Voids $0.00 $0.00
Health Insurance $12,813.51 $5,947.80
General Insurance $10,628.25 $2,185.05
Property Taxes $866.52 $802.50
License $968.72
Rent $25,953.15
Repairs/Maintenance $4,225.38 $2,073.21
Pest Control $1,483.73 $480.00
Utilities $22,698.99 $6,801.06
Telephone $3,074.36 $1,800.42
Janitorial $229.56
Decor $2,182.77 $382.50
Supplies $2,737.50 $1,155.56
Small Wares $927.51 $88.82
Laundry $3,114.50 $1,103.10
Postage $863.19 $51.00
Office Supplies $3,313.91 $246.90
Bank Charges $5,953.50 $2,035.05
Dues $7,592.25 $1,695.93
Legal $1,350.00 $1,237.50
Auto $13,007.91 $4,301.16
Outside Services $2,414.66 $770.85
Security Mon. $418.80
Misc. $11,904.02 $3,453.32
Advertising $1,395.00
Total $166,714.04 $37,024.22
Net Income $71,479.95 $38,711.40

Figure 14: Five Months of Financial Statements with McGuthry's
Ownership

Income Statement June-October 2002

 June July

Sales $49,244.37 $63,109.10
Cost of Goods Sold $13,306.29 $16,506.68
Gross Profit $35,938.08 $46,602.42
Distributions-Phillip $0.00 $0.00
Officers Wages $0.00 $0.00
Insurance $1,974.80 $500.51
Taxes $0.00 $0.00
License & Permits $486.29 $0.00
Rent Expense $3,000.00 $3,000.00
Pest Control $0.00 $244.50
Repair & Main. $700.65 $603.77
Utilities $1,250.31 $3,846.54
Telephone $296.64 $451.59
Janitorial $627.21 $174.90
Decor $607.10 $1,969.02
Small Wares $139.46 $57.78
Laundry $131.15 $483.59
Office Supplies $2,013.69 $728.43
Debit Service $0.00 $3,203.43
Merchant Service $0.00 $243.20
Legal/Professional $2,700.00 $0.00
Payroll $15,500.25 $17,194.89
Security Monitoring $0.00 $419.76
Equipment Purchases $360.98 $0.00
Advertising $75.00 $345.14
Misc. $0.00 $284.96
Contributions $450.00 $0.00
Total Expense $30,313.50 $33,751.98
Net Income $5,624.58 $12,850.44

 August Sept.

Sales $56,283.45 $55,401.99
Cost of Goods Sold $23,191.23 $16,602.71
Gross Profit $33,092.22 $38,799.29
Distributions-Phillip $2,250.00 $1,125.00
Officers Wages $2,537.04 $2,537.04
Insurance $1,050.26 $500.51
Taxes $3,018.30 $3,079.97
License & Permits $0.00 $0.00
Rent Expense $3,000.00 $3,000.00
Pest Control $124.50 $0.00
Repair & Main. $945.32 $288.27
Utilities $2,331.11 $2,319.86
Telephone $518.25 $368.69
Janitorial $0.00 $0.00
Decor $1,168.68 $0.00
Small Wares $866.16 $0.00
Laundry $369.44 $42.60
Office Supplies $247.01 $0.00
Debit Service $4,231.50 $3,051.59
Merchant Service $63.00 $235.41
Legal/Professional $0.00 $0.00
Payroll $17,978.06 $16,278.14
Security Monitoring $0.00 $0.00
Equipment Purchases $578.63 $146.07
Advertising $1,889.07 $538.05
Misc. $685.02 $254.24
Contributions $0.00 $0.00
Total Expense $43,851.32 $33,765.41
Net Income ($10,759.10) $5,033.88

 Oct.

Sales $55,908.98
Cost of Goods Sold $20,662.05
Gross Profit $35,246.93
Distributions-Phillip $2,250.00
Officers Wages $2,537.04
Insurance $500.55
Taxes $2,694.78
License & Permits $0.00
Rent Expense $3,000.00
Pest Control $4.50
Repair & Main. $817.28
Utilities $2,549.34
Telephone $370.80
Janitorial $0.00
Decor $0.00
Small Wares $0.00
Laundry $499.13
Office Supplies $318.84
Debit Service $3,750.00
Merchant Service $0.00
Legal/Professional $750.00
Payroll $15,282.33
Security Monitoring $0.00
Equipment Purchases $855.57
Advertising $346.47
Misc. $172.76
Contributions $0.00
Total Expense $36,699.38
Net Income ($1,452.45)