How to Start a Bagel Shop
Who doesn’t love bagels? Bagels have become a popular breakfast staple and are also great for sandwiches or just as a snack. If you have learned to make your own bagels and think you have a knack for it, you might have thought of turning your skill into a business. Having your own bagel shop can be a great way to use your talent, make a living, and have the benefits of being your own boss.
A bagel shop typically offers a variety of different bagels with cream cheese or other spread options, plus beverages such as coffee. Some offer breakfast or lunch bagel sandwich options and other breakfast items and desserts or salads. Some bagel shops are designed mainly for takeout, but most have seating and other amenities to create a relaxed community-focused eating experience.
Successful bagel shops are generally in high foot or mobile traffic areas where they have good visibility and no direct competition in the immediate vicinity. The bagel business is, however, a competitive industry, so quality and branding are important to attract customers and keep them coming back.
According to IBIS World, the bagel industry is expected to grow 3% in 2021 and continue to grow through 2025. It is currently a $1.7 billion industry in the United States. 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 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. Coffee sales are an important part of the business as well. According to Statista, in 2020, people in the U.S. drank 1.87 cups of coffee per day.
The bagel industry has been relatively stable, even during the pandemic, indicating that people are still attached to bagels as a comfort food breakfast staple. The industry outlook is positive, and as discussed, because bagels are inexpensive, they are not sensitive to market volatility.
Health consciousness is driving demand for whole grain, healthy bagel options, so it is important to have these options on your menu. The same is true for sandwiches, with healthy ingredients like avocadoes becoming more and more popular. Artisan bagels are also popular, and communities often also look for products made with local ingredients.
The target customer for bagels is not income specific because they are inexpensive, so the market is broad. Healthy and artisan bagels will attract millennials and a generally younger market. Bagels are also popular with business people for meetings, and bagel shops are a common choice for breakfast appointments.
Skills, Experience, and Education Useful in Running 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 knowledge of what customers expect.
Costs to Start a Bagel Shop
The costs to start a bagel shop are significant. Here are the startup expenses you should plan for.
- Setting up a business name and corporation costs approximately $200.
- Licensing and permits approximately $500+
- Business cards, brochures, postcards for marketing $200 – $300
- Website setup $100 – $200 for a basic, do it yourself website, $1000 – $2,000 for a professional site
- Renting a space for your shop varies by location but would cost at least $5,000 – $6,000 for a deposit and the first three months rent.
- Bagel making equipment and equipment such as prep tables, 3 compartment sink for rinsing, and refrigeration $20,000+
- Renovating the space to meet your needs, including display cases and signs, cash registers, and POS systems $40,000+
- Startup bagel ingredients and beverage inventory $10,000+
- Initial liability insurance, worker’s comp, property, and casualty insurance $600-$1,000
- Initial marketing such as Facebook ads or search engine optimization for your website, plus marketing for your grand opening $1,000-$2,000
- Costs to hire initial employees $4,500+ for the first three months
Steps to Starting a Bagel Shop
Step 1: Write your Business Plan
After coming up with the idea, the next step in starting your bagel shop should be to write a business plan. The business plan will make you focus on some important aspects of the business, such as who your customers are, how you plan to reach them, projecting sales and expenses, your value proposition to use for marketing, and more. You’ll also need to do some research to calculate exactly what your startup expenses will be.
Not only will a bank require you to have a business plan if you need financing, but multiple studies have shown that having a good business plan increases the odds of starting a successful business. Writing the plan helps you think through all the aspects of the business and then serves as a guide as you begin.
Step 2: Name the Business
Finding the perfect bagel shop business name can be challenging. Not only does the name have to reflect what you do and be appealing to customers, but it also has to be available to use. You can check your state’s website to see if the name is available and register your name. Your name should make you stand out, reflect your brand, and tell potential customers exactly what you do.
Related: Tips & ideas for naming a bagel shop
Step 3: Form a Legal Business Entity
A business entity refers to how a business is legally organized to operate. There are four primary business entities to choose from, which include a sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.
Related: Comparison of Business Entities
Step 4: Select your Location
A shop in a high-traffic area will cost more to rent, but it can also generate walk-in business and increase your brand exposure. You also want to avoid direct competition in the area.
Related: Choosing a business location
Step 5: Apply for Business Licenses and Permits
You may need to obtain certain business licenses and permits. These permits and licenses can vary based on the state and town where the business is located. Some common local, state, and federal registrations a bagel shop may need include a sales tax permit and an Employer Identification Number.
Step 6: Find Financing
Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a bagel shop is another. In order to get a loan, the borrower(s) will need to have good credit and be able to invest 15-25% of their money towards the total start-up costs. Startup costs for a bagel shop are significant.
Step 7: Open a Business Bank Account
Keeping your business and personal finances in separate business bank and credit card accounts makes it easier to track the income and expenses of the business.
Step 8: Get your Marketing Plan in Place
A bagel will need to set aside a budget to cover marketing costs on a continuous basis. Common marketing techniques for a bagel shop include social media marketing, online advertising, print advertising, direct mail advertising, and coupons or special promotions. Visiting businesses located close to your shop and providing free bagels is a great way to initially get the word out too.
Developing a website can be a significant expense, but it can also give your bagel shop greater visibility online. Marketing costs will depend on the activity performed and its volume.
Step 9: Get Business Insurance
A bagel shop needs several types of insurance for full coverage:
General liability insurance can help protect you from third-party claims of bodily injury and property damage.
Professional liability insurance protects you from claims of professional errors or negligence that result in a financial loss.
Worker’s compensation insurance covers expenses like medical bills and legal fees that a business might face if an employee were ever hurt while working.
Property and casualty insurance protects you if your shop is damaged.
Insurance policies will vary. To get the most accurate idea of what to budget for insurance, request quotes from multiple providers. When comparing the quotes, consider not only the premiums but also how the plan exclusions, coverage limitations, and deductibles compare.
Step 10: Hiring Employees
You will need employees to help you run the bagel shop, both in the kitchen and on the customer service side. Salaries vary for various jobs and the skills required.
In addition to salary costs, your budget will also need to include other employee-related expenses. Workman’s comp insurance, unemployment insurance, and paid time off are common expenses that a business will need to cover when hiring staff.
Related: Hiring your first employee
Step 11: Set up an Accounting System
Setting up an accounting system for your bagel shop is critical to the long-term success of your business.
Staying on top of taxes not only keeps the business out of trouble with the government but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.
How Much Can You Potentially Make Owning a Bagel Shop?
The average bagel costs $1.80 -$3.00. Other food item prices will vary. Your annual revenue will depend on the number of sales you have per day and the average amount spent per customer. If you have 100 sales per day with an average sale of $6.00 for a bagel and coffee and you’re open 7 days a week, your revenue per year will be $219,000. The key is to upsell products and get a lot of walk-in business and repeat customers.
Things to Consider Before Starting a Bagel Shop
Running a bagel shop or any business will have its challenges. You need to be prepared and make sure that you know what you’re getting into.
The first thing to consider is that you have to make a high-quality product. Because you will have competition, you need to have good bagels and food that will keep customers coming back. You’ll need to hone your recipes and have objective taste testers.
As discussed, start-up costs for a bagel shop are significant, and you are putting your money at risk. There is no guarantee of success, and you will have invested time as well as money if you don’t succeed.
Third, you will have to continuously market yourself, which will cost money, depending on how much you decide to do. Online marketing is important; however, it doesn’t need to be expensive if you utilize social media. It is still not going to be as effective, though, as having a good location and effective signs to draw people in.
Talk to other business owners for tips on starting a business, and do your homework to determine costs. Visit other bagel shops to see how their owners run things and what they offer, but make your shop unique.