The bagel industry's boom and bust
EC: In the '90s, People Thought Bagels Were a Fad, Like Froyo
Credit: Photo by TIMOTHY A. CLARY/AFP via Getty Images

The late 1990s, history books will tell you, were part of a period of economic prosperity in the United States. Job creation was steady, inflation was low, productivity was on the rise, and the stock market was happy. But all was not right in America where it counted the most. I’m talking, of course, about bagels. In the late '90s, American bagelry was experiencing an unprecedented crisis. Across the country, bagel bakeries were closing up. Stocks in publicly traded bagel companies were sinking. And some experts actually believed that bagel shops, the indispensable, carb-y pillars of so many communities, were just a passing fad, like—and it pains me to write this—frozen yogurt shops a decade earlier.

What happened? Truth be told, the crumbling of the bagel industry in the late 1990s is a story of hubris. Bagel bakeries, tasting success beyond their wildest expectations, flew too close to the sun. They got burned.

Like so many cautionary tales, this one begins in the 1980s. During that booming decade, radical shifts were occurring in the American bagel landscape. In 1986, the New York Times’ Steven Greenhouse reported that the bagel was transforming from an ethnic food that no one had heard of outside the East Coast to an increasingly popular national food. The number of bagels sold a day in the county, industry experts estimated, rose from 6 million to 8 million in just two years, making it a $400 million a year industry. Bagel bakeries, meanwhile, were spreading out from the East Coast to the heartland and even to far-flung locales like Anchorage, Alaska.

What was driving the growth? According to Greenhouse, a big catalyst was a war between two of the country’s biggest bagel bakers—Sara Lee and Lender’s. For decades, Lender’s had dominated the frozen bagel market, but when Sara Lee entered the field, it prompted an advertising battle between the two companies that sucked up millions of dollars of television ads in homes around the country. Another factor contributing to the bagel surge was shifting dietary attitudes. In the '80s, the Los Angeles Times’ Melinda Fulmer wrote, Americans were fleeing “high-fat, high-calorie doughnuts” and looking for a low-fat alternative. Bagels fit the bill.

The industry was growing, but it was still nowhere near its peak. According to Greenhouse, four out of five Americans had still not tried a bagel in 1986. Executives at bagel baking companies knew they could reach those people.

EC: assets%2Fmessage-editor%2F1482333550280-bagel-inline-1980
Credit: Photo By John Prieto/The Denver Post via Getty Images

"Having come off our success with the introduction of frozen croissants, we thought bagels, like croissants, were not just ethnic foods with limited potential," Richard Sharoff, a Sara Lee executive, told Greenhouse. "But we think bagels have the making of being even bigger because they are sold for a lower price than croissants. They lend themselves more to everyday eating, while croissants tend to be more special-occasion oriented."

Sharoff was spot on. By the mid '90s, the industry was truly booming. “Having successfully navigated the same uncertain consumer market that swallowed the sticky bun, crumbled the English muffin and humbled the haughty croissant, the bagel has landed,” Tim May wrote in the Los Angeles Times in 1995. American bagel consumption doubled between 1995 and 1999, according to marketing research company Business Trend Analysts. Entrepreneurs wanted in on the action.

“It's a relatively simple process that requires few ingredients—corn meal, wheat, and sugar—and little machinery—a mixer, a ‘hopper’ to punch holes in the bagel dough, a kettle and ovens. The simplicity and low cost is partly what attracts many to the business,” May wrote.

At supermarkets across the country, bagel sales were rising 15 to 20 percent annually. In Los Angeles, the retail bagel industry was growing 400 percent a year.

"Bagels are highly profitable, that's why so many companies are getting on the bandwagon," Ed Lee, editor of Modern Baking magazine, told May. "Each of the companies getting involved wants to become major franchisers. Each one is duking it out to become the McDonald's of the bagel industry."

EC: assets%2Fmessage-editor%2F1482333862431-bagel-inline-2-mass
Credit: Photo by Joanne Rathe/The Boston Globe via Getty Images

The next year, the Wall Street Journal’s E.S. Browning reported, bagel chains were going public “so fast that at times it seems the stocks are being hawked the way a pushcart vendor might sell the doughy breakfast staple on a Manhattan street.” By September 1996, at least seven bagel retailers or manufacturers, or their parent companies, were trading publicly.

“Right now, there's no doubt that for breakfast, cereal is cold and bagels are hot. Egg consumption has been falling. But many coffee bars like Starbucks are still prospering. And bagels, whose dough is baked after being boiled or steamed, are often consumed with a cup of coffee,” Browning wrote.

By 1997, however, things had taken a turn. Bagels were still “booming in popularity,” the Wall Street Journal’s Richard Gibson wrote, and could be bought “almost everywhere, from commuter stands to supermarkets.” But Bora Sila, an investment banker at Schroder & Co. said an “implosion of the business” was underway.

In December 1997, Gibson wrote, Einstein/Noah Bagel Corp., the nation's most ubiquitous bagel chain, announced the resignation of its chief executive Mark Goldston. BAB Holdings Inc., the operator of the Big Apple Bagels chain, reported a $528,000 loss for its fiscal third quarter that year and said its chief financial officer left for another job. Quality Dining Inc. of Mishawaka, Indiana, sold Bruegger's Bagels back to its original owners less than a year after acquiring it.

Stocks in publicly traded bagel companies, meanwhile, were plummeting. Shares of Einstein/Noah, Manhattan, BAB Holdings, Uncle B’s, Big City Bagels Inc. and New York Bagel Enterprises Inc. were trading near 52-week lows, Gibson reported.

EC: assets%2Fmessage-editor%2F1482334305300-bagels-inline-3
Credit: Photo by Portland Press Herald via Getty Images

By 1998, the Chicago Tribune’s Nancy Millman declared that the bagel boom had officially bust.

“Even the bagel companies are acknowledging that though their product still is a hit, their star as an investment vehicle has fallen. All three of the leading chains have seen their stock lose more than 80 percent of its value over the past year,” Millman wrote.

What was going on? According to the Los Angeles Times’ Melinda Fulmer, part of the problem was over-saturation. Simply put, there were just too many bagels to go around.

"There has been an explosion in the availability of bagels," Ronald Paul, president of Technomic Inc., a Chicago restaurant consulting firm, told Fulmer in 2000. "And to the consumer, it's not worth going out of their way for that.”

Public attitudes about fat consumption, moreover, had shifted once again—this time, not in the bagel’s favor.

“Some nutritionists say dieters who have been eating low-fat snacks and frozen dinners for almost a decade on the advice of diet gurus without getting leaner are fed up and returning to foods with richer taste and texture,” Fulmer wrote.

By the turn of the millennium, bagel franchises were scrambling to adapt to the new environment. To cater to America's sweet tooth, many shops started offering muffins, scones, and other baked goods. At Noah/Einstein, breakfast bagel sales shrunk to just 40 percent of its business.

EC: assets%2Fmessage-editor%2F1482334738311-bagel-inline-5
Credit: Photo by Amanda Edwards/FilmMagic via Getty iMages

"We're trying to broaden our appeal," Robert Hartnett, Noah/Einstein's chief executive, told Fulmer. "We fit into a category now that I'd call fast casual. We satisfy a variety of needs.”

Judy Kadylak, Bruegger's Bagels current vice president of marketing, told me that around this time the chain realized “the business couldn’t be just bagels and cream cheese” and began selling salads, soups, and sandwiches. In response to growing anxiety about carb and calorie consumption, it also introduced a machine that let customers make their bagels “skinny” by cutting out a center slice, reducing calories by a third.

Some companies, the Christian Science Monitor’s Ross Atkin Staff reported, were, meanwhile, busy “reinventing the bagel” now that the “novelty that made it the darling of the baking industry in the mid-1990s has worn off.” Pillsbury created a rectangular bagel designed to fit in toasters. SJR Foods made cream cheese-filled Unholey Bagels. And some companies started marketing bagel holes. As far as I’m concerned, those innovations are totally horrifying, but at least they helped keep bagels from disappearing altogether.

Today, bagels are back on track. According to Food Business News’ Charlotte Atchley, “the bagel category is nothing if not consistent.” In 2011, 58 percent of US households ate bagels, and with only minor ups and downs over the years, 60.9 percent of households ate them in 2015.

The lesson here? Never underestimate the bagel. It’s scrappy. It’s a fighter. And in this way, perhaps, it’s like America itself. It may be down sometimes, but it’s never out.