Smaller companies facing off against big-chain interlopers

Nation's Restaurant News, April 22, 1996 by Suzanne Kapner

"I bought pieces of carpet so when the kids come in they can sit on the floor," Owen says.

He also is considering an omelet bar for weekend brunch. And he plans to roll out his line of panini sandwiches, soups and salads, which currently are offered at three stores.

Owen, who lectures at the Wharton Business School's entrepreneurial program, also is forging an alliance with supermarkets. Currently, 25 stores are in Genuardi's and Giant food stores.

Unlike founders of other small companies, who dream of spreading across the nation, Owen refuses to franchise and plans to stay local. The seven new stores opened this year are all in the Mid-Atlantic region.

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Chesapeake Bagel Bakery is another local player but with more far-reaching aspirations. The chain has nine company stores and 113 franchised units and operates in 22 states. But its home market is Washington, D.C., where founders Michael Robinson and Alan Manstof opened the first store in 1981.

At that time Washington was "uncharted territory for retail bagel shops," Robinson says.

The founders know first-hand just how brutal competition has become in the bagel segment. Two of their original investors left Chesapeake to start Bruegger's Bagel Bakery.

Nonetheless, the company has maintained a steady growth pace -- opening 62 stores in 1995 with unit sales ranging from $600,000 to $800,000 -- by retaining the philosophy of a small company.

Eschewing commissaries, stores make all products from scratch, from bagels to chicken salad. Because each store has a bakery, opening costs are slightly higher than those of other bagel concepts. Robinson says the total investment to open a new unit, including franchise fees, is around $300,000.

"A true bagel is not a consistent product, because original bagels were hand-shaped," Robinson asserts. He refutes the idea that New York water is necessary for making real bagels. "When we first opened, every week we got a tanker load of New York water. But we found you can bake as good a bagel in Santa Fe as you can in New York."

Rather than push for cookie-cutter consistency, Manstof says, the company encourages franchisees to adapt to local tastes and establish relationships with residents.

"We require our franchisees to be involved in the community," he says. "We try and instill the idea that if you want to compete effectively, you have to do something different. You can't just rely on a more varied menu."

A nine-unit Chesapeake franchisee in Washington supports little league, church fund-raisers and high-school yearbooks. As a result, local teenagers apply for jobs at his stores, and he has high brand recognition in the area, Robinson says.

A Denver franchisee invites high-school students to work at his store on weekends as a fundraising effort. All sales in excess of a certain amount are donated to the school.

The company also has launched a pilot program to provide employment in economically disadvantaged neighborhoods. The company waived the initial franchise fee for a store in a low-income part of Washington. The store is staffed with local residents. Employees who remain for 18 months or longer are eligible to own a portion of the store. Otherwise, the unit operates like a regular franchise, and Chesapeake collects its annual 4-percent royalty.