Benny's Bagels: there's still dough to be made in Southwest

Nation's Restaurant News, Dec 9, 1996 by Ron Ruggless

DALLAS - As the big bagel chains begin entering new markets, smaller regional chains are working hard to differentiate themselves from their larger competition.

In this area of the Southwest, Einstein Bros. and Bruegger's have opened the stores this year, following on the heels of such companies as Chesapeake Bagels, which opened and then closed three Dallas-area units amid the heightened competition.

"There's nothing wrong with the industry whatsoever," Kevin Wilson said of the 10-unit regional Benny's Bagels chain. "The bagel segment is very strong. But as the units multiply, the unit volumes are going to go down."

To deal with those dynamics, Benny's Bagels Inc., which opened its first store in September 1994 in Addison, has kept its units small - averaging 1,500 square feet - and aims at average annual sales of $475,000 to $500,000, Wilson said.

The Southwest remains relatively untilled turf for the bagel business.

"When we were first looking in the early '90s," Wilson explained, "we decided there would be an opportunity for bagels in the Southwest.

"We found bagels were a high-growth item in the region, but they were being sold in grocery stores," he continued. "If you looked at the channels of distribution, you couldn't get them in the mom-and-pop stores. But in the grocery stores, the quality of the product just wasn't there."

Wilson and his partners, brother Don Wilson and their childhood friend Greg Buzanis, launched Benny's Bagels to fill that void. All were from Toronto.

While Kevin Wilson put together the business plan and sought a site for the first unit, Don Wilson and Buzanis spent nine months working in a bagel store in Vancouver, British, Columbia, to hone operations and recipes.

Their first store opened in suburban Addison in September 1994. "In hindsight it's a very unforgiving street," Wilson said, referring to the high concentration of foodservice outlets along the Belt Line Road strip. "Having a health club next door helped bring in customers."

Benny's Bagels has since opened eight other units in the Dallas area, one in Houston and two nontraditional kiosks. Another unit is under construction in San Antonio. All but two of the stores are franchised. Hours are generally from 6 or 6:30 a.m. to 5 p.m.

A customized wood decor accented with French brick and a chalkboard menu typify the units, which have check averages of about $3.50 for breakfast and $4.50 for lunch.

"We wanted to give it a homey, warm feeling," Wilson said. "We've found that about 70 percent of our customers are women, so we want to maintain the neighborly, nonthreatening environment."

Each store has about 22 seats, with an emphasis on carry-out. "The nature of bagels is that it's a breakfast and lunch business and a lot of takeout," Wilson, explained. "In the morning about 80 percent of our business is takeout. At lunch it's about 60 percent."

As Benny's continues to expand in the region, Wilson is intent on developing a brand recognition while fostering a community, neighborly feeling.

"We want our franchisees and our stores to become part of the community, part of their neighborhood," Wilson said. To that end, marketing is aimed at the local-store level, and the company creates a presence at as many as 30 to 35 charity events each year, offering free bagels and coupons for the neighborhood stores.

The menu offers a range of 10 different bagel flavors as well as bagel sandwiches - turkey and roast beef are the most popular - and coffees. "We're about to come out with a fresh-baked muffin program," Wilson said, noting that it will include six flavors and feature such varieties as low-fat and no-fat blueberry and bran. The muffins will be displayed in baskets like the bagels.

"Bagels will always be our core product," Wilson cautioned, "but it's a natural to get baked goods like muffins and fresh bread. I don't want to confuse the customers about our product line, but I want to add products that our customers want. We aren't going to take a shotgun approach."

Benny's has a central commissary in Dallas, where it manufactures the product, Wilson said. Distribution is handled through Sysco Foods. "We maintain the consistency of the product by producing the bagels centrally and shipping them frozen to each of the stores," he said. "The stores bake them fresh." That helps keep labor costs at about 18 percent to 20 percent of sales and food costs at about 35 percent.

The average investment in a unit, including the franchise fee, is about $185,000, Wilson said. "Our internal goal is to have every store cash flow positive within one month of opening," he said. The company achieved that in all but two of the stores, which showed positive cash flow in the second month.

About 80 percent of the customers are repeats, Wilson said, which makes keeping customer data important. The company maintains a database of 11,000 customers, groomed through store cards, and they get a letter of appreciation from the company every two months with free bagel offers.

"Every store's marketing program is customized to the neighborhood," Wilson added. That personalized touch, as in a mon-and-pop store, is what helps Benny's differentiate itself from the big players that are moving into the market.