Big Money Is Betting on Bagels

In the last decade, investment firms like Blackstone and Bain Capital have acquired stakes in many of America’s favorite foods. They vacuumed up big chunks of the fast food business, taking control of chains like Dunkin’, Popeyes and Burger King and funding growth for regional brands like Jersey Mike’s and Prince Street Pizza.

High-quality bagels, with their finicky baking process, have always been notoriously unprofitable and unscalable. But recent developments in bakery and coffee technology, along with changes in social media, consumer tracking, capital funding and delivery platforms, have changed that.

And now, big money is coming for our bagels.

“Money has been chasing bagels for years,” said Ben Coley, editor of QSR, a magazine that covers the $350 billion quick-service food industry.

With trend-obsessed young consumers posting on social media about Courage Bagels in Los Angeles; Boichik Bagels in Berkeley, California; and Apollo and PopUp Bagels in New York, the demand for hand-rolled, kettle-boiled bagels has suddenly exploded. And new chains are growing rapidly to meet it, especially in the South and the Sun Belt, where cities are expanding faster than food businesses can open, and the shortage of handmade bagels is chronic. Not all the offerings are strictly traditional, but the tangy interiors, chewy-crisp crusts and plentiful toppings are a major improvement on the puffy, pale bagels that have long ruled American strip malls.

“Here comes the premium bagel boom,” Coley said.

The first sign of private equity’s interest in bagels came in 2023, when food-focused fund Stripes invested $8 million in PopUp Bagels, just three months after its founder Adam Goldberg opened the first brick-and-mortar shop in New York City. (His “grip, rip and dip” way of eating bagels hot, torn into pieces and dipped into cream cheese went viral during the pandemic.) Last year, Stripes became majority owner of the company with an additional $27 million investment. On Friday, PopUp Bagels opened its 29th shop, in Washington, D.C., generating a line so long that the local NBC News affiliate showed up.

Last year, Invus, an asset management company, acquired a majority stake in Call Your Mother Deli, a mom-and-pop bagel business in the Washington area that now has seven shops in Colorado, with Chicago and Philadelphia soon to come.

“When we opened our 20th store, I suddenly got emails from every investment fund I’d ever heard of,” said Jeff Perera, a co-founder of Jeff’s Bagel Run, who began baking at home during the pandemic. (He did not take the offers, instead choosing to expand to 33 stores through franchising since opening near Orlando, Florida, in 2021.)

Making bagels the traditional way demands investment in time and space. After the dough is mixed and proofed overnight, it must be rolled and shaped by hand, risen again, then boiled and finally baked. So what would persuade investment managers to get their hands into something as sticky as the bagel business?

“Foodie culture used to be concentrated in pockets on the coasts,” said Chris Carey, a partner in Stripes, which is also a major investor in Levain Bakery, 7th Street Burger and Erewhon, upscale brands with high visibility on social media. “Now, there’s a national awareness, so if you can build credibility with a bagel in New York, it’s likely to sell in La Jolla, in Tampa, in Charlotte.”

Americans are also drinking ever more coffee (and less alcohol), making breakfast one of the fastest-growing segments in quick service, which includes not only traditional fast food but also convenience stores and gas stations, smoothie shops and salad chains. Fewer and fewer people sit down for breakfast, bolstering growth in portable foods like doughnuts, cinnamon rolls and bagels.

Long-standing bagel chains like Einstein Bros., Bruegger’s and Noah’s, all owned by Panera Brands, are still operating, but growth has long been stagnant. Panera is focused on its signature Asiago cheese bagel, which has ruled the category since it was introduced in the 1990s. (In January, it unveiled its first new bagel flavor since 2014: the Everything Asiago.)

Those mass brands have never seriously claimed to match the quality of a freshly baked slow-risen, hand-rolled bagel. Many of the new startups promise to do just that. Whether they can maintain quality while scaling up at breathtaking rates is an open question.

“No one could figure out how to not have all that labor and equipment and square footage,” said Jay Rushin, who bought New York City legacy brand H&H Bagels in 2014. He solved the problem with a 20,000-square-foot production facility in the Queens borough of New York City, where all the chain’s bagels are made, quick-frozen and shipped to 18 locations, from Santa Monica, California, to Moynihan Train Hall in Manhattan.

Before the acquisition, Rushin had no particular interest in bagels; he was a Wall Street veteran looking to buy a business with a lot of “white space,” or room to grow. H&H already had a large wholesale operation and had long been shipping frozen bagels to Asia, where blueberry was (and remains) the most popular flavor.

Stateside, however, the most popular and profitable item in every store is the same: the bacon, egg and cheese sandwich.

“You can’t stay afloat selling plain buttered bagels for $2, $3,” said Andres Samper, the founder of Manhattan Bagel Equity Fund, a bagel-specific investment fund that is “focused on acquiring, rebranding and scaling high-performing bagel shops across the United States.”

“You need to sell sandwiches that are $15 or $16, or it’s impossible to keep the lights on,” he said.

With an initial $5 million investment, the fund bought two New York City bagel shops and rebranded them as Go Bagels, where they are streamlining, modernizing and evaluating factors like boiling versus steaming for a projected 400 stores.

The development of sophisticated ovens that can quickly bake bagels throughout the day has also fueled growth. A modern bagel shop with a Turbofan oven and little seating or staff, like PopUp, is efficient to slip into a small storefront, like the pistachio-green Blank Street Coffee shops that have proliferated in American cities with backing from capital funds. (Many of the new bagel shops also have an Eversys, the automated espresso machines used by Blank Street that eliminate the need for an experienced barista.)

At old-school shops like Bagel Hole in the New York City borough of Brooklyn, and New York Bagel in Ferndale, Michigan, egg sandwiches are not an option; most won’t even slice a bagel for you, much less toast it. This is partly because tradition holds that a fresh bagel doesn’t need toasting, and partly because they are usually licensed as bakeries, not food service establishments, and therefore not allowed to “prepare” food.

But at today’s “bagel cafes,” there are no limits. Bagels are made at all hours and in all flavors, topped with Buffalo- or birthday-cake-flavored cream cheese, sandwiched with trendy condiments like Mike’s Hot Honey or stuffed with red sauce and mozzarella at a new contender, Moonrise Bagels.

Fans of craft foods like hand-rolled bagels are often suspicious that private investment will flatten the quality, or extract the profit and drive the business into the ground.

Last month, Rayna Richardson, a bagel-loving nurse in Atlanta, attended the opening of the city’s first PopUp after her shift. “When you see that ripping and dipping on social media, of course you want to try it,” she said. At 7 a.m., she said, the line was already half a mile long.

She noted that PopUp had opened just 50 yards away from Emerald City Bagels, a popular producer in the area. “That doesn’t seem fair,” she said, especially because PopUp is better funded, but she didn’t think it would affect local business in the long term.

“Once you’ve tried it, that’s it,” she said. “I’m not going to change over.”

New Year’s Eve was a somber milestone in the relationship between private equity and trendy treats, when the remaining Sprinkles cake shops, once famous for its cupcake ATMs, suddenly shuttered, putting hundreds of employees out of work. In 2012, its high-profile founder, Candace Nelson, had been one of the first modern food entrepreneurs to sell to an investment firm, KarpReilly.

“The play is always to take the thing that made it unique and try to universalize it,” said Megan Greenwell, author of “Bad Company: Private Equity and the Death of the American Dream.” “It’s a move that can pay off and put you on every Main Street in America, or it can collapse spectacularly.”

This article originally appeared in The New York Times.

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