THE BAGEL RACE IS ON

By Bill Saporito

GIMME A BAGEL SHMEER," IS HOW generations of New Yorkers have ordered breakfast. It's Gotham for, "A gracious good morning to you. May I have a bagel with a bit of cream cheese, please?" Though the bagel arrived in America with Jewish immigrants in the early 1900s, until a few years ago, most of the country hadn't enjoyed this half-boiled, half-baked, half-crunchy, half-chewy half-roll.

Given the current bagel-building boom, few Americans will be able to avoid them. With remarkable velocity, the bagel is joining America's basic fast-food group--pizza, hamburgers, chicken and tacos--as competitors race one another across the country to create bagel-shop chains before this latest hole in the market is filled. Bagel sales have reached about $3 billion and are growing more than 20% annually, according to Lehman Brothers. Sales in bagel shops and bakeries increased roughly 50% last year, according to Bakery Production and Marketing, a trade magazine.

Bagel purveyors love their product for the same reason consumers do--it's tasty yet inexpensive. But they also see the bagel as the next great food platform upon which sandwiches and snacks--and greater profit--can be built. Outfits such as Bruegger's Bagel Bakery, Einstein Bros. Bagels, Chesapeake Bagel Bakery, Manhattan Bagel, Noah's New York Bagels, Big Apple Bagels (Do you detect a theme here?) and the Great American Bagel are rolling into communities that wouldn't know the real thing from a catcher's mitt. Says Jack Grumet, ceo of the Manhattan Bagel Co.: "What happened to the pizza in the '40s and '50s is happening to the bagel today. Soon there will be bagel shops on every street corner."

Manhattan Bagel, which had sales of more than $40 million last year, now has 171 stores in 15 states. It plans to open an additional 166 stores this year--none of them actually in Manhattan. The 130-store Chesapeake Bagel Bakery doubled its size in 1995 and plans to double again in 1996. Chesapeake's franchisees will add up to 650 stores before they're finished.

Why the rush? Because both on Wall Street and on Main Street, slow growth means no growth. Competitors are quick to knock off new ideas, which underscores the importance of locking up the best locations quickly. The ability to establish a national presence brings with it buying power that can lower the cost of advertising, equipment and ingredients. That in turn creates cost advantages that can be used as a weapon against less efficient operators.

This expand-and-engulf strategy was perfected by Starbucks, which today has more than 800 coffee bars. The coffee business isn't so perky now, but Starbucks is the king of caffeine, outlasting scads of would-be rivals. Its stock, which sold initially for a split-adjusted $5, now trades at $22. The company is worth $1.6 billion.

Not surprisingly, Starbucks retains a minority interest in Einstein Bros. Launched 13 months ago, Einstein boasts 131 stores and envisions 275 to 300 outlets by year's end. Einstein's majority owner is Boston Chicken, the home-style food chain that raised gobs of money on Wall Street to build 871 stores in three years.

Einstein is trying to roll past Bruegger's, which has 287 stores and 250 more abuilding. The Burlington, Vermont, company sells more than 3 million bagels a week. CEO Steve Finn plans to have 1,000 stores by 1999. To help fuel that growth, Bruegger's agreed to merge with Quality Dining, a $270 million Indiana restaurant operator.

When corporate America meets the art of bagel making, weird things begin to happen. The old-school method of bagelmaking is to first boil the dough (high-gluten flour and yeast) for 60 seconds and then bake for about 15 minutes, a process that delivers a soft, chewy interior and a golden brown, crunchy exterior. Some mass producers, such as Einstein, have replaced boiling with 15 seconds of intense steaming, leaving some traditionalists aghast.

Bagel creativity is also blossoming. To standard varieties such as poppyseed, onion and raisin, please welcome nutty banana, chocolate chip and spinach herb.

And taste? Great American's spongy offerings are the Wonder bread of bagels. Chesapeake's and Chicago's Big Apple bagels are more like the real thing. But in a blind, albeit unscientific taste test, members of TIME's New York City staff gave the highest marks to local bagelmakers.

"Guess what. The country doesn't care," says Wayne Daniels, a research analyst at New York's Schroder Wertheim & Co. In the battle of the bagels, alas, authenticity may not matter, he says. "If they like it, that's all that counts." Inevitably, too many stores will collide in too many places, creating the now familiar shake-out. But until then, cream-cheese makers would be advised to crank up production. --Reported by Soozhana Choi/Washington, Wendy Cole/Chicago and Jenifer Mattos/New York

With reporting by SOOZHANA CHOI/WASHINGTON, WENDY COLE/CHICAGO AND JENIFER MATTOS/NEW YORK