Competition

CaseNet®

Growth and Profitability: A Tale of Two Competitive Industries [1]

B. Peter Pashigian

University of Chicago

G

eorge Bailey had to make an important business decision. Should he quit his job with a food processing company and go into business himself by starting a chain of bagel shops? After graduating in 1991 with an undergraduate business degree with a minor in economics, he had joined a food processing company and spent two years learning the business of selling a product line of bakery goods to supermarkets and small bakery shops in the Madison and Green Bay, Wisconsin markets.

As 1993 drew to a close, George noticed that a few of his accounts were beginning to carry bagels as a takeout item. Not only did George like to eat bagels, he began to think that bagels had the potential to become a mass-market item penetrating the breakfast and lunch trade. He thought that he could make profits by opening several bagel stores in and around the Madison, Wisconsin metropolitan area. He talked to several of his close business associates about his proposed venture. Some didn’t know what he was talking about, not being familiar with bagels, and others thought that bagel idea had limited potential outside of New York City and a few other East Coast markets. They couldn’t see a market for bagels developing in the Madison area, or for that matter, in the more conservative Midwest and thought that bagels would always remain an ethnic food with limited potential. Many of his friends thought that George was foolhardy to start a chain of bagel stores. They argued that the bagel industry was an easy entry industry and anyone could come into the market. As one of his closest college friends warned him, “You’ll never make profits in an easy to enter market. You’re better off staying with your current employer until a better business prospect comes along.”

George came from a family of entrepreneurs. His father had had a successful business career by starting a...