H&H Bagels secures debt financing as it expands nationwide

H&H Bagels, which celebrates its golden anniversary this year, is embarking on a national expansion with plans to open 10 units over the next 18 months, CEO Jay Rushin told Axios.

Why is this important: Retail and restaurant concepts that have sprung up in New York City have had mixed success with national expansion and don’t always translate outside of the five boroughs, from Barneys to Fairway.

• Rushin says H&H doesn’t plan to slow down, with potential to open 500-1,000 locations in the US

Details: To fund its growth, H&H lined up a combination of project finance and a line of credit provided by KeyBank, Rushin says.

• “We have just finalized after a long and arduous process a set of bank debts, so we are using part of the debt to finance our bakery,” he says.
• Last year, H&H raised Series A funding in exchange for 5% equity. Rushin declined to disclose additional details about the funding, as well as H&H earnings.

Rollback: Rushin, in the final years of a 20-year stint on Wall Street as an equity analyst, was looking for a “second career” and a company to invest in.

• In 2014, he bought the remaining H&H assets tied to the Upper East Side location, after hearing about the opportunity through a family connection.
• “I’m the worst seller in the world, so I was looking for something that would sell itself,” Rushin says, adding, “I wanted something less cyclical and budget-friendly, which indicated something like H&H Bagels.”

Yes and: After Rushin acquired the business, he overhauled the company’s financial infrastructure, began testing new ovens and production technologies, and remodeled the Upper West Side store.

• The renovated location, which opened in April, will serve as a model store for the national franchise.
• H&H also invested in a new production facility in Queens that will supply both its wholesale business and its stores, as it was important to make the bagels with New York City water.
• The company sells frozen bagels in the United States and around the world, with a major export business to South Korea, for example.

Catch up fast: H&H was originally started in 1972 in an existing bagel shop by two brothers-in-law from Puerto Rico, Helmer Toro and Hector Hernández (the H&H behind the name).

• From there, the story was long and winding, including a 1979 bankruptcy that left an Upper East Side store (one of two locations at the time) in the hands of a new owner.
• In 1985, Toro bought out partner Hernandez from the Upper West Side location.

To note : Along the way, H&H has also made a national name for itself by appearing on television series such as “Seinfeld”, “Sex and the City” and “The Office”.

• There was then a dispute in 2000 over the rights to use the name, with Toro emerging victorious.
• In 2011, however, Toro filed for bankruptcy again.

State of play: Although there are a number of independent bagel shops across the United States, the space is led by Einstein Bros. Bagels, owned by JAB Holding.

• Grupo Bimbo, which owns both the Thomas’ Breads and Lender’s Bagels brands, also produces baked goods for retail sale.

The bottom line: According to Rushin, the bagel category remains fragmented and needs to be modernized.