Bill Phelps and Rick Wetzel discuss the snack chain's plans for international and domestic expansion
When it comes to unit growth, Wetzel’s Pretzels has been a bit of a tortoise compared with some of the metaphoric hares in the snack world, according to cofounders Bill Phelps, now chief executive, and Rick Wetzel, the chain’s president.
That tortoise, however, is picking up speed, said Phelps. Wetzel’s Pretzels currently has about 250 units in six countries, and he envisions it reaching about 400 locations over the next five years.
The pretzel chain, which has traditionally been mall-based, is now focusing on international growth and moving into nontraditional locations. In April, the first Wetzel’s Pretzels unit in Japan opened in Tokyo — one of 10 planned over the next two years by master franchisee Takafumi Kawasaki — and it has become the highest-volume location systemwide.
Phelps and Wetzel, who launched the pretzel concept in 1994, recently spoke with Nation’s Restaurant News about the snack chain’s growth.
Wetzel’s Pretzels was acquired by Los Angeles private-equity firm Levine Leichtman Capital Partners in 2007. Has that changed your respective roles?
Phelps: Levine Leichtman bought a majority interest in 2007, but we’re still investors and we run [the company] day to day.
What are your plans for international growth?
Phelps: We’ve been operating internationally since we first opened in Puerto Rico in 1997, so we started very early. Japan has always been our target market, though. It’s one of the more sophisticated [markets] and also very open to U.S.-based concepts. Consumers there have disposable income, and malls are very developed there.
How did you tweak the concept for an Asian market?
Phelps: We went with a smaller pretzel. Portion sizes are smaller outside the U.S., particularly in Japan. Another thing that’s different there is that, in the U.S., most people consume pretzels on the go while they’re walking around a mall. In Japan, a lot of pretzels are taken home. We quickly saw that in purchases, and we had to limit the number pretzels per person because they were buying so many at one time. Then we came out with a variety pack of pretzels, and that has really taken off.
Where else are you looking to bring the brand?
Phelps: We’re looking elsewhere in Asia, in Malaysia or Singapore, for example. We’ve talked with potential franchisees in China and, outside Asia, in Brunai.
We’re in six countries now and we are looking to double that number in 24 months.
How about in the U.S.?
Phelps: This is best year we’ve had in three years, in terms of our pipeline. We’ll probably see 27 locations open in 2012. The better news is our same-store sales are really strong. The concept is working better for franchisees and profitability has improved.
To what factors do you attribute that improvement?
Phelps: We have a new store design, a new point-of-sale system, new menu boards — all of which have made it more efficient for franchisees.
Wetzel: Also, pretzels are extremely relevant today. If you look at malls, pretzels are almost the only snack food left. Cinnabon and other things have cooled off. It’s not uncommon to see two or three or more pretzels in same mall. We’re very competitive with Auntie Anne’s, and that competition keeps causing the other to raise the bar. The outcome is that we stay relevant and well run.
Continued from page 1
How do you see pretzels fitting into the health trend? Yours can be pretty indulgent.
Phelps: We’re not health food but we’re considered guilt free. It’s a better option than a cinnamon roll or a cookie, and it’s pretty filling for the amount of calories.
We added hot dogs five or six years ago, and they’re probably as good as any hot dog you’ve had because the bun is a handmade pretzel rope, baked fresh.
We’re also doing a lot of innovation on the drink side, with different flavors of lemonade and frozen lemonade. Our summer limited-time offers include watermelon lemonade and watermelon granita. Almost everyone who buys a pretzel also buys a drink. Now we’re looking at how we can make the sauces more interesting.
Are you looking at a gluten-free pretzel?
Wetzel: We’re exploring gluten free, but the flour is very difficult to work with. We’ve had inquiries from guests about it, so we’re working on it, but we don’t have a prototype yet.
Wetzel’s Pretzels is typically mall-based, but what other types of locations might be in your future?
Phelps: We are looking at alternate locations. We have units in Disneyland and Disney World, and we’re getting a few more locations there. We also have one in Walmart, and we’re also looking at street locations.
Wetzel: We’re also using satellite kiosks to supplement current stores. [The kiosk] has about a 10-by-10-square-foot footprint — it’s actually on wheels with no plumbing — and we can run fresh pretzels to the kiosk throughout the day. The kiosks are doing about 60 percent to 65 percent of what a standard store does, without cannibalization. It’s an amazing number.
Phelps: And we are actually financing those kiosks. If an existing franchisee wants to do one, we’ll finance it, and they lease it back and pay for it over time. We’ve got about 18 up and running, with another 12 or 13 in the pipeline.
Have you thought about putting units in airports?
Phelps: We want to be in airports. It’s a great target audience. Getting in is a challenge, and it takes a lot of time and a lot of work. We’ll have to work with a third party.
Wetzel: There’s room for expansion. When we first started, we didn’t know what we were doing. We were a couple of marketing guys. So we hired a guy to find us more real estate, and when we got to five units, we were told, ‘That’s it. There’s no more room for pretzels.’ We proved that wrong.