FDD Talk 2015: The Wetzel’s Pretzels Franchise Opportunity (Financial Performance Analysis, Estimated Costs, and Other Important Stuff You Need to Know)

In this FDD Talk 2015 post, you’ll learn the following:

• Section I – Background information on the Wetzel’s Pretzels franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Wetzel’s Pretzels franchise, based on Item 7 of the company’s 2015 FDD

• Section III – Presentation and analysis of Wetzel’s Pretzels’ financial performance representations, based on Item 19 of the company’s 2015 FDD, including information on the:

• 2014 Average Adjusted Gross Revenue for the 199 company-owned and franchised Wetzel’s Pretzels locations that were open for 12 months ended December 31, 2014

• 2014 Actual Adjusted Gross Revenues for the Top 10 Wetzel’s Pretzels locations (by 2014 Adjusted Gross Revenue) that were open for 12 months ended December 31, 2014

• 2014 Actual Adjusted Gross Revenues for the Bottom 10 Wetzel’s Pretzels locations (by 2014 Adjusted Gross Revenue) that were open for 12 months ended December 31, 2014

Section I – Background Information

Wetzel’s Pretzels, which celebrated its 20th anniversary in 2014, is still delivering on the bright, colorful image honed by its co-founders, who are still the top management of the company despite a change in ownership in 2007.

‘Hey Wetzel, You Pretzel’

The pretzel chain was started by Rick Wetzel and Bill Phelps, colleagues who decided to go into business together making freshly-baked soft pretzels. The name came from childhood taunts, directed at Wetzel, of “Hey Wetzel, you pretzel.”

The company was sold in 2007 to Levine Leichtman Capital Partners Inc., a private equity firm based in Los Angeles. Phelps, who owns a 20 percent share, is CEO and Wetzel, who has a smaller stake, holds the office of president.

Today, the company has more than 300 locations in 26 U.S. states, Puerto Rico, Brazil, Canada, India, Japan, Korea, Malaysia, Russia and Saudi Arabia.

Among recent openings are locations in Rockford, Illinois, and Lakewood, California, in December 2014 and in Denver in February 2015.

Pretzels With a Twist

Customers can pick up a regular soft pretzel or go for specialized menu offerings that feature sour cream and onion or sweet cinnamon and almond varieties. Cheese lovers can go for a pretzel topped with melted cheese (with a garlic version, too) or quell a pizza craving with a Pepperoni Twist, a cheese pretzel topped with pepperoni slices.

If that’s not adventurous enough, the menu also includes a Jalapeño Cheese Melt and a Jalaroni, which combines pepperoni and jalapeno slices. Cheese, jalapeno cheese, pizza, caramel and cream cheese sauces are available.

Along with soft drinks, Wetzel’s restaurants serve fresh regular and strawberry lemonade and a number of flavors of frozen lemonade treats.

Wetzel’s Adds Dog Bites

Wetzel Dog Bites were introduced as a limited-run menu item in May 2014. The pretzel-wrapped mini hot dogs are a combination of the Wetzel dog, a full-size pretzel-wrapped hot dog, and Wetzel Bitz, bite-sized pretzel chunks. Wetzel Dog Bites were offered in eight versions and served with dipping sauces.

‘Wetzel Men’ Get Animated

The quirky pretzel restaurant chain in December 2014 started using new digital menu boards that feature the “Wetzel Men,” animated bakers shown creating Wetzel’s products. The first menu board debuted at Wetzel’s Disneyland location.

The chain incorporates the irreverent, fun animations to fit the brand’s vibrant, fun image. The one-minute films show the bakers working in a giant kitchen. A video plays every five minutes, starting with a curtain opening to reveal the bakers. When the animations aren’t playing, the regular menu board shows. Franchisees pay $10,000 for the boards to entertain people in line or passing by the counter.

Back to Disney World

Wetzel’s Pretzels’ Walt Disney World location, which closed in October 2013 to introduce a Starbucks, returned along with Haagen-Dazs in new side-by-side brick walk-up stores that opened in May 2014 in the Downtown Disney West Side.

Chain Moves Into Brazil

Wetzel’s Pretzels opened its first location in Brazil in July 2014 in Vitória. The store includes the same menu as in the United States but also features Brazilian influences such as lemonade made with lemons grown in Brazil.

Section II – Estimated Costs

• Please click here for detailed estimates of Wetzel’s Pretzels franchise costs, based on Item 7 of the company’s 2015 FDD (updated).

Section III – Financial Performance Representations (Item 19, 2015 FDD) and Analysis