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FDD Talk 2017: What You Need to Know About the Wetzel’s Pretzels Franchise Opportunity (Financial Performance Analysis, Costs and Fees)

by Franchise Chatter on July 20, 2017

in FDD Talk 2017: Food Franchises, Franchise Earnings, Pretzel Franchise

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In this FDD Talk 2017 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 2017 FDD
  • Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Wetzel’s Pretzels franchise, based on Items 5 and 6 of the company’s 2017 FDD
  • Section IV – Presentation and analysis of Wetzel’s Pretzels financial performance representations, based on Item 19 of the company’s 2017 FDD, including information on the:
  • 2016 Average Adjusted Gross Revenues for the 230 company-owned and franchised Wetzel’s Pretzels locations that were open for 12 months ended December 31, 2016
  • 2016 Actual Adjusted Gross Revenues for the Top 10 Wetzel’s Pretzels locations (by 2016 Adjusted Gross Revenues) that were open for 12 months ended December 31, 2016
  • 2016 Actual Adjusted Gross Revenues for the Bottom 10 Wetzel’s Pretzels locations (by 2016 Adjusted Gross Revenues) that were open for 12 months ended December 31, 2016

Section I – Background Information

17 Things You Need to Know About the Wetzel’s Pretzels Franchise

12th Straight Quarter of Same-Store Sales Growth

1.  In early February, Wetzel’s Pretzels released its financial results for fiscal year 2016, along with its plans for fiscal year 2017. Some of the highlights from 2016 include a 4.4% increase in comparable same-store sales, with Q4 marking the company’s 12th consecutive quarter of same-store sales growth.

2. Wetzel’s Pretzels opened 23 units last year, including its first location in Saudi Arabia. The company saw continued growth in number of non-traditional units, including several new locations in various Walmart stores and one in Manhattan’s Fulton Center.

3.  Over the summer, Wetzel’s Pretzels launched an app that offers customers a loyalty rewards program and the ability to pay with mobile pay and e-gift cards.

4.  For 2017, the company hopes to have 320 stores open by the end of the year and plans to continue the growth of its non-traditional units, including an expansion within multiple Walmart locations. Wetzel’s Pretzels also plans to continue its expansion in Saudi Arabia.

5.  In addition to its continued growth plans, the franchise will release new menu items, including new Bitz (bite-sized soft pretzel pieces) flavors to follow up on the success of the Pizza Bitz (with cheese an pepperoni), which accounted for up to 10% of net sales system-wide last year.

Celebrating National Pretzel Day

6.  To celebrate National Pretzel Day on April 26, Wetzel’s Pretzels held its third annual “National Wetzel Day” and offered a free Original Pretzel to every Wetzel’s customer. All of the company’s U.S. locations participated in the event and the free pretzels were available all day. Last year, Wetzel’s Pretzels gave away 30,000 free pretzels.

7.  Customers were encouraged to share their love for pretzels on social media, including Facebook, Instagram, and Twitter, using #NationalWetzelDay. There was also a custom Wetzel’s Pretzels Snapchat filter for fans to use.

8.  An additional free pretzel, which was redeemable from April 27 through May 1, was given to customers who downloaded the Wetzel’s app.

New Locations

9.  Wetzel’s Pretzels has opened a few new locations since the start of 2017, including new stores in Staten Island, New York; Corpus Christi, Texas; and the Indian Wells Tennis Garden in Southern California.

10.  The Staten Island location is the 14th Wetzel’s Pretzels franchise for owner Ricky Alam, who also operates stores in California and Nevada. Alam signed a deal to expand the franchise in New York and plans to open at least three more stores in the state.

11.  The Corpus Christi location is the first of multiple units under development with area franchisee Jigar Shah, who plans to open four more Wetzel’s Pretzels locations over the next three years.

12.  Wetzel’s Pretzels at the Indian Wells Tennis Garden is a non-traditional unit opened in partnership with Levy, a restaurant company specializing in premium sports and entertainment dining experiences. This location is part of the company’s plans to capitalize on non-traditional locations that have elevated dining offerings.

Company History

13.  Wetzel’s Pretzels was founded in 1994 by Bill Phelps and Rick Wetzel in South Bay Galleria in Southern California. The company began franchising in 1996 and later that year, Wetzel’s Pretzels became the first pretzel store to offer pretzel-wrapped hot dogs.

14.  Over the next few years, Wetzel’s Pretzels continued to open stores across the U.S.; its first international location opened in 1998 in Puerto Rico. Phelps and Wetzel felt like they had finally made it when they opened a company-owned flagship store in Disneyland in 2001.

15.  In 2007, Los Angeles private equity firm Levine Leichtman Capital Partners Inc. bought a majority stake in the company for an undisclosed amount. Phelps still owns a 20% share while Wetzel owns a smaller stake.

16.  After owning the majority stake for nearly a decade, Levine Leichtman Capital Partners sold its
shares to Dallas-based private equity firm CenterOak Partners LLC in late 2016. Today, there are over 300 Wetzel’s Pretzels locations around the world.

Entrepreneur’s Franchise 500

17.  Wetzel’s Pretzels has appeared on Entrepreneur’s annual Franchise 500 list every year in the last
decade. The company’s highest rank was No. 126 in 2012, while its lowest rank was No. 388 in 2017.

Section II – Estimated Costs

  • Please click here for detailed estimates of Wetzel’s Pretzels franchise costs, based on Item 7 of the company’s 2017 FDD (updated).

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

  • Please click here for detailed information on Wetzel’s Pretzels initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2017 FDD.

Section IV – Financial Performance Representations (Item 19, 2017 FDD) and Analysis

  • The chart below reflects the Adjusted Gross Revenues for company-owned and franchised locations. “Adjusted Gross Revenue” includes total Bakery revenue, less sales taxes, returns, and discounts.
  • The chart does not reflect net income or profits and does not include costs or expenses you will incur in operating your Bakery.
  • The chart includes 230 Bakeries that were open for 12 months ended January 1, 2017. Of the 230 Bakeries:
  • 22 were in Arizona,
  • 118 in California,
  • 5 in Colorado,
  • 3 in Connecticut,
  • 7 in Florida,
  • 1 in Georgia,
  • 1 in Hawaii,
  • 1 in Iowa,
  • 2 in Idaho,
  • 10 in Illinois,
  • 3 in Indiana,
  • 4 in Massachusetts,
  • 3 in Maryland,
  • 4 in Michigan,
  • 1 in Minnesota,
  • 2 in Missouri,
  • 9 in Nevada,
  • 1 in New Hampshire,
  • 6 in New Jersey,
  • 5 in New York,
  • 3 in Oregon,
  • 1 in Pennsylvania,
  • 1 in Tennessee,
  • 9 in Texas,
  • 1 in Virginia, and
  • 7 in Washington.
  • Twelve of the Bakeries included above were company-owned the entire year and 218 were franchised.
  • The franchises are substantially similar to those being offered in the 2016 Franchise Disclosure Document.
  • Of the franchised stores, 38% exceeded the average revenue shown.
  • The figures for franchised Bakeries were provided to Wetzel’s Pretzels by franchised store owners. In all cases, these sales figures have been used as the basis for collection of royalties.
  • Thirteen of the Bakeries included in the table are in street or amusement park locations.
  • Wetzel’s Pretzels believes that mall locations are far more suitable for its Bakeries than street locations and is unlikely to approve a street location in the future.
  • Certain expenses associated with mall locations will be higher on average than similar expenses at street locations. However, Wetzel’s Pretzels believes that higher sales volumes at mall locations will more than offset these increases in most cases.
  • Your Bakery’s sales and expenses are likely to be affected by national, state, and local economic conditions, including rate of inflation, level of employment, and degree of consumer confidence.
  • Each of the Bakeries used in compiling the figures below had been in operation for at least 12 months. In most cases, results are materially less favorable during a Bakery’s first 12 months of operation.
  • Some Bakeries have sold or earned the amounts indicated below. Your individual results may differ. There is no assurance that you’ll sell or earn as much.

Top 10 Bakeries by 2016 Adjusted Gross Revenues

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