Wetzel’s Pretzels Franchise Review – Average Net Sales, Cost of Goods Sold, Labor, Rent, Other Expenses, Net Operating Income (2020 FDD) | Franchise Chatter

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Wetzels Pretzels Photo by meganhoppock

In this FDD Talk 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 2020 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 2020 FDD
  • Section IV – Number of franchised and company-owned Wetzel’s Pretzels outlets at the start of the year and the end of the year for 2017, 2018, and 2019, based on Item 20 of the company’s 2020 FDD
  • Section V – Presentation and analysis of Wetzel’s Pretzels’ financial performance representations, based on Item 19 of the company’s 2020 FDD, including information on the:
  • 2019 average, median, highest, and lowest adjusted gross revenues for the franchised Wetzel’s Pretzels bakeries that were open for 12 months ended December 31, 2019, by venue type (entertainment center locations, outlet malls, regional malls, transit locations, and Walmart store locations)
  • number of franchised Wetzel’s Pretzels bakeries operated in regional malls for 12 months ended December 31, 2019 for each of the following sales ranges: $700,000 and up; $550,000 to $699,999.99; $400,000 to $549,999.99; $250,000 to $399,999.99; and up to $249,999.99
  • 2019 average, median, highest, and lowest net sales, cost of goods sold, gross profit, labor, rent, other expenses, total expenses, and net operating income for the franchised Wetzel’s Pretzels bakeries that were open for 12 months ended December 31, 2019

Section I – Background Information

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

Becomes First National Franchise to Launch “Virtual Kitchen” Through Kitchen United

1.  In late March 2019, Wetzel’s Pretzels announced that it was launching a virtual restaurant dedicated to off-premise business and testing consumer demand for doorstep delivery near its home base in Southern California. “For us, we see it as an incubator,” Wetzel’s Pretzels CEO Jennifer Schuler told Nation’s Restaurant News in an exclusive interview. The Pasadena, California-based company is the first national restaurant chain to work with Kitchen United, whose kitchen facilities are designed to help restaurants build off-premise business through delivery or catering.

2.  The first Kitchen United opened in 2018 in Pasadena. The startup, backed by Google Ventures, helps restaurants from fine dining to quick service build off-premise sales with its kitchen facilities. The company recently opened a center in Chicago and had plans to open more later in 2019 in Atlanta as well as Columbus, Ohio and Scottsdale, Arizona.

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3.  Wetzel’s Pretzels started baking its famed pretzels from Kitchen United’s 12,000-square-foot facility starting April 1, 2019. The company joins another well-known brand that recently began off-premise operations at the center: The Halal Guys.

4.  Schuler said she thought a virtual kitchen approach would be a good way for the company to test delivery for the first time. “We’ve not moved into delivery yet at all. Being in the restaurant industry, you can’t deny the state of the trend,” she said. Wetzel’s hasn’t jumped into the rapidly growing space because of the “major logistical challenges” of being a mall-based concept.

5.  By leasing space at Kitchen United’s commissary, Schuler said she and her team can study each third-party operator more closely while figuring which menu items consumers tend to buy most for delivery. Kitchen United, which also offers onsite pickup, works with the major third-party companies such as Grubhub, DoorDash, and Uber Eats. “This is all about test and learn,” Schuler said.

6.  Jim Collins, CEO of Kitchen United, said, “As a team of restaurateurs, we are thrilled to launch Fresgo in order to provide valuable insight and learnings to our partners. We are very pleased to add The Halal Guys and Wetzel’s Pretzels to our family of restaurant partners in order to help them expand their reach into the Pasadena market.”

Announces East Coast Expansion Plans

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7.  In early October 2019, Doug Flaig, vice president of franchise development for Wetzel’s Pretzel’s, announced that he would be hosting exploratory meetings with qualified multi-unit operators in Tysons, Virginia on October 23 and 24. Wetzel’s targeted growth plans for Virginia come on the heels of another banner year for the company, which included consistent, industry-leading sales growth as well as being recognized as a growth concept by publications like Entrepreneur Magazine and Franchise Times.

8.  Beyond Wetzel’s Pretzels’ sales momentum, company leadership views Virginia as a fantastic growth opportunity thanks to the state’s strong GDP growth, strong government support for driving business growth, and low sales and corporate income tax rates. At the time of the announcement, the brand had the following real estate opportunities available: Tyson’s Corner, Potomac Mills, Chesterfield Town Center, and White Marsh Mall (in Maryland).

9.  Jennifer Schuler, CEO of Wetzel’s Pretzel’s, said, “Wetzel’s Pretzels’ menu items sit at a fantastic intersection of being quick, affordable snacks that are made from scratch with limited ingredients, exactly what today’s consumers are looking for. This brand is positioned for immediate and long-term growth thanks to operational simplicity, unit size flexibility and the corporate team’s core focus on franchisee profitability. We believe there is a tremendous opportunity across Virginia and look forward to partnering with operators to bring this beloved West Coast brand to life throughout the area.”

10.  Beyond traditional mall buildouts, Wetzel’s Pretzels is able to capitalize on various non-traditional locations as the brand offers a variety of build-out options to accommodate most any space, including both baking and non-baking kiosks, as well as remote units that can supplement a traditional in-line location. It’s a concept that can truly fit anywhere there is appropriate space.

Company History

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11.  Wetzel’s Pretzels was founded in 1994 by Rick Wetzel and Bill Phelps in the South Bay Galleria mall in Redondo Beach, California. The little pretzel stand was an instant success as the smell of fresh-baked soft pretzels drew in long lines of customers. Capitalizing on this early success, Wetzel and Phelps expanded the menu and began opening more locations.

12.  Wetzel and Phelps started franchising Wetzel’s Pretzels in 1996 and also opened the first standalone store. Additionally, Wetzel’s Pretzels added the fan-favorite pretzel dog to its menu that year.

13.  Over the next decade, Wetzel’s Pretzels continued to expand across the United States. The brand also opened its first international location in Puerto Rico in 1998. By the early 2000s, Wetzel’s Pretzels had reached over 100 locations beyond malls. Wetzel’s Pretzels now has a presence in stadiums, airports, and theme parks like Disneyland and Disneyworld.

14.  In 2007, Levine Leichtman Capital Partners (“LLCP”), a Los Angeles-based private equity firm, partnered with management to complete the acquisition of Wetzel’s Pretzels, LLC. In 2016, LLCP sold a majority stake of Wetzel’s Pretzels to Dallas-based private equity firm CenterOak Partners, LLC. A few years later, in 2019, Bill Phelps stepped down as CEO of Wetzel’s Pretzels after serving in the role for 25 years. Today, there are Wetzel’s Pretzels locations across 28 states and six countries.

Entrepreneur’s Franchise 500

15.  Wetzel’s Pretzels did not rank on Entrepreneur’s 2021 Franchise 500 list.

Section II – Estimated Costs

  • Please click here for detailed estimates of Wetzel’s Pretzels franchise costs, based on Item 7 of the company’s 2020 FDD.

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 2020 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2017

  • Outlets at the Start of the Year:  275
  • Outlets at the End of the Year:  295
  • Net Change:  +20

2018

  • Outlets at the Start of the Year:  295
  • Outlets at the End of the Year:  292
  • Net Change:  -2

2019

  • Outlets at the Start of the Year:  292
  • Outlets at the End of the Year:  293
  • Net Change:  +1

Company-Owned

2017

  • Outlets at the Start of the Year:  12
  • Outlets at the End of the Year:  12
  • Net Change:  0

2018

  • Outlets at the Start of the Year:  12
  • Outlets at the End of the Year:  18
  • Net Change:  +6

2019

  • Outlets at the Start of the Year:  18
  • Outlets at the End of the Year:  21
  • Net Change:  +3

Section V – Financial Performance Representations (Item 19, 2020 FDD) and Analysis

  • The information presented in this Item 19 excludes sales information from (a) affiliate-owned Bakeries, (b) Bakeries that were not continuously open and operating under the same franchise owner throughout the last fiscal year, and (c) Bakeries that submitted late, incomplete, or illegible financial information, experienced hardware or software technical issues that inhibited proper reporting, or submitted such information in an unacceptable format.

Part 1 – 2019 Adjusted Gross Revenues

  • The chart below reflects the Adjusted Gross Revenues for franchised locations. 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 below includes 195 Bakeries that were open for 12 months ended December 31, 2019. Of the 195 Bakeries, 22 were in Arizona, 109 in California, 2 in Colorado, 2 in Connecticut, 2 in Florida, 1 in Georgia, 2 in Iowa, 5 in Idaho, 3 in Illinois, 2 in Indiana, 1 in Maryland, 2 in Michigan, 2 in Minnesota, 7 in New Jersey, 7 in New York, 3 in Oregon, 1 in Pennsylvania, 5 in Puerto Rico, 12 in Texas, 1 in Utah, and 4 in Washington.
  • The franchises are substantially similar to those being offered in the disclosure document.
  • The figures for franchised Bakeries were provided to Wetzel’s Pretzels by franchisees. In all cases, the Adjusted Gross Revenue figures have been used by Wetzel’s Pretzels as the basis for collecting Royalties and calculating the Advertising Fund Contribution. In many instances, Wetzel’s Pretzels has not audited those figures nor has it independently confirmed their accuracy.
  • For purposes of Part 1, the following terms have the following definitions:
  • Entertainment Center Locations: An Entertainment Center Location is a place where people congregate to be entertained by performances or amusement, including but not limited to movie theatres, sports arenas, casinos, amusement parks, and theme parks.
  • Outlet Malls: Outlet Malls are typically a large group of shops, “outlet shops,” or “factory shops” usually located outside of a town or city in which the shops sell products and services at discounted prices.
  • Regional Malls: For purposes of Part 1, the term Regional Malls means all types of malls other than Outlet Malls.
  • Transit Locations: Transit Locations shall mean airports, railroad stations, train stations, and other similar locations intended for other modes of transportation.
  • Each of the Bakeries used in compiling the figures in Part 1 had been in operation for at least 12 months. In most cases, financial performance, revenues, and overall results for Bakeries are materially less favorable during a Bakery’s first 12 months of operation.

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