There's no business like dough business

This is Planet Money from NPR. A few months back, Planet Money got a little economic bat signal from our friends over at the podcast HyperFix. HyperFix is hosted by one of my longtime favorite radio heads, Alex Goldman. He was previously one of the hosts of Reply All. And for each episode, HyperFix takes on listener problems big and small and sets out to solve them. That we get questions as small as a listener said, "Hey, my favorite bakery shut down and now I can no longer get the cake that I love." So we got clear sapphits, Baker extraordinaire to help us figure out the recipe. Love that question. And we also get questions like, "Should I have children?" Which, as you might imagine, is a more difficult question to answer. Yeah, that's a bigger scare here one. But thank you for looking into it. Yeah, I do my best. But the question that made us think of you guys was from a listener named Jed Chronfeld because he wanted to talk about his local subway stop. To call it just a subway station, it's underplaying it a little bit. Jed's lived in Brooklyn for the last five years. And the question on his mind had to do with the Atlantic Avenue Barclays Center Station. It connects like nine or ten different lines. And then it leads to a terminal for the Long Island Railroad. And then on top of that is a whole other layer that is a mall. And to understand Jed's question, you first have to understand what this complex looks like. The Atlantic Avenue Barclays Center Station is consistently ranked as the number one busiest station in Brooklyn. And the reason it's so busy is because this one hub connects downtown Brooklyn to the rest of New York City. It's home to a massive arena. The Brooklyn Nets play there. It's a huge concert venue where you can see artists like Bad Bunny, Bruce Springsteen, Charlie XCX. So the subway station itself is super bustling. It's got multiple levels. And then on top of that, you have a shopping mall. And it's in this Escher-like maze that Jed first noticed something strange. On the upper end, in the mall, there is one wetzel's pretzels. And it looks like any wetzel's pretzels. And then within the system, on the top floor, there's a wetzel's pretzels. And on the bottom floor, there is another wetzel's pretzels. And the spaces that they're in, they look like no larger than a broom closet. It just kind of doesn't make sense. I don't know how you set up one place like that much less to, much less a third location. If you were to walk a circuit between all of them, how far away are they from one another? You could get to all of them within a minute. It's really that quick. Wow. When did you notice that there were three wetzels pretzels locations? By the time I moved into Brooklyn, like the one in the mall, that was already there. And then about two years ago, the other two moved in. I don't know if they moved in at the same time, but they definitely moved in within the same month. I'm like, what are we doing? This is excessive. Underneath Jed's skepticism, there are three questions. First, he wants to understand why there are three wetzels pretzels. They are so close together in the Atlantic Barclays station. Second, he wants to know if they're competitors or collaborators. And third, he wants to know if any of these locations are actually turning a profit. And we started looking into this and it turned out the Atlantic Avenue Barclays station was not the only instance of this sort of wetzels cluster. Turns out there are also three wetzels pretzels at the American Dream Mall in New Jersey. At the Delamo Fashion Center in Torrance, California, there are three wetzels pretzels. And at the crypto.com arena where the LA Lakers play, there are five wetzels pretzels locations. In fact, the more we looked into it, the more we noticed where one wetzels pretzels location exists. Other wetzels pretzels are often very close by. And that's when we decided to call you, Alexey, to try and solve Jed's little mystery. Sign me up. Let's go. What is it about Jed's question that is so interesting to you? I think Jed's question is a question that I have had personally and that I think a lot of us have. It's like exactly in this delectable sweet spot or savory, I guess, in this case, of like something in the world that is all around us all the time. And so it just felt like one of those things that is like a tiny question and it's kind of funny because it's so small, but it actually touches on like the fabric of cities and just the things we walk around and are surrounded by every day. So I am eager to get out there and hit the streets and figure out what's going on. Go for it. I'd love to hear the answer. And not having to go out and do it myself makes it even more enticing to me. Yes. Let me do this one. Let me ride. Hello and welcome to Planet Money. I'm Alexey Horowitz-Gazzy. I'm Alex Goldman. I think we've all had those moments of looking around the world and all of a sudden you'll be surrounded by three Starbucks on a given street or the handful of McDonald's lining the halls of an airport terminal. It sort of feels like you're watching the ebb and flow of some titanic corporate battle you can just barely see. So when Jed flagged for us three wetzles all within spitting distance of each other, we knew there was some bigger story under there. So today on the show we go deep inside the pretzel supply chain to find out how wetzles took over the subway station. We'll hear of one man's journey to his own salty American dream, learn about consumer behavior and how franchisees work, and of course, there will be plenty of twists along the way. Okay, so for today's episode we're going to hit play on that hyperfix story based on my little reporting journey in just a minute. To set things up, I set out to Untangle Jed's pretzel-based mystery and then handed over that reporting to you Alex and your team to put the episode together, which worked out great for me because you did all the hard work. You know I love that for you. And I began my quest in maybe an obvious place by calling up wetzles pretzels corporate. And that is how I met a jovial man named John Fisher. I feel like what's your job? My job is to bring pretzels to the people. I even have a wristband on this pretzel to the people. Like kind of our mantra like, wherever there's people there's to be pretzels. John retired just last month, but when I spoke with him, he was the head of development for wetzles pretzels, which means it was his job to help the company's franchisees find and build successful locations. And that mantra, it's not just a catchphrase, it's kind of a shorthand for wetzles business strategy that also holds part of the answer to Jed's questions. And for that, we're just going to play an excerpt of that hyperfixed episode where Alex takes the reins. Okay, so remember a couple minutes ago when Alexi was talking about how this question might be the key to understanding not just why there are clusters of wetzles, but why there are clusters of Starbucks and McDonald's and all of these other brands that we see lining the streets of American cities. Well, John can't actually speak to the other real estate strategies behind those other companies because obviously he doesn't work for those other companies. But what he can say with 100% certainty is that the real estate needs of wetzles pretzels are pretty different from the needs of those other companies because pretzels just aren't the kind of product that people go out of their way to buy. People don't get in their car and say, I'm going to go get a pretzel and I'm going to drive to the mall and walk 15 minutes in the parking lot, go in through, try to park in and get a pretzel and then come out, right? They're going to go to the mall and happen to get a pretzel while they're there. In the world of retail, there's a name for this kind of thing. It's called an impulse product. An unlike destination products, which are the kind of things people go out into the world with the intention of buying, impulse products are defined by the fact that nobody's really planning on buying them. So how do you get people to buy something they didn't plan to buy? For wetzles, it's all about bringing pretzels to the people. It's about placing their storefronts in high traffic, high visibility areas where people are already walking around and then placing additional storefronts along that same route to create as many opportunities for repeat exposure as the location can feasibly sustain. The business model is impulse driven and so, you know, I'm capturing people at different places in different times within their route or I'm even like exposing them to the thought and the smell at one place where then they see that second time and they're like, ah, I can't resist. Yes. I escaped once, but not the second time. I need one now. It's a strategy of attrition of delicious olfactory attrition. I mean, obviously this part makes sense, right? The more these pretzels are in your face, the more their smell is in your nose, the more likely you are to buy this thing you didn't intend to buy. But the real question for us is, aren't all of these wetzels eating into each other's profits? Or are they somehow immune to the laws of supply and demand? How do you think about when it makes sense to have multiple wetzels locations in the same broad space versus the risk of cannibalizing your own sales or oversaturating the place? Yeah. It's really unique. I used to work for a pizza company and it was a taken big pizza company. You didn't go there unless you planned on buying a pizza. It was an ultimate destination purchase, right? You don't just happen to walk around and buy a raw pizza and, you know, you kind of know that you're going to go there, right? So what's interesting is you have the ultimate destination type of concepts where you build a store and if you put a store five miles away, franchisees really mad because, hey, I've customers coming from over there and, you know, I'm going to lose 10-20% of my sales. Wetzels is kind of the opposite of that. We literally have malls that have five stores in the same mall. [BLANK_AUDIO] impulse product for us is really just about is the mall big enough or there's enough traffic and different occasions to support different impulse purchases in that mall. And is there cannibalization when you open a second store? A little bit but not very much. It's pretty amazing. I think I was surprised when I got here. I was like really you can have two stores in the same mall. I've never seen that before. And now I'm sitting here putting three and four in some malls because it's really about that impulse nature. So they're not going there specifically for you. You know, whether it's a subway or a theme park or a stadium, you're going to have different locations based on where the people are to service them. And so not a lot of businesses can do that. One of the other big factors undergirding this model is that corporate wetzels will not let different franchisees open storefronts under the same roof. So anytime you see a cluster of wetzels pretzels in the wild, know that every storefront under the same roof is owned by the same person. They aren't actually competing with each other. And any cannibalization that's happening has been at least partially planned. Also, some franchisees will open additional locations in the same space just to make sure that those spaces don't get taken by the competition. So these clusters function more like a defensive mapping sort of strategy. The other big thing is that the company gets final approval on all franchise locations. And because they've had the most success in malls and transport hubs and event spaces, that's where most of these clusters will be. So in this case, it's like, okay, these locations may seem to elame and like me walking through being like, how why would you possibly have these two pretzels stand so close to each other? Well, the proof is sort of in the profits. I think you have to look at every concept and what works for that concept where they are on that. I'll call it the destination impulse spectrum. Yes. And if you're on the very high side of the impulse spectrum, you probably can get away with having several locations very close to each other to capture the traffic. And if you're on the other side of that spectrum, you probably don't want to think about doing that. It'd probably be a lot of cannibalization and not really work. Yeah. So now we know why these locations are clustered so close together. That is to say, we know why they're there in theory. But we still wanted to know if this strategy was actually working in the Atlantic Barclays Station. We're the three storefronts actually making money and we knew just who we had to ask. After the break, answers from the man behind the Atlantic Avenue wetzels. When I first started looking into the mystery of the Atlantic Barclays pretzel cluster, it became clear that the person best equipped to answer Jed's question was a man named Ricky Olam. Because after a little bit of digging, I found out that Ricky owned all three of those wetzels pretzels, along with more than a dozen others around the country. Now, for a few weeks, Ricky did not seem super eager to talk to me, but one day I finally got him on the phone and invited me to come visit him at the site of his first wetzels pretzel store. It was at a mall deep in suburban LA, kind of place you might associate with valley girls. And in fact, I found out it was literally the mall from the movie Clueless. Okay, testing, testing. It's a Lexi. It is Thursday, March 19th at 310 Pacific time. I've just gotten to the, I think it's the Westfield Mall in Sherman Oaks, California, and I am on a sort of pretzel mission. I've talked to John Fisher up at wetzels pretzels HQ. He walked me through kind of the basics of how companies think about when it makes economic sense to have a couple franchise locations near each other. But we've come here to get it straight from the franchisee's mouth. Okay, there goes nothing. I've just parked and let's go find Ricky. Okay, so this is a little off story, but it made me laugh so much that I wanted to share. Alexi, you're not much of a mall rat. I'm not. You didn't grow going to the mall. I actually heard you pronounce tomorrow. Shbaro, which is a huge red flag for mall rats like me. I thought it sounded elevated. Yeah, it's fancy. So I wasn't surprised to learn that just minutes after you walked into the mall with recording gear and a giant microphone, you got stopped. Yeah, I was like basically immediately intercepted by mall security who seemed to be kind of sensitive about having random podcasters wandering the halls recording stuff, but I did convince them of the purity of my intentions. And I even started asking them their opinion about this clustering of different types of stores like wetzels in the mall. And they just seemed sort of like bored and confused enough that they just let me go. And that's just about when I saw Ricky. I see Ricky in the distance. There we go. Good, are you? Ricky, I presume? Good to see you, man. Good to see you too. What a pleasure. Probably the same here. Ricky's been a wetzels franchisee for the last 20 years. And the way he tells it pretzels were kind of like his gateway to his American dream. After moving to LA from Bangladesh in the early 90s, Ricky worked a series of odd jobs. But in his heart, there was always one goal to have a business of his own. So Ricky opened a liquor store, which failed miserably. Then he started a business that sold painted hermit crabs from kiosks at the mall. And that one worked out pretty well. But he wanted something that felt more permanent. And that's when he started looking at franchises. Pretzels aren't like a big thing in Bangladesh. But his years in the United States taught Ricky that Americans love hot dough. So he opened this wetzels in 2004. And within a year and a half, he opened a second location right here in the same mall. Within a year and a half, I opened the second location on the first floor. And that took a hit on this one little bit. 10-15% business dropped from the first location. But within six months, it came back. Whatever the business I was doing on the first location, it came back. Second location is doing its own business. And I think within another few years, I was able to open another location. And in a few years, another location. So yeah, I mean, goal was to open at least one location every other year or whatnot. How many of you opened in total? 17 locations combined east and west. So 17 locations? I mean, it sounds like a little pretzel empire. So far, so good. And when did you get a sense that getting into the dough business might eventually translate into rolling in the dough? You know, not every dough business is going to make you the dough. Remember, there is always risk. Even the proven business, you got to make sure the location is right. But how do you make sure that a location is right? How do you decide if a mall can support a second storefront or if a subway slash mall can support three? We are driven by where people are. That's put it this way. So we do sit down and count literally, hand count how many people passing by in front of this potential location. So there is a certain amount of traffic has to pass by and then we open. So taking that consideration to open a second location is that we do the same thing. Going to the second location, if it's within the same mall or same train station or even the airport or what have you, we do the same county. How many people passing by? Are these the same traffic, second floor versus first floor? We take all those under consideration before you open the second location. How do you count? Do you have like an app or a little, well, back in the days, even still as a right now, I have one of those clicker. Yeah, but now you have all the sophisticated software and whatnot. Yes, what souls do they do diligent? But at the same time, I like to come in and sit down just like this and I want to see how many people passing by and I count literally with the phone. I put a timer and I count. And is there a number that you want to see or some sort of mark you're trying to get to? You got to have 15 to 1700 people every given hour. Okay, 15 to 1700 an hour. Yeah. Ricky said that he typically want to see these kinds of numbers during high traffic weekend hours. They might be much lower during weekdays. And Ricky stressed that this is not a perfect science. Sometimes he says the foot traffic just doesn't convert to sales in the way you thought it would. And sometimes the foot traffic you thought you could count on just suddenly dries up, which brings us to the question at hand about whether or not the cluster of wetzels pretzels at the Atlantic Barclays station is actually profitable. So when Ricky opened his first Atlantic storefront in 2016, seemed like a perfect location. As you've already heard, wetzels pretzels does best in places like malls and transit hubs and event centers. And this first location seemed to offer a bit of all of those things. The spot was in a mall above a subway station across the street from an event center. And for several years, it felt like getting the best of all of these worlds. and then COVID hit. And like so many other businesses in the city, the Atlantic Terminal Wetzels was forced to shut down. But the thing is that when the store reopened three months later, the pre-pandemic business just didn't come back. My business dropped compared to 2018 and 19. It dropped 40, almost 50%, 40% or 50%. So I was in a situation that I thought I was shutting it down, but I couldn't do it because I have the obligation. I signed the long-term contract. Because of this long-term lease, Ricky was forced to leave the lights on. And for the next couple years, he took a loss at the Atlantic Avenue location. And then, one day a few years ago, the landlord came to Ricky with a proposition. He said that he had a couple of retail locations available inside the subway terminal, one on the first floor and one on the second. These locations were about the size of broom closets, and they didn't have kitchens. And technically, they were only about 100 feet from one another. But because they were inside the subway station, they could do something that the mall location couldn't. Cater to commuters directly. Ricky didn't really want to take on both locations, but it was an all-or-nothing deal. So Ricky took both, and his fortunes began to change. Those two satellite locations actually helped me to sustain the business within this mall. Because upstairs, main location, I'm still suffering. So the idea to expand to the other locations was kind of to offset the losses that were happening in the main one, in a way? Not exactly, to be honest with you. My thought was, upstairs, that's where I baked my goods. Since I bake it, those two locations, I don't bake anything. I don't make anything. I take the food from upstairs, and I just sell it over there. So since I have-- it's like a commissary. Let's put it this way. Since I have this facility, let's open those two locations. It will be less labor. Because I run those two with one person each location. Everything else comes from upstairs. A2Z pretzel, the lemonade. And you name it, the frozen drink, and the soda. Everything comes from upstairs. What Ricky's saying is that, unlike almost all the other wetzels properties he owns, the Atlantic Barclays Cluster is actually so close together he can run three locations out of one kitchen, which drastically reduces his operating costs, or at least his cost per location. Also, even though these satellite locations are physically close together, because they're on different platforms, they're actually serving different groups of customers. So no matter which way you're moving inside the Atlantic Barclays station, you're going to pass one of Ricky's wetzels pretzels. So maybe just a boil down the question. I think the listener's question was passing through the Atlantic terminal was, how could it possibly make economic sense to have the same business so close to each other in the same space? What's the kind of boil down answer to that question? Answer to this is the boat location has its own customer. Yes, there are some spillover from the first float to the second float, but each location has its own customer. And especially for a product that you're catching them in a moment, or they're smelling something and deciding to stop, and that sort of thing is that important? Absolutely. Is that product, the smell, the sampling? This is very-- there is no escaping. I like it. It feels like we're getting to the bottom of the pretzel logic. Yes, yes. Look, it's all I'm doing right here. I'm bringing the pretzels to the people. That's all I've heard that before. There you go. Ricky told Alexi that his wetzel's locations in the Atlantic Avenue Barclays station were, in fact, moving a lot of dough. But we decided to do a little data collecting of our own. So on a random day in the middle of the week, we sent hyperfix producer Amore Yates to the station and asked her to spend some time simply watching the wetzels. Amore lives in Brooklyn, and she's been through this station more times than she can count. But this was the first time she'd actually just stood there. And while she was standing, she saw something that she had never seen before. Something Jed had also missed on his many trips through the subway station. There was a line. At different moments, at each of these wetzels locations, people were stopping to buy pretzels. It was easy to miss them, because the transactions were happening so quickly the lines never got super long. But sure enough, when a subway car would pull in and a wave of people would go by on their way from one place to another, two or three of them would stop. And whether it was because they caught the aroma of warm dough or simply because they were feeling a bit peckish, and there were no other grab-and-go options around at that moment, they decided to buy a pretzel. And presumably, over the course of the day, this was happening enough to keep these businesses in business, which keeps guys like Ricky reinvesting in this model. So as strange as it seems to have so many wetzels clustered so closely together, from a business perspective, the recipe works. This is amazing. I'm a Gog. Here's Jed again. I've never heard anybody say a Gog on this show before. Congratulations. First time for everything, I guess. What is it that amazes you about this? The fact that you guys can make a story out of this, that there's something to find. I was fully expecting you guys to just say, all right, there's nothing here. Thank you so much. It's like, we had fun, but we got to leave it right here. Thank you for submitting this question, Jed. It wasn't a lot of fun. Thank you, Amor, Alex. Oh my god, this is-- OK, just as one more thing, I feel like I was given a genie and granted one wish, and I felt like I wasted my wish, and that is absolutely not the case. Not at all! No, this was great. [MUSIC PLAYING] Alex Goldman hosts the excellent podcast HyperFist. Every week, they follow listener problems big and small into all sorts of strange rabbit holes. I recently liked desperately seeking showering about a mysterious band with unknown origins. HyperFist is produced and edited by Emma Cortland of Mori8's "Series Offer Succanec" and Tori Dominguez-Peak. The music is by the mysterious freak master cylinder and me. It was engineered by Tony Williams, fact-checking by Naomi Bar. The planet money version was produced by Samuel Hors Kessler and edited by Jess Zhang. It was engineered by Robert Rodriguez, and Alex Goldmark is our executive producer. I'm Alex Goldman, and I'm Alex E. Mori8's "Gosy." This is NPR. Thanks, folks. [LAUGHTER] [MUSIC PLAYING]