Business: Rolling in Dough

How two college pals franchised a Philly icon — and built a $50 million business that truly cuts the mustard

WHEN DAN DIZIO got his start in the soft pretzel business, he was selling his wares from a plastic crate on the corner of Southampton and the Boulevard in the Northeast. His pretzels were five for a dollar, and he could sell 1,000 in a day. After splitting the take with his supplier, he’d bike home with $100 in his pocket. He was 11.

That was the way the Philadelphia pretzel world worked in 1983. The mom-and-pop bakeries that had provided pretzels to the city’s vendors since the 1920s had long ago given way to wholesale factories that lined State Street and dotted South Philly, baking all night to make early-morning deliveries to corner stores and street carts. Dan sold the leftovers from the bakers at Kensington Soft Pretzel. The owner’s son made extra dough by employing Northeast kids to hawk the twists on corners from Sesame Place to Harbison Avenue.

Twenty-five years later, Dan is still selling pretzels, from a storefront on Frankford near Cottman Avenue. They’re still a bargain — four for a dollar — but now he sells as many as 40,000 in a day. Last year his little store, the flagship of what is now his Philly Pretzel Factory empire, grossed $1.7 million.

AT 7:30 A.M. ON a chilly Friday morning, nine people are mixing, twisting, baking and bagging pretzels at the Factory in Mayfair. A steady line of almost-awake customers, most clutching car keys in one hand and exact change in the other, snatch up the pretzels as quickly as they appear, hot out of the oven every eight minutes, ordering curtly by price: “Gimme $5.” Five dollars gets you 22 pretzels, in a large brown-paper bag embossed with Philly Pretzel Factory’s round green logo. Order 50 or 100 to treat your co-workers, or to sell as a fund-raiser for your kid’s soccer team — “Gimme $11” or “Gimme $20” — and you get a hefty box of twists. Order just one, and the cashier dispenses with the packaging, handing you a hot pretzel with a wax-paper tissue. You’ll eat it before you get out the door, even if it is before 8 in the morning. Over the course of the day, the Factory sells a staggering 17 pretzels per customer on average. At this hour, the most popular deal is a true Philly breakfast: four pretzels and a 20-ounce Coke for $2. “We need more dough!” a manager hollers every 15 minutes.

That’s how the Philly pretzel world works in 2008. Many of the wholesale bakeries are gone, bought up or done in by rising real estate prices. In their place are the new mom-and-pops: franchises. Franchising a fresh-baked city tradition on a large scale might seem a risky move in a city with strong loyalties — after all, there’s only one Pat’s, only one Geno’s — but hey, it worked for Rita’s and water ice. And the men behind what is now the region’s most prolific franchise already knew that a franchise model built on the Philly soft pretzel could succeed in Philadelphia. Like Dan, Vince Marinelli of A Taste of Philly (21 locations) and Jim Moore of Jim’s Pretzels (17 locations) had already been franchisees of sorts — they, too, sold pretzels on street corners as kids in the ’80s.

Of course, franchising was never part of the business plan when Dan and his partner, Len Lehman, opened the very first Philly Pretzel Factory on Frankford Avenue, in 1998. In fact, there wasn’t much of a business plan at all. Dan, a stockbroker, and Len, a psychiatric counselor and his roommate from their days at East Stroudsburg University, were just a few years out of college, but they already wanted to quit their suit-and-tie jobs. Their first idea was to open a bar in Port Richmond; friends talked them out of it. Then came the pretzels. “Nobody hates a pretzel,” Dan says with the confidence of someone who sells millions a year and still eats one every day. He knew the allure of the Philly pretzel from his youth, and sold Len, an avid golfer, with a simple promise: “It’s a morning business.”

That’s still the first and most important thing that Dan — he’s back to wearing a suit these days, selling the Factory business model with the same engaging little-boy smile and unabashed Philly accent that hawked those pretzels on the Boulevard — tells potential franchisees, who are signing up at the blistering pace of two a week: It’s a morning business. But for the first several months, the Philly Pretzel Factory was a morning-noon-and-night business. Dan and Len were the owners, investors and sole employees. “Every day we would drive to Sam’s Club, buy hundreds of pounds of flour, load it all up ourselves, and steal all the boxes outside the store to put the pretzels in,” Dan remembers. They would sit on the bakery floor after the shop closed, exhausted, counting the cash for the next morning’s flour run. “Sometimes we’d just fall asleep on the bags of flour.”

They’d originally planned to be a wholesaler, supplying kiosks at Philly International. But that first morning, when they took the brown paper off the windows of the bakery next to Moe’s, a popular Mayfair breakfast stop, a line began to form. By 9 a.m., 46 people were standing in it, waiting for hot-from-the-oven pretzels. That wasn’t part of the plan, either. The hot-from-the-oven concept, now one of the franchise’s signatures, was an accident. Dan, Len and their ovens simply couldn’t keep up with the demand.

More than once, Dan and Len considered abandoning their surprisingly taxing enterprise. “At the three-month mark, Len handed me the keys,” Dan says. “He was ready to walk away.” But after the pair finally hired employees to do the twisting and found a flour distributor who would deliver, Len reconsidered. The business began to slowly grow. From 1999 to 2004, they limited themselves to one new opening a year, the locations managed by old friends they wooed from other walks of life. (It’s a morning business!) But then inquiries for franchise opportunities became increasingly frequent — and increasingly hard to ignore.

THE HISTORY OF pretzels is, predictably, twisted. They date to the fifth century or the seventh century, depending on whom you believe, a creation of the bakers of France, or maybe Italy. The word “pretzel” comes from the Latin “pretiola” (“little reward”), unless it comes from the Old German “brezitella” (“arm”), and pretzels are traditionally eaten at New Year’s. Or Christmas. Or on Good Friday. The truth is, there are only two things we know for sure about the pretzel: Our region’s German ancestors introduced it — and the idea of the pretzel as breakfast — to Pennsylvania in the 1700s, and pretzels have been a point of pride in Philadelphia ever since.

With their upstart bakery in Mayfair, the Philly Pretzel Factory owners had, quite unintentionally, tapped into that pride. But it took a non-­Philadelphian — persistent would-be franchisee Jim Powers — to convince Dan and Len of the ­Factory’s further potential. From his office window down the street, Jim had long watched the customers, many of them everyday regulars, come and go all day at the Factory’s second location, at 15th and Sansom. Jim grew up in North Jersey; while he didn’t innately understand the power of the pretzel, he did understand sales — and growth opportunities. “Jim became obsessed with selling pretzels,” says his wife and franchise partner, Julie. “It was a business that appealed to people throughout the city. It appealed to every demographic.” Part of the Factory’s draw was its neighborhood-bakery model. And Philly, a city of neighborhoods, held countless corners where the Factory could be duplicated.

There was also a successful precedent for pretzel franchising: Auntie Anne’s. Ten years before Dan and Len established the Factory, Lancaster County housewife Anne Beiler opened a pretzel stand at the Downingtown Farmers’ Market. By 1998, she had 556 stores in 42 states and six countries. (Today, Auntie Anne’s has 940 locations in 15 countries, making more than 204 million pretzels — and $300 million — a year.) But the Factory wasn’t Auntie Anne’s. Auntie Anne’s sells big, butter-brushed, pastry-like soft pretzels that Philadelphians would never mistake for the street-vendor-style Philly variety. These are Pennsylvania Dutch soft pretzels, sold in flavors like sour cream and onion, jalapeño, almond and, in Southeast Asia, green tea, seaweed and chocolate éclair. At $2.25 apiece for the basic pretzel at most Philadelphia area locations, Auntie Anne’s twists are a treat, not a meal.

The Philly Pretzel Factory concept is to Auntie Anne’s what Dunkin’ Donuts is to Starbucks: a shop that runs on low prices and high volume. At Dunkin’ Donuts, it’s not about the customer’s precise half-caf, no-foam, extra-hot venti mocha latte for three-plus dollars; it’s about coffee in seconds. At Philly Pretzel Factory, the choices are simple. There are pretzels for as little as 20 cents, salted or bald, in the traditional Philly pretzel shape, in three-hole mini-size, and in inch-long “rivets,” packaged like doughnut holes. There are pretzels wrapped around hot dogs and sausages. Mustard options are also simple: French’s yellow, Gulden’s brown, Dietz & Watson’s spicy brown, and the most popular, Dusseldorf spicy with horseradish. (There’s also cheddar cheese sauce, for the angioplasty-inclined.) Along with bottled soda. “Fountain soda is too complicated,” Dan says.

It was precisely this simplicity that made the Factory ideal for franchising. And in 2003, after little more than a handshake agreement over lunch with Dan and Len at the Mayfair Diner, Jim and Julie Powers opened the first Factory franchise, in West Chester. In 2005, the Powerses opened in Newark, Delaware; in 2006, in Phoenixville. In 2007 alone, the Factory opened 47 new stores. The first franchises were on main streets and near neighborhood centers; then they branched out to colleges and strip malls. The 153rd is set to open this month.

ONE OF THE first things a franchisee learns at the Factory’s “Pretzel University” is how to properly make a pretzel. The Factory’s “open bakery” concept and fresh, hand-twisted product are big selling points for customers in a city where machine-­extruded or molded, often ­plastic-wrapped pretzels are abundant. But in reality, there isn’t much to pretzel-making. The process starts with 50-pound bags of the Factory’s preferred mixture of flour and malt, which each franchisee buys from the company’s selected distributor. The flour is machine-mixed with water and bricks of yeast, and the resulting mound of dough is fed into a pulley-and-conveyor-belt contraption visible behind every store’s main counter. The machine slices the dough into 4.5-ounce portions and rolls each between two opposing conveyor belts until it forms a long, thin cylinder suitable for twisting, or cutting with a pizza wheel into bite-size rivets. Once shaped, the uncooked pretzel is dipped in an acid wash, which gives it sheen and helps salt adhere. Then, into the oven. Eight minutes later, out to the customer.

For a new franchisee, the twist can seem more intimidating than the business. Follow in slow motion: First, a foot-long string of dough is shaped into a small circle. The dangling ends of the dough are crossed, then crossed again, forming the distinctive twist that bridges the pretzel. The ends are pressed into the circle firmly, and the two rings of the figure eight are tugged into ovals. Then the process begins again. Twist, cross, cross, press, tug. Done efficiently, this is one continuous motion, a tug and lasso twist, always left over right over left. When you’re making 1,000 an hour, that’s how you shape a Philadelphia soft pretzel. Unless it’s February 14th (heart-shaped pretzels are a decade-old Philadelphia tradition) or the Phillies make the playoffs (2007 saw spontaneous P-shaped pretzels).

TODAY, YOU RARELY see Dan twisting pretzels. And when Len counts the day’s cash now, he sits, not on the bakery floor, but behind his own desk, in his own office, above the Factory’s original location. As the smell of baking dough fills the office of Soft Pretzel Franchise Systems, Inc., 19 people are hard at work selling the Factory brand. Up here, it’s about real estate, quality control and marketing, all essential to avoiding the pitfalls of rapid expansion that have crippled franchises like Krispy Kreme.

There’s always been a drive to market the Factory brand, to make that bright, bold logo synonymous with the Philly soft pretzel. An aggressive advertising campaign launching this spring announces, “Real pretzels don’t need no fancy-schmancy icing.” But in Philadelphia, pretzels are a tradition, not a trend, and business will always benefit from a twist-it-and-they-will-come approach. The question as the Factory continues to expand — to New York, Georgia, Florida — is: What happens if you take the Philly soft pretzel out of Philly? It’s hard to believe on a Friday or Saturday morning here (or on a Monday morning, if the Eagles win), but this is a tough time in the salty-snack industry, with rising food costs and anti-carb diets leading to a six percent decrease in consumption nationwide since 2003.

In Philly, where pretzel consumption is twice the national average, the franchisers haven’t yet felt the crunch. And we seem to be far from our saturation point, as openings of new Philly Pretzel Factory franchises continue to attract glowing local newspaper coverage. Voorhees mayor Michael Mignogna attended the opening of the first Philly Pretzel Factory in his town; Ed Rendell cut the ribbon at the Factory opening in Phoenixville. But outside the pretzel belt — in Dan-speak, anywhere that doesn’t root for the Eagles — the Philly soft pretzel is a harder sell. “Before we started franchising, people wondered if pretzels would even work in South Jersey,” Dan says.

As the franchise expands further out of town, the product stays the same, but the snack culture changes. At a certain distance from Roosevelt Boulevard, the pretzel and its Philly origins are somewhat suspect. Even Newark, Delaware, was initially unfamiliar with the every-meal, mustard-topped pretzel. As he opened his first shop in Pittsburgh in February, former Philadelphia Eagle Mike Bartrum wondered if he shouldn’t rename his shop “Pittsburgh Soft Pretzel Factory,” to ease entry into the market. “I wondered if the Philly pretzel would get booed out of there,” Bartrum says. It didn’t. His first Saturday, he sold 3,000 Philly soft pretzels — and signed 200 autographs.