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The Urbane Franchisor wonders if Philly Pretzel can make it there


Photo by Nicholas Upton

Those crazy billionaires are always up to something. Be it superyachting, commissioning flying palaces, buying private islands, winning the presidency on a lark or jetting between helipads, the uber-rich are known for dreaming big as many cluster in the megatall skyscrapers being built in New York City’s Midtown, the newly christened Billionaire’s Row. Reading the headlines or tweets they generate, it’s easy to wonder how their lives differ from our own. For example, do they like pretzels?

We will soon find out thanks to Philly Pretzel Factory, which is finally striking into the big city after years of avoiding the market entirely because of its complexity and soaring real estate prices. Philadelphia is nothing to sneeze at, but New York City is its own wild animal with extreme competition for space and an arms race of increasing rents even as retail occupancy has appeared to soften in recent months.

The company was rightfully elated after signing a big-ticket contract with Gotham Food Service, an institutional franchisee that committed to dozens of new locations across the city. That group’s first Philly Pretzel location opened in Harlem in the fall of 2018, its second soon afterward in Lower Manhattan and a third was planned for Midtown, which is home to Billionaire’s Row on the south side of Central Park.

Then the bottom suddenly fell out as Gotham’s investors changed their tune and decided to exit both the food and franchise industries altogether. The entity abruptly closed both operating locations, exited its franchise agreement and sold the then-shuttered Lower Manhattan location to an entirely new franchisee into the system. It was a tough break for Philly Pretzel Factory, which had been enamored by the group’s deep pockets, long-term patience and willingness to hustle for the right locations.

Tom Monaghan

Philly Pretzel Factory CDO Tom Monaghan remains focused on NYC after a setback.

A mere 10 weeks ago, I spoke with Andrew Reis of Gotham Food Service, who enthusiastically shared tales of his exhaustive real estate search, early-but-positive findings on the popularity of catering and delivery in Harlem, and internal research suggesting the city’s pretzel market was a $200-million opportunity.

As they say in New York, if you can make it there you’ll make it anywhere, but the ending to this song is far from known.

Activating the B squad

In the wake of such a fast change of plans, Philly Pretzel Factory maintains its interest in the city at large and Manhattan in particular. It quickly reopened the now-transferred Lower Manhattan location, reached out to current and prospective franchise partners about specific opportunities in the city and is reevaluating its strategy about what should come first, commissary kitchen or street-level storefronts.

“It’s always a setback,” said Philly Pretzel Chief Development Officer Tom Monaghan of Gotham’s exit from the system. “We invested a year of a relationship with folks that we thought were going to be good operators. We had a good working relationship, we made some real headway on the real estate landscape in Manhattan, which is extremely unique as most people understand.”

Its new candidates for Manhattan have the capacity for two or three stores, compared with dozens its previous franchisee planned for. Rather than placing all of its Manhattanite eggs in a single basket, the corporation has decided to split the market among several franchisees.

It’s also flipping the previous script, which planned to open stores before adding a commissary kitchen to handle delivery and catering orders. The new plans call for building the commissary early to capitalize on the positive off-premises volume Gotham saw at its first locations.

NYC by Jelena Lovric

NYC’s new supertall skyscrapers will be some of the tallest in America, and the area has been christened Billionaire’s Row for the uber-high-end apartments and condos finishing soon.

Photo by Jelena Lovric

With a commissary kitchen, Philly Pretzel saw that offloading high-volume orders to a remote location gave the brand the flexibility to put storefronts in smaller spaces that New York’s high rents required. Because these larger, off-the-beaten-path locations are not as visible by design, they can take more effort to find than high-traffic storefronts.

“We can use locations that are B locations to be commissaries for our concept, therefore making the rent and the construction of those far more feasible from an economic model,” Monaghan added, noting that such learnings will translate to other top-tier cities. “We think we’ve learned a ton and that will benefit not only us, but also our franchisees going forward.”

Philly Pretzel is looking at upper-floor or basement-level commissary kitchens that could handle catering orders and supply product for the smallest stores in the densest parts of the city, much like the concept of ghost (or delivery-only) kitchens that many analysts expect to be the next big thing for restaurants.

Making time to make time

Regardless of the franchisee, Monaghan recommended working with local brokers and putting corporate boots on the ground with a goal of finding out about soon-to-be-closing locations or new spaces that have yet to hit the real estate market.

“It is unbelievable how quickly the market changes,” he said. “We were seeing some places where people said ‘I’ve got a spot for you,’ we say we’ll be up in two days, and two days later it’s already under lease, it’s gone.”

Aside from being a Johnny-on-the-spot, Philly Pretzel found that playing in the New York real estate scene often requires more legal review work than the brand typically needs in smaller, easier markets. Specifically, Monaghan said a few lease agreements had differences from what was verbally discussed, which required additional oversight at the tail end of the process.

“That’s what we do, every day we are looking for sites in New York City and that’s the only way to make it work,” he said. “It can’t be something where you send your real estate guy up there once a month. This group has a dedicated individual that literally is looking at multiple locations five days a week.”

Tom Kaiser, pictured on opposite page, is senior editor of Franchise Times and writes about urban tales in franchising in each issue. Send story ideas to tkaiser@franchisetimes.com

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