CenterOak Bests 97 Firms to Buy Wetzel's Pretzels
A Wetzel's Pretzels storefront.
“Wetzel’s is a great business for private equity investors because it has everything they look for,” declares Bill Phelps, who as co-founder and CEO of Wetzel’s Pretzels could be considered biased. “It has high cash flow. It has good growth. It has a solid, experienced management team in place.” (His co-founder is Rick Wetzel, which explains the name.)
CenterOak Partners, a Dallas-based private equity firm, apparently agrees because it bought a majority stake in Wetzel’s this week, bringing to a close Levine Leichtman Capital Partners’ ownership of the brand, a position Levine held since 2007.
“This has been an incredibly long hold for Levine,” Phelps said. “They loved the business, loved the return, and that’s why they held on to it. Their fund is wrapping up so they had to divest all the companies in that portfolio.”
Phelps said 98 different companies were interested in Wetzel’s, including private equity firms, family offices and strategic buyers. He expects mostly the status quo now that ownership has changed. “It’s more of the same in a good way. I’m still the CEO of the company. I’m still running the business and that’s what I wanted when we entered this process.”
He does expect to get a jolt of fresh ideas from CenterOak, and he is putting together a 60-day plan “to get the business moving in a more dynamic direction in a short period of time,” he said. “I always find with investors, they tend to make you better. They tend to see things differently, and they tend to add value in growth ideas and management ideas. So we’re very excited about it.”
Phelps said profitability at the store level “has never been better,” for two reasons: product innovation and a shift in the product mix. “We’re looking at 6.7 percent same-store sales increases in a restaurant industry that’s basically flat.”
One new product is Pizza Bitz, which are pretzel bites with cheese and pepperoni added. The company rolled it out within the last year, and the bits today account for almost 7 percent of sales in the store.
“The thing the franchisees like about it is it’s a high-ticket item,” selling for $4.50 compared to $3 for a pretzel. “Actually, the idea came from a franchisee. We very much endorse Ray Kroc’s view,” McDonald’s late leader, “that most of the ideas come from franchisees. We tested it, rolled it out and the franchisee got $10,000.”
Phelps said he and Wetzel started the company 22 years ago, making pretzels in their kitchen. Now at 310 units, Phelps remains enthused. “I love the business. It’s a blast,” he says.