Auntie Anne’s, Inc.

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Auntie Anne’s, Inc.

160-A Route 41
PO Box 529
Gap, Pennsylvania 17527
U.S.A.
Telephone: (717) 442-4766
Fax: (717) 442-4139
Web site: http://www.auntieannes.com

Private Company
Incorporated: 1989
Employees: 115
Sales: $168 million (1999 est.)
NAIC: 722213 Snack and Nonalcoholic Beverage Bars

Through its chain of 600 mostly franchised locations, Auntie Anne’s, Inc. sells soft, warm pretzels. From its origins in a Pennsylvania farmers’ market, the company grew explosively throughout the 1990s. Its stores have become fixtures in malls across the country, where baking aromas, the sight of employees hand-rolling dough, and free samples lure shoppers into buying a softer, sweeter cousin of the prepackaged pretzel. Auntie Anne’s has rolled into airports and train stations and has begun pursuing alternate locations such as Wal-Mart. The chain also has expanded into several Asian countries. The secret of its success? “Put people first, profits will follow,” founder and CEO Anne Beiler told the CNNfn cable network. Philanthropy has always played a significant part in the company’s planning.

Origins

An Italian monk created the first pretzel sometime in the seventh century A.D. Twisting scraps of dough to resemble arms folded in prayer, he gave these pretiolas —little rewards— to his students. According to Anne Beiler, founder of Auntie Anne’s, the holes in the pretzel represent the Holy Trinity.

A thousand years later, emigrating Germans brought the pretzel to Pennsylvania. As a child in Lancaster County, Pennsylvania, Anne Beiler grew up in the unique world of the Amish—an agrarian society of horse-drawn buggies and conservative religious tradition. Her hometown of Gap, Pennsylvania had a population of just 2,000.

Beiler had an early introduction to the world of commerce, baking pies and cakes for the family to sell at age 12, circa 1961. Three years later, she dropped out of school to work at a truck stop, handing her wages to her parents. This was the custom for many Amish girls, whose elders frowned on the secular influences of high schools. At 19, Anne married Jonas Beiler, who also had learned to bake as a youngster. The two then spent several years building churches in Pennsylvania and Texas.

Beiler had her first child at 22 and left the Amish Mennonite church at about the same time because she felt it was too strict. She said that she kept the faith and principles with which she was raised, however. Anne also worked as a waitress and stayed at home to rear two daughters, LaWonna and LaVale.

The Beilers moved back to Pennsylvania in 1987, where Jonas, an auto mechanic by trade, hoped to open a marriage and family counseling center for the Amish community in Lancaster County, who were reluctant to go to outsiders for help. To help raise money for this project, Anne took a $200 a week part-time job managing a concession stand at a farmer’s market in Mary-land, two hours away. It was there that she began rolling pretzels, which she noticed sold fast and brought in a lot of profit. A 5 5-cent pretzel used only seven cents worth of ingredients, as Forbes later chronicled.

Within a year, she had rented her own 12- by 20-foot pretzel stand in Downingtown, Chester County, Pennsylvania, for $250 a month. She borrowed $6,000 from her in-laws to equip the stall with an oven, mixer, and refrigerator. Beiler, who had 30 nieces and nephews, officially dubbed it “Auntie Anne’s” when it opened in February 1988. The first items on the menu were pizza, stromboli, ice cream, and hand-rolled pretzels.

The first pretzels, based on a friend’s recipe, were not hot sellers. In fact, according to Forbes, she was only bringing in $350 a weekend—barely enough to stay afloat. A bungled delivery of supplies led to a two-month period of pretzel experimentation. With a few extra ingredients suggested by husband Jonas, Anne Beiler came up with a softer, sweeter winner.

Pretzel sales quadrupled within a few months, and soon they were all she sold at her booth, rolling them in front of her customers in an entertaining presentation.

Storming the Malls in the 1990s

After raising another $5,000 in capital, Beiler opened a second stand in Harrisburg, Pennsylvania in July 1988. With a winning recipe and soon-to-be-famous name, the stage was set for franchising, which began in early 1989. She agreed to license the first franchise to her brother, construction manager Jake Smucker, who opened a shop in Middletown, Pennsylvania. The Beilers entered their first mall in November 1989. Their seven others had been in farmers’ markets.

The enterprise was very much a family affair in those early days and continued to be so. Auntie Anne had a sister making pretzel mix by hand. (She did not give out the recipe to licensees, although an unauthorized version later appeared on the Internet.) Another brother delivered it. Her husband and brother-in-law built the shops, and Anne’s two daughters also helped.

Sandy Chandler, who attended Beiler’s church, was another early franchisee. So was Ben Lapp, who invested $3,000 in a store in Intercourse, Pennsylvania. Arrangements were quite informal at the beginning. Friends insisted on running their own stores, Beiler says; she simply asked for a percentage of monthly revenues in exchange for use of her name and recipe. (A franchise fee between $2,500 and $5,000 also changed hands.) Beiler sold ten franchises in the first year, but the family had their hands full keeping openings on schedule; the system took in revenues of $1 million in 1990.

A younger brother, Carl Smucker (Beiler had seven siblings), joined the company in August 1990 and recommended a six-month freeze on new franchises. When even he felt overwhelmed, he referred his sister to Francorp, a franchising consultancy based in Olympia Fields, Illinois. Soon, Francorp consultant David Hood helped her devise a policy manual as well as a 100-page contract. To maintain brand integrity, the new agreement banned sales to supermarkets. In addition, the franchise fee was doubled, to $15,000. Hood joined the staff as director of franchising in 1991 and eventually became company president.

Like the original location, the new stores always offered soft, hand-rolled pretzels. By the end of 1989, there were eight stores. A total of 42 stores were added the next year, for the most part in Pennsylvania, New York, and New Jersey. There would be 90 stores by the end of 1991. This string of success did not go unnoticed. Inc. magazine named Beiler “Entrepreneur of the Year” in 1992 and again in 1994, when the chain had 279 stores, all but 17 of them franchised. Income was $350,000 on revenues of $8 million.

In 1992, the free counseling center that Jonas Beiler had envisioned opened as the Family Information Center in Lancaster County, but the giving did not end there. Among other groups, Beiler later became involved with the Angela Foundation, named after a daughter who died at 19 months. In all, Auntie Anne’s gave $150,000 to charities in 1994, a largesse that frustrated loan officers. Friends, however, referred the Beilers to an “angel” in the form of a chicken farmer, who loaned them $1 million. Auntie Anne was not beyond a few indulgences, though. She bought herself a white $36,000 Cadillac El Dorado. She and her husband also rode cross-country on motor-cycles, visiting family-owned stores along the way.

International in 1995

The Auntie Anne’s phenomenon steadily worked its way through the malls of America in the mid-1990s. The chain had 344 stores at the end of 1995 and dwarfed competitors such as Pretzel Time and Gretel’s Pretzels. Franchisees averaged $300,000 in revenues a year and the entire system took in more than $100 million in revenues. A far cry from Lancaster County, which claimed to produce 80 percent of the world’s pretzel supply, Auntie Anne’s opened its first international location in Jakarta, Indonesia, where most people had never even heard of pretzels.

At the time, Auntie Anne’s offered ten different types of pretzels and several sauces: caramel, sweet mustard, strawberry cream cheese, honey, marinara, and chocolate. Varieties included sour cream and onion, sesame seed, garlic, whole wheat, and caramel almond; they sold for about $1.25 each. For the sweet tooth, there were cinnamon sugar and Glazin’ Raisin— two twisted answers to cinnamon buns.

The smell of fresh-baked pretzels proved a powerful calling card; the company also offered free samples. In one case, it sent a pretzel cart dispensing them through a mall in Detroit. To get the name out, Auntie Anne’s locations displayed brochures about nutrition facts, locations, and company history.

At the end of 1996, the chain had 408 stores. It continued to play up its Pennsylvania Dutch roots and boasted a considerable number of Amish operators, many of whom were related to each other, although some considered them relatively unsophisticated in business. Beiler conceded in Restaurant Business: “It’s very un-Amish, what I’ve done.” Interestingly, thanks to a Congressional exemption, Amish franchisees did not have to pay Social Security taxes for their Amish employees. They also did not have to pay into the state workers’ compensation fund.

Like bagels, the pretzel concept was catching on as a low-fat alternative to other mall snacks, such as pizza. Auntie Anne’s largest competitor, Pretzelmaker, started in 1991, had 200 stores in 1997, and was developing a line of pretzel sandwiches. Gretel’s Pretzels, which grew out of the pretzel business of Restaurant Systems, had just 15 stores. Mrs. Fields’ Cookies, a master mall marketer, was test-marketing the “Pretzelwich” at a dozen of its 115 Hot Sam stores under the Pretzel Ovens name.

Company Perspectives:

Auntie Anne’s Promise to Our Customers: Fresh, Hot, Golden-Brown Soft Pretzels; Friendly, Courteous Service; A Sparkling Clean Store.

On Tour in 1998

In spite of all the interest in malls, only five percent of mall shoppers ever bought pretzels at the mall. Beiler took her case to the national media to try to reach more of them. Her unique woman’s success story made for good copy. The campaign was aimed at women 25 to 54 years old—the bulk of mall shoppers. On the publicity tour, Beiler also offered advice for business owners: “To be successful in life, all you have to do is be a giver rather than a taker,” as she was quoted in the Patriot-News. “Be a giver and life is full of surprises.”

Auntie Anne’s grew to 558 stores in 1998, although it accepted only ten out of 6,000 franchise applications that year. The company received 400 inquiries a month. In spite of its success, it remained a family business, with 30 of Anne Beiler’s kinfolk working for the company, including yet another brother, Sam Beiler, as chief operating officer. In all, it employed 100 employees at the home office and 35 in regional ones.

The company continued to open stores in enclosed malls, where sales remained strong. It had begun expanding, however, into train and plane terminals and outlet malls. It also dispatched a few trailer units to carnivals.

Auntie Anne’s introduced a new taste, the Parmesan Herb pretzel, in November 1998. A year later, it rolled out Auntie Anne’s at Home Pretzel Kit in time for the Christmas season. The kits sold for about $10 and contained enough ingredients for ten Original or Cinnamon Sugar pretzels.

By 2000, the stores were selling ten varieties of pretzel, including Cinnamon Sugar and Jalapeno, as well as dipping sauces: three varieties of cream cheese; sweet mustard; marinara; caramel; cheese; and chocolate. Glazin’ Raisin offered a low-fat alternative to cinnamon buns. In addition to lemonade, the stores served Dutch Ice, a frozen drink.

Auntie Anne’s had nearly 600 locations around the world and was opening seven new ones every month at a cost to franchisees of about $150,000 to $250,000 each. The company now reached into Thailand, Singapore, Indonesia, the Philippines, and Malaysia, and new stores were planned in Venezuela and Hong Kong. The company expected to open up to 20 stores in 2000, mostly in the East. The Pretzel Japan Corporation opened the first Japanese store in Yokohama’s new Mosaic Mall in March 2000. This licensee planned to open another 300 stores in the next six years. Systemwide revenues of $200 million were expected for 1999.

In 2000, Auntie Anne’s was testing an “interactive” Cookie Farm concept. It used desktop publishing technology to print food coloring images on edible paper. The company disdained the science fiction, “not reality-based” approach of other child-oriented marketing. Instead it decorated its store with farm animals such as a four-foot tall chicken and a purple cow. Inside, a windmill vending machine dispensed prize coupons while illustrating barnyard scenes. The windmill was designed to educate children about “the spirit of giving” and proceeds went to the Children’s Miracle Network, which the company had started supporting in 1999.

Principal Competitors

Pretzelmaker; Gretel’s Pretzels; Pretzel Time.

Key Dates:

1989:: Anne Beiler opens a booth selling fresh, hot pretzels at a Pennsylvania farmer’s market.
1990:: Auntie Anne’s reaches $1 million in revenues.
1992:: The Beilers open a counseling center for Pennsylvania Dutch families.
1995:: First international store opens in Jakarta.
2000:: Company tests Cookie Farm concept.