PRETZEL LOGIC

RICHARD TURCSIK

Sales to consumers concerned about reducing fat and cholesterol are giving a new healthy glow to an ancient snack: the pretzel.

According to Information Resources Inc., Chicago, supermarket scanning data for the 52-week period ended Jan. 2, 1994, showed the pretzel category had supermarket sales of $504.4 million, an increase of 15.5% over the year before.

In interviews with SN, 10 retailers and several manufacturers across the country confirmed that the pretzel business is growing by leaps and bounds. Chains are boosting their assortments, while manufacturers are expanding their lines.

Industry sources also said pretzels appear to be attracting new consumers to the snack food aisle, and do not appear to be cannibalizing sales of potato chips and other salty snacks.

"Pretzels are, without question, growing. Growth has been spiked by the consumer awareness of fat. We have seen this as a tremendous growth category," said Ned Meara, grocery merchandising manager at Grand Union Co., Wayne, N.J.

"Pretzel sales have been quite strong and are in an upward trend. They are stronger than many categories in the store," said Emily G. Holdstein, senior vice president at Wonder Market Cos., Worcester, Mass.

"The demand on pretzels is so much greater now, but we don't find the pretzels to be taking sales away from the potato chips. I think pretzels are attracting new customers -- those who wouldn't have eaten snacks before, or those that are substituting pretzels for other kinds of snacks," said Glen Hatler, direct-store-delivery buyer at Houchens Inc., Bowling Green, Ky.

Manufacturers are doing their part to support the trend.

"A lot of companies are becoming players, or want to be players in the category," said Glenn Hobbs, buyer/merchandiser at Supervalu's Pittsburgh division, New Stanton, Pa. "Because of the newfound growth in the category, a lot of snack food manufacturers that had very limited offerings of pretzels are now seeing what kind of opportunities there are, and many of them are trying to get into it in more of a full-blown scale."

Howard Hodgson, DSD buyer at Heinen's, Bedford, Ohio, agreed. "Everybody is getting into pretzels. We have seen an increase of the number of brands out there. Nabisco and the other big players have expanded their offerings. Pretzels are the healthy snack item of the '90s," he said.

Most retailers said the pretzel's reputation as a healthy, low-fat snack has been largely the driving force behind the category's growth. The best-selling formats -- fat traditional Dutch pretzels, logs or slimmer twists -- vary by region. But many retailers said the growth rates are most acute with new low-fat and fat-free varieties.

"The growth we have seen we mostly attribute to the fat-free pretzel," said Darryl Deyer, DSD coordinator at John C. Groub Co., Seymour, Ind.

"We find the low-salt and no-salt versions are especially doing well because of sodium-restricted diets. Our SKUs in the warehouse have increased slightly. The big increase is with the direct-store-delivery companies," said Hobbs of Supervalu's Pittsburgh division.

Layne Lieberman-Anapol, registered dietitian and director of nutrition at King Kullen Grocery Co., Westbury, N.Y., said she is seeing growth in other "healthy" snacks as well.

"From my standpoint as a nutritionist, while pretzels are lower in fat, they are high in salt. There are other products that compete with pretzels from a health standpoint, such as popcorn, rice cakes, low-fat and flavored crackers and sesame seed bread sticks. We are also seeing more low-fat potato chips and fat-free corn chips," she said.

While the pretzel industry is still largely dominated by small, regional players, major snack food companies have been placing a greater emphasis on the category in recent years in a bid to hitch their wagons to the healthy snack train.

"People have discovered that pretzels are tasty, low- to no-fat snacks, and that is driving the category. People like salty snacks, but there are some who don't want all of the fat that accompanies many of them," said Mark L. Gutsche, senior director of corporate communications at Nabisco Foods Group, Parsippany, N.J.

Steve Peck, director of marketing for Bachman Co., a leading manufacturer based in Reading, Pa., said, "From a national standpoint, growth is coming from flavored pretzels, along with filling in some distribution voids in areas of the country that previously didn't consume much in the way of pretzels. "In the Northeast, where there has always been a lot of pretzel consumption, most of the growth is being fueled by the flavored pretzels," Peck said.

"Pretzels are increasing about 4% a year here in total sales, and the health-conscious are going more to pretzels rather than tortilla chips, which have about 8 grams of fat per ounce," said Rory Ritts, president of Ritts Chavelle Snack Co., Carson, Calif., which is introducing a line of flavored pretzels west of the Rockies.

"The market is people who were buying the tortilla chips, cheese curls and cheese puffs. They are looking at pretzels now as an alternative, especially the flavored varieties. That's where we're getting a lot of our increase from," he said.

IRI data indicates that Frito-Lay is the market leader, with its Rold Gold brand attracting sales of $80.4 million, an increase of 52.5% and a 15.9% share. Snyder's of Hanover, Hanover, Pa., is the second-largest producer with sales of $71.4 million, up 42.4%, and a market share of 14.2%.

Private label had sales of $47.7 million, up 2.4%, and a market share of 9.5%, followed by Mr. Phipps from Nabisco Foods Group, with sales of $36.4 million, up 2.1%, and Nabisco's Mr. Salty, with sales of $31.1 million, up 13.9%.

Plano, Texas-based Frito-Lay, a division of PepsiCo, launched a national rollout of its new baked Rold Gold Fat Free Thins Pretzels with commercials starring Jason Alexander of the hit TV sitcom "Seinfeld" during last month's Winter Olympics. Frito-Lay has built a new plant in Aberdeen, Md., to handle production.

"Our research shows that overall snacking consumption continues to rise and that the fat-free snack segment is growing at an impressive double-digit rate," said Dwight Riskey, vice president of new products and market research at Frito-Lay. "We also know that only 50% of households purchased pretzels in 1993. These findings signal tremendous growth opportunity." This new emphasis from manufacturers has had an impact at the retail level.

"At one time, about five years ago, pretzels probably did about 20% of our category and now they're a good 30%," said Marc Bolich, head buyer at SKH Food Distributors, Lititz, Pa.

Four-unit independent SKH carries a whopping 175 stockkeeping units of pretzels in each store. It operates under the Stauffer's banner in Lancaster County, the heart of Pennsylvania Dutch Country, and the nation's leading pretzel market.

"We've been carrying more SKUs of pretzels because we don't want to miss out. We've been fitting them in by condensing our facings. Locally made Hammonds is our best-selling brand, and we also do good jobs with Snyder's, Herr's and Martin's. The traditional-shape hard pretzel is our best seller, but the rods are coming up," he said.

Retailers are using a variety of merchandising tactics to exploit the pretzel trend. These include frequent advertising and in-store emphasis.

"I would say that we have a pretzel in our ad just about 52 weeks a year. Every week we have somebody's pretzels," Bolich said. He added that the independent merchandises pretzels in the snack aisle, keeping the different pretzels stockkeeping units together, rather than grouping pretzels and chips together by supplier.

Some other retailers interviewed do the opposite, however.

"We do not have a pretzel section; the manufacturers have their own areas," said Hodgson of Heinen's. "Some of my competition have pretzel sections, but we feel that if someone is looking for Frito-Lay, they want to see all of the Frito-Lay products and not have to go to another area for Frito-Lay pretzels. It is the same with the regionals. We keep all the brands together.

"And while we merchandise the Mr. Salty in the snack aisle, we merchandise Nabisco's Mr. Phipps in the cracker aisle because it is more of a cracker and there are other Mr. Phipps aside from pretzels," Hodgson added.

"We don't have a separate pretzel department; we merchandise them in with the rest of our salty snacks, by vendor," said Peter Dudis, category manager at Big Y Foods, Springfield, Mass.

"We merchandise them in-aisle, and do not use endcap displays for pretzels. Most of our stores do not sell beer and wine, but if we did, we think our sales of pretzels would increase even faster," he said, adding that Big Y stocks its own private label, Snyder's of Hanover and Bachman. "We find that pretzel thins are the most rapidly increasing shape in terms of sales," said Dudis.

"We merchandise our pretzels in with the snack chips. Half of our pretzels are direct store delivered, while the other 50% are through the warehouse," said Deyer of John C. Groub.

Hatler of Houchens said in addition to the pretzel's own reputation as a healthy food, he finds large displays the best way to build sales.

"We have been carrying more pretzels, displaying them in our stores. Because the sales have been so great, the chip people have to display them. For the last few months, we have pretty much just kept them on constant display. It increases the sales," he said.

Grand Union relies on frequent advertising as a good way to build pretzel sales.

"We promote pretzels on a regular basis in our weekly ad, with both advertised and unadvertised Red Dot specials," said Meara. "There is usually a pretzel out there on sale. It is probably still advertised a little less than potato chips because potato chips stands on its own and is still a very, very strong category," Meara noted that thick pretzels are the most popular seller in his chain.

"There has been a lot of promotion activity. We do buy-one-get-one-free, and they are appearing fairly frequently. Pretzel promotions are frequent, but potato chip promotions still out pace them," said Holdstein of Wonder Markets. Buy-one-get-one-free offers are also often used in the Shop 'n Save supermarkets serviced by the Supervalu Pittsburgh Division, said Hobbs.

Some retailers are finding that sales are building well even without increased promotion.

"Our pretzels seem to be selling without heavy merchandising. About the only thing that we do is pass-through in-store promotions, which is mainly a reduced price sticker on the package," said Deyer of John C. Groub.

Jimmy Byrd, vice president of marketing at Byrd Food Centers, Burlington, N.C., said he likes the high margins that pretzels offer. "Pretzels offer us 25% to 28% margins, which is about the same that we get from potato chips," he said.

Like most retailers, New England's Big Y has been increasing its pretzel offerings.

Many retailers said their private-label pretzel sales have also been strong. This runs counter to the trend in chips, where overwhelming branded promotions and price wars have kept store-brand progress to a minimum.

"When you look at national brands, potato chips are still selling better, because there is more promotion behind them," said Lieberman-Anapol of King Kullen.