The Economics of High Traffic Locations

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And what he's describing right now is the epicenter of this week's question, his neighborhood subway stop, the Atlantic Avenue Barclay Center Station. To call it just a subway station, it's underplaying it a little bit because it connects like nine or ten different lines and then it leads to a terminal for the Long Island Railroad. And then on top of that is a whole other layer that is a m all. The Atlantic Avenue Barclay Center Station is not just a beast of a name, it's also a beast of a place. It's consistently ranked as the number one busiest subway station in Brooklyn. And the reason it's so busy is because this one hub connects downtown Brooklyn with the rest of New York City. And the rest of New York City to the Barclay Center, which is like the Brooklyn equivalent of Madison Square Garden. The Brooklyn Nets play there, Bad Bunnies play ed there. As far as event spaces go, it's really a world-class venue. But the subway station you take to get there? Not so much. Like Jed said, it's humid, it's busy, and the funny thing is that's not even Jed's biggest problem with the station. On the upper end, in the mall, there is one Wetzels pretzels. And it looks like any Wetzels pretzels. And then within the system, on the top floor, there is a Wetzels pretzels. And on the bottom floor, there is another Wetzels pretzels. And the spaces that they're in, they look like no larger than a broom closet. It just kinda doesn't make sense. I don't know how you set up one place like that much less two. Much less uh a third location. Sometimes we get a question that's immediately interesting. We can see that there's a knot to untangle, and even if we can't untangle it, we know the journey of trying will be a story in itself. But Jed's question was not one of those questions. It seemed so simple and so stakes Even Jed was a little embarrassed about this question. But the more he told us about this, the more interesting it became. It wasn't just about the fact that there were three of these soft pretzel franchises in the same subway complex, it was that they were comically close to one another. If you were to walk a circuit between all of them, how far away are they from one another? You could get to all of them within a minute. It's really that quick. Wow. I don't know if we can pull up like a floor plan of Atlantic Terminal or something, but literally you're walking on the top floor of like where the sub ways are, and you see the Wetzels pretzels on your right hand side. You go down the stairs, and there's the other Wetzel's pretzels. They're that close. And then the walkway to the next one, not very far off. When did you notice that there were three Wetzels pretzels locations? By the time I moved into Brooklyn, like the one in the mall that was already there. And then about two years ago the other two moved in. I don't know if they moved in at the same time, but they definitely moved in within the same month . I think the one on the lower floor had moved in first. And I'm like, oh, that's strange. I didn't even know that there was enough space to put anything there and then the one on the floor above moved in as well and like what what are we doing? This is excessive. That is so weird. I mean I',m definitely curious about this, but like what would a solution look like to you ? Um I don't know what a solve is that clearly. I I needed to um air my grievances more than anything, which is why I wasn't expecting like a solid, oh, like we made the perfect cake, or like how did this fucking cat medicine thing happen? Though those are both great episodes, by the way. But um yeah, I don't know, I don't know how this can turn into a 40-minute anything. Listen, we've done much more with much less. Underneath Jed's skepticism, there are three questions. First, he wants to understand why there are three Second, he wants to know if they're competitors or collaborators. And third, he wants to know if any of these locations are actually turning a profit. And while Jed wasn't sure there was actually any meat on the bones of these questions, something told us there had to be. And we weren't the only ones who thought so yeah, no, this qu Jed's question is actually fascinating. It's like a window into the whole landscape around us. This is Alexei Horowitsgazi. He is one of the hosts and reporters of NPR's business and economics podcast, Planet Money. And the reason we reached out to him is because shortly after our conversation with Jed , we discovered that this thing that was happening at the Atlantic Barclay Station was not at all unique to the Atlantic Barclay Station. Turns out there are also three Wetzels pretzels at the American Dream Mall in New Jersey. At the Del Amo Fashion Center in Torrance, California, there are four Wetzels pretzels. And at the Crypto Dotcom Arena, where the LA Lakers play, there are five Wetzels pretzels locations . And these are not the only places where clusters of Wetzels appear in America. In fact, the more we looked into it, the more we noticed where one Wetzels pretzel loc'ations exists, other Wetzels pretzels are often very close by . Now, clearly there was some corporate strategy fueling these clusters of Wetzels, but for the life of me, I couldn't understand what it was. H aving so many storefronts so close together just seemed to violate the most basic laws of supply and demand. So we reached out to the Planet Money team hoping they could shed some light on what we might be missing here. But folks, they didn't know either. This whole clustering thing seemed just as counterintuitive to them as it did to us. And for a reporter like Alexi, who spent years investigating questions about consumer behavior and the corporate systems that feed it , that not knowing was actually very exciting. So he told us he wanted a piece of the action. Sign me up, let's go. What is it about Jed 's question that is so interesting to you I think Jed's question is a question that I have had personally and that I think a lot of us have. It's like exactly in this delectable sweet spot, or savory, I guess, in this case, of like something in the world that is all around us all the time. Like all of a sudden you'll be surrounded by like three Starbucks on a given street or McDonald's or whatever else. And it sort of feels like you're watching the ebb and flow of some sort of titanic corporate competitive battle that's happening, but you don't really understand why or who's competing with who or how it could possibly make economic sense for any of the actors involved to so oversaturate us with the same franchise in such a small space. Uh and so it just felt like one of those things that is like a tiny question and it's kind of funny because it's so small, but it actually touches on like the fabric of cities and just the the things we walk around and are surrounded by every day. So I am eager to get out there and hit the streets and figure out what's going on. Uh go for it. I'd love to hear the answer. And not having to go out and do it myself makes it even more enticing to me. Yes. Let me do this one. Let me ride. I'll send you in a more whatever I find. Stay tuned. Just like that, he was off to the races. And a few short weeks later, we got an email from Alexi saying that he'd connected with Wetzel's corporate and that he'd already learned a ton about their real estate strategy. From the very This is John Fisher. He's head of development for Wetzels Pretzels, which means his job is to help the company's franchisees find and build successful locations. And this thing he just said about bringing pretzels to the people, it is more than just a mantra. It is the key to Wetzel's business strategy and the answer to Jed's questions. Okay, so remember a couple minutes ago when Alexi was talking about how this question might be the key to understanding not just why there are clusters of Wetzels, but why there are clusters of Starbucks and McDonald's and all of these other brands that we see lining the streets of American cities? Well, John wasn't so sure about that. And of course he can't actually speak to the real estate strategies of those other companies because he obviously doesn't work for those other companies. But what he can say, with 100% certainty, is that the real estate needs of Wetzel's pretzels are very different from the needs of those other companies. And the thing that makes them so different is that unlike coffee and burgers, pretzels just aren't the kind of product people go out of their way to buy. People don't get in their car and say, I'm gonna go get a pretzel and I'm gonna drive to the mall, walk 15 minutes in the parking lot , go in through, try to park in and get a pretzel and then come out, right? They're gonna go to the mall and happen to get a pretzel while they're there. In the world of retail, there's a name for this kind of thing. It's called an impulse product. And unlike destination products, which are the kind of things people go out into the world with the intention of buying, impulse products are defined by the fact that nobody's really planning on buying them. So how do you get people to buy something they didn't plan to buy? For Wetzels, it's all about bringing pretzels to the people. It's about placing their storefronts in high traffic, high visibility areas where people are already walking around, and then placing The business model is impulse-driven. And so, you know, I'm capturing people at different places in different times within their route, or I'm even like exposing them to the thought and the smell at one place where then they see it a second time and then they're like, ah, I can't resist. Yes. I escaped once, but not the second time. I I need one now. It's a strategy of attrition. Of delicious olfactory attrition. I mean, obviously this part makes sense, right? The more these pretzels are in your face , the more their smell is in your nose, the more likely you are to buy this thing you didn't intend to buy. But the real question for us is aren't all of these wetzels eating into each other's profits? Or are they somehow immune to the laws of supply and demand How do you think about when it makes sense to have multiple Wetzel's locations in the same broad space versus the risk of cannibalizing your own sales or oversaturating the place. Yeah, it's it's it's really unique. Um I used to work for a pizza company and it was a take and bake pizza company. You didn't go there unless you planned on buying a pizza. It was a ultimate destination purchase, right? You don't just happen to walk around and buy a raw pizza and you know, you kinda know that you're gonna go there, right? So what's interesting is you have the ultimate destination type of concepts where you build a store and if you put a store five miles away, the franchisees really mad because hey, I have customers coming from over there and you know I'm gonna lose 10, 20% of my sales. Wetzel's is kind of the opposite of that. We literally have malls that have five stores in the same mall. Because we're an impulse product, for us it's really just about is the mall big enough or is there enough traffic and different occasions to support different impulse purchases in that mall . And is there cannibalization when you open a second store? A little bit, but not very much. It's pretty amazing. I think I I I was surprised when I got here. I was like, really you can have two stores in the same mall? I've never seen that before. And now I'm sitting here putting three and four in some malls because it's really about that impulse nature. So, you know, people go wait, how can you have so many stores in the same area? Well, you have to be an impulse brand. You have to be a brand where people are making the decision right as they're walking in front of you to have your product or not they're not going there specifically for you so you know whether it's a subway or a theme park or a a stadium you're gonna have One of the other big factors undergirding this model is that corporate wetzels will not let different franchisees open storefronts under the same roof. So anytime you see a cluster of Wetzels pretzels in the wild, know that every storefront under the same roof is owned by the same person. They aren't actually competing with each other, and any cannibalization that's happening has been at least partially planned. Also, not all of these clusters were designed to run this particular gambit. Some franchisees will open additional locations in the same space just to make sure that those spaces don't get taken by the competition. So these clusters function more like a defensive mapping sort of strategy . The other big thing is that the company gets final approval on all franchise locations. And because they've had the most success in malls and transport hubs and event spaces, that's where most of these clusters will be. So in this case, it's like, okay, these locations may seem to a layman like me walking through being like, how why would you possibly have these two pretzels stand so close to each other? Well, the proof is sort of in the profits. I think you have to look at every r concept and what works for that concept, where they are on that I'll call it the destination impulse spectrum. Yes. And if you're on the very high side of the impulse spectrum, you probably can get away with having several locations very close to each other to capture the traffic. And if you're on the other side of that spectrum, you you you probably don't want to think about doing that. It'd probably be you know a lot of cannibalization and not really work. Yeah. So now we know why these locations are clustered so close together. That is to say, we know why they're there in theory. But we still wanted to know if this strategy was actually working in the Atlantic Barclay station. Were the three storefronts actually making money and we knew just who we had to ask . After the break, ans wers from the man behind the Atlantic Avenue Wetzels . Hey there, I want to tell you about a beautiful piece of new work by our fellow Radiotopia host, Rishikesh Hirwe of Song Exploder. He's just released an album called In the Last Hour of Light. It's a deeply personal project, a memoir in music form, and his first album in 15 years. Since 2014, Rishikesh Hero y has been interviewing musicians about their creative process on the Song Exploder Podcast. 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That's livemomentous.com promo code hyperfixed Welcome back to the show. So before the break, we met a guy named Jed who'd recently made a perplexing observation . At his local subway stop, the Atlantic Avenue Barclay Center Station, there were three Wetzels pretzels so close together that it seemed illogical. And he wanted to know why. Why so many? Why so close together? How could this possibly make financial sense? So we passed Jed's question on to one of our business-minded buddies, Alexi Horowitz Gazi from NPR's Planet Money, and he returned to us with an answer . Wetzels knows that they're selling a product that people aren't going out of their way to buy. So they strategically cluster their stores to make sure their product is in people's way as frequently as possible. And that's more or less all there is to it. At least in theory. See, we still wanted to know if the strategy was actually working in practice, specifically at the site that launched this investigation to begin with, the Atlantic Avenue Barclay Center Station. So Alexi reached out to the guy who owns all three of those Wetzels. His name is Ricky Alam. He is a very seasoned Wetzels Pretzels franchisee. And he's based in Southern California, which also happens to be where Alexi's based. So Ricky invited Alexi to meet up in person at the site of Ricky's first Wetzels Pretzels location in the Westfield Fashion Square Mall in Sherman Oaks, California. Okay, testing testing. It's Alexi. It is Thursday, March 19th at 3:10 Pacific time . I've just gotten to the I think it's the Westfield Mall in Sherman Oaks, California. And I am on a sort of pretzel mission. I've talked to John Fisher up at Wetzels Pretzels HQ. He walked me through kind of the basics of how companies think about when it makes economic sense to have a couple franchise locations near each other. But it really comes down to kind of what type of restaurant it is and what the flow of customer traffic is. But uh we've come here to get it straight from the franchisee's mouth. Okay, here it goes nothing. I've just parked and um let's go find Ricky . Now this is a little off story, but it made me laugh so much that I wanted to share. The first time I chatted with Alexi, he confessed that when it comes to shopping malls, he's a bit of a neophyte. He said there wasn't a major mall culture in the city he grew up in, so he wasn't super familiar with things like Wetzels and Cinnabon, and although he told me his local mall did have a sparrow, he pronounced it shbarrow, which honestly told me more about his relationship to malls than anything he could have said. And that's why I wasn't surprised to learn that just minutes after Alexi walked into the mall with recording gear strapped to his body and Thankfully it didn't last long, because after Alexei explained what he was doing, he tried interviewing the guard about their thoughts on this pretzel cluster question. And I think the guard was just so profoundly disinterested in this project, they ended up letting him go. So Alexi continued on his way, and before long, he spotted Ricky. I see Ricky in the distance. There we go. How are you doing? Good how are you? Ricky I presume? Good to see you. Good to see you too. What a what a pleasure. Oh no problem. Same here. This is Ricky Alam. He's been a Wetzels franchisee for the last twenty years, and the way he tells it, pretzels were kind of like his gateway to his American dream. After moving from LA to Bangladesh back in the early 90s, Ricky worked a series of odd jobs. But in his heart, there was always one goal: to have a business of his own. So Ricky opened a liquor store, which failed miserably. Then he started a business that sold painted hermit crabs from kiosks at the mall. And that one worked out pretty well. But he wanted something that felt more permanent. And that's when he started looking at franchises. Pretzels aren't like a big thing in Bangladesh, but his years in the United States taught Ricky that Americans love hot dough. So he opened the Swetzels in 2004, and within a year and a half, he opened a second loc ation right here in the same mall. Within a year and a half I opened the second location on the first floor. And that took a hit on this one little bit, 10, 15% business dropped from the first location. But within six months, it came back. Whatever the business I was doing on the first location, it came back. Second location is doing its own business. And uh I think within another few years I was able to open another location. And uh in a few years another location. So yeah, I mean goal was to open at least one location every other year or what now. How many have you opened in total? 17 locations combined east and uh and west. So 17 locations. I mean it sounds like a little pretzel empire. Uh so far so good. And when did you get a sense that getting into the dough business might eventually translate into rolling in the dough? You know , not every doug business is gonna make you the dough, remember. There is always risk. Even the proven business, you gotta make sure the location is right. But how do you make sure that a location is right? How do you decide if a mall can support a second storefront? Or if a subway slash mall can support three? We are driven by where people at, let's put it this way. So we do sit down and count, literally hand count how many people passing by in front of this potential location. So there is a certain amount of traffic has to pass by and then we open. So to take in that consideration to open a second location is that we do the same thing. Going to the second location, if it's within the same mall or same train station or even the airport or what have you. We we do the same counting, how many people passing by. Are these the same traffic second floor versus first floor? We take all those under consideration before you open the second location. How do you count? Do you have like an app or a little uh well back in the days even still as of right now I have one of those clicker yeah but now you have an app you have all the sophisticated software and whatnot yes vote souls do their due diligence but at the same time I like to come in and sit down just like this and I want to see how many people passing by and I count literally with the phone, I put a timer and I co unt. And is there a number that you want to see or some sort of mark you're trying to get to? You gotta have 15 to 1700 people every given hour. Okay, 15 to 1700 an hour. Yeah. But Ricky stressed that this is not a perfect science. Sometimes he says the foot traffic just doesn't convert to sales in the way you thought it would. And sometimes the foot traffic you thought you could count on just suddenly dries up . Which brings us to the question at hand about whether or not the cluster of Wetzels pretzels at the Atlantic Barclay Station is actually profitable. So when Ricky opened his first Atlantic storefront in 2016, seemed like a perfect location. As you've already heard, Wetzels Pretzels does best in places like malls and transit hubs and event centers, and this first location seemed to offer a bit of all of those th ings. The spot was in a mall, above a subway station, across the street from an event center. And for several years it felt like getting the best of all of these worlds. And then COVID hit. And like so many other businesses in the city, the Atlantic Terminal Wetzels was forced to shut down. The thing is that when the store reopened six months later, the pre-pandemic business just didn't come back. My business dropped compared to 2018 and 19. It dropped 40 almost 50 percent. 40 or 50 percent. So I was in a situation that I thought about shutting it down, but I couldn't do it because I have the obligation. I signed the long-term contract. Because of this long-term lease, Ricky was forced to leave the lights on. And for the next couple years, he took a loss at the Atlantic Avenue location. And then, one day a few years ago, the landlord came to Ricky with a proposition. He said that he had a couple of retail locations available Ins the subway terminal, one on the first floor and one on the second. These locations were about the size of broom closets, and they didn't have kitchens. And technically, they were only about a hundred feet from one another. But because they were inside the subway station, they could do something that the mall location couldn't. Cater to commuters directly. Ricky didn't really want to take on both locations, but it was an all-or-nothing de al. So Ricky took both and his fortunes began to change . Those two satellite locations actually helped me to stain the business within this mall because upstairs main location I'm still suffering. So the idea to expand to the other locations was kind of to offset the losses that were happening in the main one in a way?