Hannah’s Bretzel’s philosophy is to start with quality ingredients and follow with a conscience. With locations throughout Chicago, Hannah’s Bretzel serves gourmet uber sandwiches, while striving to positively impact stakeholders. As a result, Hannah’s Bretzel has landed the Chicago Magazine Green Award, the Kenmore Best Sandwich in Chicago Award, and the Chicago Magazine Best Local Chain Award.
Because the category is highly competitive, CEO Florian Pfahler blended his marketing background and German roots with his interests in culture. In addition, the brand uses sustainability to create, arguably, the best sandwiches in Chicago, if not beyond.
“The category we are in is extremely data driven,” says Pfahler. “However, it’s interesting, the emotional bond that develops between the sandwich and the customers.” says Pfahler.
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This week, I’m super excited to invite on the show, Florian Pfahler. He’s the founder and CEO of Hannah’s Bretzel. We’re going to talk about uber competition, uber brands, uber customer experience, and of course uber sandwiches. So, Florian, welcome to the Brand Labs.
Oh, thank you for having me. Very excited to be here.
Well, one of the things that I also think is interesting is, like me, you have a marketing background. So, talk about how you went from being an ad guy to making uber sandwiches?
Well, I think the journey started back after I finished my Bachelor degree in marketing and finance. And I worked in brand management in a German consumer goods company, and that was back in 1990, early in the 1990s. And at that time, I learned about what is now known as the internet, and I went to New York, and I started working in 1992 for an internet firm, that was focused, of all places, on the art market. And I worked with them for six years, very entrepreneurial. And really started embracing the whole idea of starting a business, which is much more common in the United States, than it was at the time, necessarily in Germany.
And after six years there, being a marketer, I was very interested to continue my marketing education, so to say, and Leo Burnett offered me a position, so I joined them in Chicago. That was late ’90s, ’99. And I thought I would be there only for a couple years, and potentially travel with them around the world, but got stuck for six years, met my wife, and then also started Hannah’s. Being at Leo Burnett was an incredible experience. I learned a lot there. But ultimately, I wanted to be back at the entrepreneurial side and I always wanted to start my own business. And I don’t think there’s any country in the world better to do that, then here in the United States.
Hannah’s Bretzels is celebrating its 13-year anniversary. Think back to the early years, and we’d love to hear a good story from the good, old days, of how things got started.
Well, it’s nice to do that, because that first location over at 180 West Washington is getting a makeover, and we’re gonna reopen that so first week of June. I’m very excited about that. When I worked at Leo Burnett, I had to go for lunch every day, and I felt while some of the places were kind of good, I felt there was not a lot of innovation going on in the category, and everybody seemed to be competing on price and size, rather than flavors and ingredients. When I started looking into Hannah’s and wrote the business plan, I really wanted to focus on other attributes for the brand, then what was currently at the time in the market, which was more Corner Bakery, Cozy, Sopraffina, Caffe Baci, those were the big ones at the time, still are, to a degree.
And if you look at the metrics of things in the sandwich category, we really wanted to be the premium sandwich maker in the market. We wanted to introduce flavors and ingredients that were not common, or not at all known at the time. Parma Ham from Italy, or Serrano Ham from Spain, were pretty much unknown. We had to do a lot of explaining at the time and it was an interesting experience. In the beginning, I thought, “I’m just gonna do it on the side,” but then it mushroomed into a very nice business indeed.
Well, it’s really interesting, ’cause I think a lot of great entrepreneurial stories kinda start on the side. But in addition to the great sandwiches, I think the best thing you have is your bread. Talk a little bit more about that early startup, where all that came from. I’d love to have you talk about that a little bit more for our audience.
Whenever I traveled back home, my parents at the time lived in Stuttgart. Stuttgart is the bretzel bread capital of Germany. And you find it everywhere there, and it’s a very traditional bread, and everybody in the morning goes by the bakery and buys five, six bretzels to take ’em home for early breakfast, or on the way to work. I always brought bretzel bread back with me from Stuttgart, freshly baked. My friend, Frank Ellinger, third generation master baker in Germany, always baked them super fresh for me, to pick up before I head to the airport, specially packaged so they arrive tip-top. And then I invited my friends over, and I said, “Guys, I brought bretzel bread,” and everybody was like, “Oh, bretzel bread.”
That is how it started. We initially made sandwiches with the bretzel bread, and had wine and beer, and it was just tasty. And they were like, “You need to do something with this bretzel bread. This is unbelievably good bretzel bread.” That’s how it started. It started very innocent. And as I looked into doing something with the bretzel bread, which initially I thought putting little kiosks all over Chicago, so people on-the-go can grab a bretzel, and then keep it that way, the city wouldn’t allow that. So, I needed to look for a retail location. Now, to do a retail location, just to sell a bretzel, I felt was a little too thin and that’s when we started looking into high-end sandwiches. It started from there and evolved as the market conditions allowed me to operate. And then once that thought took hold, we created just sandwiches, that’s how it evolved, and then finally, it was Hannah’s Bretzel.
Was there any other brand or inspiration that you feel like really helped develop the concept that you were dreaming of?
Whole Foods is a ground-breaking business when it comes to food in the United States. I’m saddened to see how some people talk negatively about them, because of price. Because how deep their commitment is, not only in relation to their vendors, and the farmers, but their commitment to bringing just more wholesome food, and educating the customer along the way, what that means. For me, Whole Foods was instrumental as an inspiration, but also a place that I shopped, and where I did a lot of market research, and I, between qualitative and quantitative research, I think one of the best aspects of research, is just talking to the customer. So, you just go where the place is, where you find that customer, where you think the knowledge is, which for me, was in the Whole Foods aisle.
I would chat up as many people as possible. Sometimes they would tell me, “You’re freaking me out, so get away from me,” and others would open up very nicely, and tell their whole story about why they shopped there, and what’s going on, and the food, and the health, and that they learned this, and that, and the other. Because right around the time where Whole Foods grew, the internet came along too, and with the internet, a whole range of information was publicly available, all of a sudden, that in the past, was not. In the past, your relationship to health was your doctor. It was a one-on-one. Maybe you had a nutritionist. Maybe. Or it was your trainer in the gym, if you had a trainer. Or maybe some magazine that you subscribe to, but now with the internet, there was such a depth to information, that finally food got a platform where it could become, not only something that you fill your belly with, with the biggest quantity at the lowest price, but actually what food is supposed to do.
It’s supposed to give you healing properties. It gives you energy. It’s fun at the same time, if prepared right. It educated the customer, and consequently, while I was watching Whole Foods, and talking to customers there, and making the sandwiches on the bretzel bread at home, I had the idea that a fast casual restaurant based on the Whole Foods principles would resonate with the public, is really where it started. And that’s where then, obviously, also the focus comes on the organics, and the environment, and the whole grain nutrition, and food transparency, which is something I love, and I think should be much more demanded out there across the board. We should know what we eat, we should know how much sodium is in it, we should know how many calories are in it, because that is valuable information that we, as humans, have to look out for.
If you go deeper and you look at the obesity situation, in Illinois, you have, I think 70% that are overweight, and 25% of the population is obese, and it is a problem. I think that food transparency will help a lot. I think that all together now, Chicago has just been voted the best food city in the United States by Conde Nast magazine, well deserved, incredible chefs here. Incredible talent, incredible innovation in the food category, and it’s very encouraging, and I was just really happy to be part of that journey in Chicago so far. But Whole Foods was a huge inspiration, so that was the last piece of how I started Hannah’s and what inspired me to go the route that I took.
As you’ve grown, and scaled so much over the last 13 years, and I know you started at the 180 location, but talk about how did you maintain that quality brand, and that quality customer experience? You not only grew menu items, or employees, or locations. ’Cause the scale challenge, as you know, of growing a business, is where you can really start to run into some bumps.
Absolutely, you can. Consistency, I think, is the biggest challenge of running a business like mine. Across all locations, to maintain a daily standard where you are. You want to keep it as simple as possible, and heavily invest into training, and development of your team, but also commit to the pillars that your brand stands on. For us, it’s organic ingredients, whole grain nutrition, very nutrition-focused, nutritional transparency, and then a strong focus on environmental practices. That means, not only on the nutritional sides, but also the materials we use. We wanna deliver our food with the smallest environmental footprint possible. All the stores are powered by electric and wind, 100%. We only have biodegradable packaging. We wanna get to a zero waste cycle. We’re very close with that. Composting is big on our mind. It’s very expensive still. It hasn’t reached scale yet, but it’s something that we would love to see more.
Well, much like you mentioned earlier, some of the menu items that were relatively unheard of, in terms of some of the ingredients in your sandwiches, you’ve always been a little bit ahead of the curve. I know, as long as I can remember, going to your stores, you were very transparent about some of the ingredients in your food. That’s become a little bit mainstream today. As you continue to grow, you’ve mentioned an interesting word earlier, ‘innovation.’ How do you, and how does your team, look at innovation, through the pipeline of, either developing new ways to deliver your products, or menu items, or some of the things that go into the back side of running a business? What does innovation look like for you guys?
Well, on the food side, let me just, as an example, mention our new Bresaola sandwich. Most of our customers did not know what Bresaola is. It’s a northern Italian cured beef, dry-aged. It’s one of the most delicious cured beefs that you can eat. Extremely lean, very popular in Europe, made in the southern part of Switzerland, where it’s called Bundnerfleisch, and in the northern part of Italy, there it’s called Bresaola, same thing. It’s a mountain beef and it’s delicious. It’s expensive. And we discussed for a long time, whether we should do a Bresaola sandwich, or another chicken sandwich, because chicken is very popular. But for me, doing another chicken sandwich is just not that interesting. We might do it or we might not. But Bresaola, I found interesting, because it will introduce a new flavor, and food experience, and educate our customers further in what something can be, what can be on a sandwich. Of course, because it was expensive, it also meant it’s the most expensive sandwich we have right now, but it’s the number five seller. Once you eat it, it is delicious and it’s well worth the money, in my mind. It’s great nutrition.
To follow up on that, so you do have a range of a few, maybe more traditional sandwiches, in the American sense, like the club, and some of those others. ’Cause you just mentioned this delicious sounding sandwich is number five. How are you tracking that, to see which sandwiches are performing better, and you do you ever decide maybe to pull something on or off the menu? And are customers typically ordering the same or different things every time?
Well, obviously, point of sale systems today are very sophisticated and they give you a range of data on a daily basis. That is absolutely not a problem. It’s very quick. Technology is where it’s at. We are going right now through round three of technological innovation within Hannah’s, nothing particularly incredibly groundbreaking. Every other competitor that I know, where I know the owners, goes through the same challenges and this is all about having the data available. You wanna see revenue, you wanna see cost of goods, you wanna see labor, and you wanna see it daily on the phone. That’s the direction that it goes and we are investing into that. There’s different point of sale providers in the category that are far more advanced than others. It’s a very dynamic market. And for us, when we started, it was very cumbersome, and with the point of sale system, because we had in two or three registers in the front of the house, and a big, chunky box in the back of the house, that was supposed to do backups of data.
And of course, it crashed, and then we learned that the backup drive had crashed too, so the data was gone. And at that time, we really wanted to go into the cloud. We were like, “Why do we need to have this box? Why do we need to have infrastructure? Why can’t we have this somewhere?” And moved to the Cloud, much less expensive, was one fourth of the cost. The initial point of sales system was maybe $25,000, the second one was $5,000. Now, everything is in the cloud, which is, I think, much smarter. But now, the current one that we use, is not as flexible and open a platform that we need, to have auxiliary services attached to it, that allow us to get the data quicker and managed, so we need to move on to the next platform, that allows us to do that.
And it’s just very important to continue to do these investments, and look out for, particularly, the data. The category that we are in is extremely data-driven, aside of intuition like the Bresaola sandwich, where you say, “No, I’m gonna go this way. I’m gonna do something that nobody has ever heard of, let alone knows how to pronounce.” I didn’t know how to pronounce it myself.
Well, I know when I go to order it this afternoon, they’ll at least know what I’m talking about.
Absolutely, they will. Yeah, they will be like, “Oh, you want that delicious sandwich, right?” That’s great. And so technologically, that’s a very important thing, and that’s how you do it. I think though, that even if you do something tried and true, let’s say a club, you can make that club a little bit different in the flavor experience. I think we achieved that. It’s a very, very tasty sandwich, I just love it, I could eat it everyday, like all the foods that we do. A turkey-cheddar is probably the most common and it’s a lot of go-to sandwiches, but what you mentioned yourself, with how you approach our menu, that you always order the same thing, that is one of the biggest hurdles of our category. I know customers who’ve been to Hannah’s for five years, they come every week, they eat the same sandwich each and every time. And here’s what they say, they say, “I came today to try a different one, but once I stood there, I went to the one that I love.” So, what do we do about this? Well, we’re thinking about a “Try Me” promotion. There are some ideas we have, but we would love to see our customers try themselves through the menu. It’s very interesting, it’s in our category, one of the biggest hurdles, no matter who it is.
If you go into the restaurant, sit-down restaurant environment, customers typically don’t eat the same thing twice. If you go into a sit-down restaurant, let’s say Blackbird, or Outback, or any of those really great restaurants in Chicago, if you see the menu, and then you come back half a year later, it’s still the same menu, it’s kind of weird, right? You’re like, “Why didn’t they change the menu? Don’t they go with the seasons? I wanna eat something else.” Not with our category. Our category, it’s all the same. That’s why we rarely ever remove a sandwich, because if we remove a sandwich, there’s some minor revolution going on and we get hate emails. We did it, we did it once with the Black Forest ham and I will never forget it, where the people would say, “I’m not gonna come to Hannah’s anymore. You took my sandwich away!” It’s interesting, the emotional bond that develops between that sandwich and that customer, is fascinating and beautiful at the same time.
You look at other websites of fast casual restaurants and you won’t usually see them dedicate an entire section to culture. After talking with you for just a short time already, we can tell you exude your company culture. When you read your company culture on your website, it says you operate under one rule, which is to do the right thing. Why is that so important to Hannah’s Bretzels?
Because doing the right thing is a very simple and very powerful phrase. We decided that everybody that works with us at Hannah’s is a grown-up and we wanna treat ’em like grown-ups. The typical attitude towards a growing business is to establish a lot of rules: You don’t do this, you don’t do that, you can’t do this, you can’t decide that, you have to follow this rule, that rule, and the other rule. We went down that same path until the fourth location. And by the fourth location, we came to realize that we had very well defined to the outside world, why somebody should engage with our brand, and eat the food at Hannah’s. What we hadn’t done is explain to the inside world, the team that works with us every day, what the purpose of it all is when we get up in the morning and why we’re doing this every day.
So, we created what we call the Culture Council and it was about 30 team members from part-time, to full-time, salaried, to investors. We wanted to get vendors, but none of them made themselves available, which was unfortunate, but still we had a really deep group. Took us nine months to define who our six stakeholders are, what our purpose is, and how do we want to relate to those six stakeholders? It is on our website very prominently. It is in the back of the house at Hannah’s Bretzel and we try to implement it. And it was an interesting journey for us to do that. It actually was cleansing in a way. We had team members who couldn’t deal with the consequence of the culture that we created. One of the things that was the outcome of that cultural approach of doing the right thing, was that we did away with vacation rules and sick-day rules. We just, “You go on vacation. Go on vacation.” You need to go on vacation at Hannah’s at least once a year, for two weeks minimum and you need to be gone. I don’t wanna see an email and nobody wants to hear from you. You need to be out of the company. Go travel, do something.
We are on the planet for a limited period of time. Let’s not kid ourselves. So, have fun while you do it and don’t live to work. Sick days, same thing. If you’re sick, stay home. We didn’t wanna create an administration around counting who has been on vacation how long and can they go? And what if they have an emergency, but they had their two-week vacation? Now, I’m not gonna give you the vacation day or I’m gonna deduct the salary out of it? I think that is very harsh, and not really contemporary. So, that was a consequence of the cultural approach of what we did, which was more humane, but also, I find, more innovative. We treat our team, that is there by choice, as the grown-ups that they are, and everybody, I think, including everybody here in this room, knows what it is to do the right thing.
It’s very simple. It’s a certain code of ethics you have or you don’t. And if you don’t, those not-so-good apples, they will sort themselves out in a concept like this. And so, creating the culture was challenging. Much more challenging was to implement it and have everybody live up to it. And it is a continuous journey, there’s by no means perfection at Hannah’s. I’m sure there would be some former team members out there who’ve worked with us, who say like, “Aw, it’s not at all like this,” or, “It’s not at all like that,” because there’s a wide range of ideas surrounding what it means to have a culture of doing the right thing. But it is a start and I think it’s something you can build a business on. That means also though, that there’s a responsibility, that you create an environment within the company where ideas are free to flow up, just as much as ideas are implemented from the top down. That, in a nutshell, is what we try to accomplish at Hannah’s also, with the culture that we put into place.
As we start to wind down, one question I have for you is, and maybe this is a bad assumption, but I get the impression that maybe, for now at least, you had resisted the urge to maybe franchise, or maybe expand beyond where you are geographically today. I’m sure you’ve had the thought, but I’m just curious, maybe why you hadn’t done that so far, and if that has ever weighed on you over the last 13 years?
Very good question, and obviously, yes, my members of my LLC, my investors, probably would love to listen to that answer the most. But we’ve discussed it, and we’ve looked at it, and we continue to look at it. The fast-casual market, over the last five years, particularly, has exploded. Let’s just see where we were on our journey. We opened in 2005, 2007 number two came along, 2008–09 was the financial crisis, everything came to a grinding halt. We, at that time, had the money together to open locations three and four right then and there, and we had to get through the financial crisis. And the financial crisis really scared everybody, scared my members, scared particularly me, because, let’s not forget, we sign big leases, and it’s a personal commitment. I’m the one who is responsible and I’m the one who is paying, if something goes wrong, and so does every other entrepreneur out there. It’s an entrepreneurial risk you take. That’s why you go the path that you do.
The financial crisis was really a wake-up call, something I never thought would be even possible, but it happened. And 2010 we get to open location three, 2011 location four, and then the whole category started to explode. Basically, what was before that, a rather small niche market, that was occupied by few players, more and more players came into the Chicago market. We looked at Washington continuously, we looked at Denver, we looked at Boston, and they’re still on our mind. But let’s take, for example, Protein Bar, went to Washington, opened four location, closed two. Just going to another market doesn’t necessarily mean you’re gonna have a better business or a stronger business. It might just mean that the headaches incrementally increase. Growth in and by itself, for me, is not a strategy.
I wanna be around in 10 years. I want to create a solid rate of return. And how we get there, for me, is a marathon, not a sprint. Right now, I’m concerned as a business owner about the rents, which in Chicago have been going up tremendously. I’m concerned about the regulatory environment; minimum wage is going up. You have the healthcare, which I am all for, both of those. I think there also was just a sick leave ordinance now, where you have to pay one week of sick leave to your hourly team members, which, right on, if they get sick, they should have the chance to be sick, so they get healthy again. Hourly team members not being paid when they’re not there is very hard on them. It forces them to be in the business at any point of time. They deserve to have rest too, in case their body needs it. And so, these ordinances are something that I think are important, and they’re good.
The problem is they’re all happening at once. And so, you need to be able to digest the impact that you have financially, in the framework that you have, and right now, the cost pressure from a rent side, and from a regulatory side, is such that the need to raise prices is there, but you can’t do that very radically. You have to do it incrementally and in small steps, because otherwise, your customer base will not be very happy about it. And so, right now, I think you wanna be careful how you expand. Maybe that’s my German side, but if the opportunity presents itself, we have another location opening after this one, over at 150 North Riverside. We’re looking at locations all the time. We have a location team. We look at other markets. We look at dynamics there, and I think if the right moment comes along, we’ll do that step.
As we wrap up, we’re gonna turn it over to Natalie, to do one of her favorite parts of the show that we don’t always get the chance to do, and that’s a quick, little speed round. I don’t know what she’s gonna throw at you though.
Okay.
Okay, what is your favorite meal outside of your restaurant?
My favorite meal in Chicago is the mushrooms at Vera on Lake Street. They’re outstanding and I trust mushrooms. Best mushrooms in the city.
What’s your favorite restaurant in Chicago, other than yours?
Blackbird. Absolutely, hands down. Absolute great group, wonderful hospitality, amazing innovators. That restaurant has been around since 1999, something like this, going strong. I admire these people. Fantastic.
Great praise. Okay. What’s your go-to sandwich at your own restaurant?
The salmon. Wild caught Atlantic smoked salmon, not on the endangered species list. We don’t make money with that sandwich. It should cost $15, but we do it, because it’s the right thing to do.
Very good, okay. And what’s your dream location to open up a Hannah’s Bretzels outside of Chicago?
I would love to be in New York. I’ve lived in New York. I love New York. I’ve always had my heart in New York. I have my heart in Chicago too, but New York is one of these cities, for some weird reason, that just resonates with me deeply. I’m there all the time. My daughters Hannah, that’s where Hannah’s Bretzel comes from, and Ella live outside of New York, in New Jersey. And I go back and forth. And New York is really where I would love to see a Hannah’s Bretzel operate.
Awesome. Well, Florian, thank you so much for being on the Brand Lab.
Thank you for having me. It was great fun. Thank you.
Tags: B2C, Brand and Marketing, Customer Experience
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