Trader Joe's Caught In Sticky Lawsuit Over Peanut Butter Pretzels

Feb 21, 2014
Originally published on February 24, 2014 2:37 pm

Among the many snacks you can find in the aisles of Trader Joe's is an icon of sweet and salty goodness: the peanut butter pretzel. It's a combination so tasty, famed food writer Ruth Reichl once raved, "You haven't lived until you've tried the two together."

But the beloved treats aren't just treasures for the palate — they're a pretty lucrative business worth millions of dollars. And now, Trader Joe's is being sued for allegedly cornering the market on the snack.

The plaintiff is Maxim Marketing, a Southern California company that claims to have invented the peanut butter pretzel in the early 1980s. And for more than 25 years, Maxim claims, it supplied the grocery chain with the snack, which is sold under the private Trader Joe's label. But Maxim says the retailer switched suppliers to packaged food giant ConAgra Foods, unfairly cutting it out of the business it pioneered. So Maxim is suing both companies, explains journalist Alfred Lee, who wrote about the lawsuit for the Los Angeles Business Journal.

"They're suing for alleged breach of contract and also alleging the existence of a peanut butter pretzel monopoly," Lee tells Morning Edition host David Greene. "I realize that sounds kind of funny, but this isn't some bite-sized niche, if you will. It's a market worth tens of millions of dollars."

Maxim claims it sold Trader Joe's $9 million worth of peanut butter pretzels each year, and the grocer, in turn, sold the snacks at a gross markup of roughly 35 percent.

"Maxim is a middle man that doesn't own its own factories," Lee explains. The company used to work with various independent manufacturers to create the pretzel snacks. But over the years, "ConAgra has bought up most of the peanut butter pretzel manufacturing capability in the United States."

That means ConAgra is now pretty much the only game in town when it comes to making the snacks. Indeed, Maxim says it used ConAgra to manufacture the pretzels until Trader Joe's made a deal directly with ConAgra that cut Maxim out.

"Maxim is saying that this deal prevents them from essentially doing business," Lee says.

Trader Joe's, which is privately held, is famously tight-lipped. It does not disclose its suppliers, and it has not commented publicly on the lawsuit nor responded to it in court.

Of course, Trader Joe's has the right to use any supplier it wants. And one way the company has traditionally cut costs is by bypassing the middle man and going straight to the manufacturer when it comes to creating its own private-label foods. So, really, it's up to the court to decide whether any contract was indeed breached, and whether the deal between Trader Joe's and ConAgra really does crumble competition in the pretzel marketplace.

One of the lawsuit's most surprising revelations? Turns out, the peanut butter pretzel is a marvel of food manufacturing. The technology to make a hard pretzel shell stuffed with peanut butter didn't even exist until the 1980s, Lee says. It's a process called co-extrusion — basically, an outer tube pumps out pretzel dough, while an inner tube pumps out peanut butter filling onto a conveyor belt. The whole thing is then sliced up and baked in a giant 100-foot oven.

"It turns out that getting the mix right and the proportions right was pretty tricky," Lee says. "If there is too much water in the pretzel or the shell is too thin, the things will explode. And imagine having to clean a 100-foot oven full of peanut butter."

UPDATE Feb. 24: After this story was published, we received the following comment from ConAgra Foods:

"This lawsuit is baseless and built on false accusations, and despite the legal and PR maneuvers of the litigants, we are pleased to be able to provide consumers with great food at an affordable price."

We also heard from Bruce Gutterman, a pioneer in pourable peanut butter. (He helped put the peanut butter in Ben & Jerry's Chubby Hubby, among other products.) Gutterman has claimed that he invented the peanut butter pretzel concept first and brought the idea to Maxim to distribute the product. He says Maxim then took the idea and cut him out of the business. "I am the only person who has earned the right to tell this beloved and enjoyed snacks['] origin" story, Gutterman writes The Salt. Maxim has denied that Gutterman came up with the idea for the peanut butter-filled pretzel, claiming he was just a broker.

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DAVID GREENE, HOST:

A, shall we say, salty skirmish has emerged from the aisles of Trader Joe's. The grocery store chain is being sued by a now former supplier over pretzels. They're not just any pretzels. We're talking about peanut butter filled pretzels, and were talking about a lucrative business here.

We're joined by Alfred Lee, who wrote about this lawsuit for the "Los Angeles Business Journal." Alfred, good morning and welcome to the program.

ALFRED LEE: Hi. Thanks for having me on.

GREENE: So give us the nuts and bolts of this lawsuit. What are we talking about here?

LEE: Sure. There's a company in Southern California that claims to have supplied Trader Joe's for 25 years with these beloved peanut butter filled pretzels snacks, of which the famed food writer Ruth Reichl once said, you haven't lived until you've tried the two together.

GREENE: It's that good, that combination.

LEE: They're pretty popular. The company, Maxim Marketing, is saying they been cut out by Trader Joe's, which has switched suppliers to the food giant ConAgra and Maxim now suing both ConAgra and Trader Joe's.

GREENE: So the company is basically suing, saying we had the deal with you. We came up with these pretzels. We supply these pretzels to you and now you're cutting us out and you're breaking the law in doing so.

LEE: Yeah. They're suing for alleged breach of contract and also alleging the existence of a peanut butter pretzel monopoly. I realize that sounds kind of funny, but this isn't some bite-sized niche, if you will. It's a market that's worth tens of millions of dollars.

Maxim is a middle man that doesn't own its own factories and ConAgra has bought up most of the peanut butter pretzel manufacturing capabilities in the United States. And Maxim is saying that this deal prevents them from doing business.

GREENE: As angry as Maxim might be, I mean, doesn't Trader Joe's have the right to use whatever supplier it wants to?

LEE: They do. I guess it's going to have to be determined in court what, if any, contractors there is and what it might say, and also to what extent this deal is eliminating competition in the peanut butter pretzel marketplace.

GREENE: Can you, on a serious level, tell us about this product, this ubiquitous snack which, as I understand, it's pretty difficult to manufacture?

LEE: Yeah. So it's exactly what it sounds like, if you haven't had the pleasure. It's a pretzel shell stuffed with peanut butter. That might not sound very complicated, but it turns out that it was a really difficult process to perfect. It's a process called co-extrusion - which is just a fancy way of saying tubes within tubes. So if you imagine an outer tube pumping out pretzel dough and an inner tube pumping out peanut butter filling onto a belt that is then sliced and baked in a giant 100-foot ovens.

And even that might not sound very hard, but it turns out that getting the mix right and the proportions right was pretty tricky. If there is too much water in the pretzel or if the shell is too thin, the things will explode. And imagine having to clean a 100-foot oven full of peanut butter.

GREENE: Not a good thing. Let me just ask you, if I can, Alfred Lee, I mean what is Trader Joe's argument here? Why did they have to make this change and go with a different supplier?

LEE: Well, they haven't talked about this case and haven't responded in court, so far, either. Trader Joe's is kind of a notoriously difficult company to report on because they don't talk to press. They don't reveal who their suppliers are. It's not a public company, it's privately held so they haven't talked much. It was kind of align with their reputation as a tough negotiator with their suppliers. And it would also make sense from their end, because they tend to cut out middlemen to cut costs and Maxim was a middleman that didn't own its own manufacturing capabilities.

We haven't heard their side of what the relationship with Maxim was like and if there were other reasons to nix the deal.

GREENE: So if they are so notoriously secretive, how did you find out about the story?

LEE: I go through legal dockets as part of my job, and I came across an antitrust lawsuit against Trader Joe's, which piqued my curiosity, just kind of a fascinating subject for journalists to look into. Then I realized it was about peanut butter filled pretzels, and moreover, that it was about an alleged peanut butter filled pretzels monopoly and like the snack, I couldn't resist.

(LAUGHTER)

GREENE: Alfred Lee is a reporter at the "Los Angeles Business Journal." Alfred, thanks so much for talking to us.

LEE: Thanks. Transcript provided by NPR, Copyright NPR.