Potbelly and Utz's Spicy Partnership: A Strategic Win for Snack Food Expansion

The snack food industry is heating up, quite literally. With consumers increasingly craving bold, fiery flavors, the global spicy snack market is projected to grow at a 4.5% compound annual growth rate (CAGR) through 2030. Now, two players—Potbelly Sandwich Shop (NASDAQ: PBPB) and Utz Brands (NASDAQ: UTZ)—are teaming up to capitalize on this trend. Their collaboration to distribute Utz's Zapp's Hot Pepper Chips through Potbelly's 425+ locations and loyalty program (1.5 million+ members) represents a masterclass in strategic synergy. For investors, this partnership opens doors to incremental sales growth, margin expansion, and cross-channel distribution dominance.

Strategic Synergy: A Perfect Match of Assets

Potbelly's 425+ locations (as of 2025) serve as prime retail hubs for Zapp's, a brand synonymous with bold, spicy snacks. The chain's loyal customer base—1.5 million members in its Perks loyalty program—provides a direct channel to test and scale this product. Meanwhile, Utz, the maker of Zapp's, gains a foothold in the quick-service restaurant (QSR) sector, where spicy snacks are increasingly popular.

The partnership leverages both companies' strengths:
- Potbelly's high foot traffic and localized marketing (e.g., loyalty program promotions) can drive impulse purchases of Zapp's.
- Utz's expertise in snack production and distribution ensures quality and scale.

Market Expansion: Riding the Spicy Snack Wave

The spicy snack sector is no niche market. Global sales hit $32 billion in 2023, with millennials and Gen Z driving demand for bold flavors. By integrating Zapp's into Potbelly's stores, Utz taps into QSR's “meal enhancement” dynamic—customers often buy snacks to complement sandwiches or coffee.

For Potbelly, the deal offers a margin boost. Snacks like chips typically carry higher margins than sandwiches, and incremental sales require minimal operational investment. For Utz, the collaboration expands its distribution into new QSR channels, reducing reliance on traditional grocery stores and online platforms.

Financial Upside: Margin Expansion and Balance Sheet Strength

The financial benefits are two-sided:
1. Potbelly:
- Margin Lift: Snack sales could add 50–100 basis points to its gross margin, which stood at 58% in 2024.
- Loyalty Program Engagement: Promotions tied to Zapp's purchases (e.g., double Perks points) could increase repeat visits and average spend per customer.
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1. Utz:
2. Distribution Growth: Entering QSR channels could add ~5% to its top line over two years, given Potbelly's ~$500 million annual revenue base.
3. Leverage Reduction: Utz aims to cut its net leverage to 3.0x by 2025, freeing capital for marketing and R&D. Its Q2 2024 net debt stood at $300 million, well within its $1.5 billion market cap.

Investment Thesis: Buy Both Stocks for Cross-Channel Growth

This partnership is a win-win with asymmetric upside:
- Potbelly (PBPB): Shares trade at 22x 2025E EPS, but margin expansion and loyalty-driven sales could lift valuation to 25x. A 10% sales boost from snacks could add $0.20 to EPS.
- Utz (UTZ): At 9x EV/EBITDA, it's undervalued relative to snack peers (average 12x). The Zapp's-Potbelly tie-up could narrow this gap.

Risk Considerations

• Consumer Tastes: If the spicy snack trend slows, both companies could face inventory overhang.
• Execution Risk: Potbelly's franchisees must actively promote Zapp's, which requires coordination.

Final Call: A Spicy Opportunity

Investors should take a position in both PBPB and UTZ. The collaboration taps into a proven growth trend, leverages underutilized assets (Potbelly's real estate and Utz's production capacity), and offers margin upside with minimal risk. With PBPB's Q2 2025 earnings expected to reflect early Zapp's sales traction and UTZ's balance sheet allowing aggressive marketing, now is the time to act.

Recommendation: Overweight both stocks. Target price for PBPB: $25–$28 (current $22); UTZ: $18–$20 (current $15).

This article highlights a partnership that's more than just a snack deal—it's a blueprint for cross-channel growth in a booming sector. Investors who act now could reap the rewards as the heat rises.