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

toggle caption Courtesy of Tina Haupert

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.