Baking & Snack - September 2014 - 12

Flowers reflects on cake market
After old Hostess Brands in November 2012
abruptly halted operations and shipments of all
its products, including Twinkies and Hostess
Cupcakes, Thomasville, GA-based Flowers
Foods stepped into the void and rapidly raised
its share of the snack cake market by 50% over
the course of a only few months. When an investment group purchased the Hostess snack
cake assets and resumed shipments in July 2013, Flowers was
optimistic it would "weather the reintroduction very well."
Less than a year later, though, most of the Flowers market
share gains have been lost.
During an August conference call on the company's second
quarter results, Steve Kinsey, Flowers' executive vice-president
and CFO, noted Flowers cake sales overall were down 12%,
including a drop of about 11% in the company's direct-storedelivery (DSD) business and 13% in warehouse business.
Allen Shiver, Flowers' president and CEO, attributed weak
snack cake sales to "Hostess Cake and their growing penetration in the market."
At the time of the reintroduction of Hostess cakes, following an absence of about eight months, Mr. Shiver was hopeful
Flowers' would retain a large part of the business captured by
Tastykake and Mrs. Freshley's.
Net-net, Flowers is still ahead, even after the tough second

quarter, Mr. Shiver said. "As a reminder, our market share of the
cake category increased from 5.7 to 8.6% when Hostess exited the
market," he noted. "Although we have maintained a good portion
of our cake sales, in the second quarter, we felt a stronger impact
from Hostess cake as they increased distribution with several key
customers. While our sales are under pressure due to the return
of Hostess cake, it is important to note that our share of the cake
category is still 6.7%, up a full point from 2012.
"This competitive pressure does not change our enthusiasm for the cake business," he continued. "Since we acquired
Tastykake in 2011, our cake sales have increased significantly.
Tastykake retail sales are annualizing at $460 million, up $35
million from last year. Our strategy is solid. We will grow our
Tastykake brand as we leverage the distribution strength of our
DSD route structure by offering outstanding customer service
and exceptional product quality."
- Josh Sosland, Milling & Baking News

Shiver: Displays, distribution propel Hostess cakes
Effective merchandising and broader distribution, rather than
aggressive price discounting, have been keys to the revival of
Hostess snack cakes after the brand's near-death experience in
2012-13, said an executive at a major Hostess competitor.
Allen Shiver, president and CEO of Flowers Foods,
Thomasville, GA, was asked repeatedly about the Hostess
Brands LLC business during a conference call with Wall Street
analysts in August.
"The cake category is very much an impulse-driven category," Mr. Shiver said in response to one query. "And with the
news of Hostess' reintroduction to the marketplace, they have
done a good job getting off-rack displays. And most of the cake
is sold on off-rack displays, certainly the incremental cake. And
in most supermarkets there is only going to be one, possibly
two, off-rack displays of cake.
"So with the Hostess reintroduction, our Tastykake brand,
and also our Mrs. Freshley's brand, was really not included
on display as often as we would have liked," he added. "From
a pricing standpoint, there really is not a pricing problem in
the cake category. It is really a function of the news of Hostess'
12 Baking & Snack September 2014 / www.bakingandsnack.com

reintroduction to the marketplace and how that affects displays
and presence in the supermarkets."
Mr. Shiver said Flowers is "working very hard to regain" the
off-rack displays and predicted the Flowers direct-store-distribution (DSD) model will prove to be a meaningful competitive advantage vs. the warehouse delivery system employed at Hostess.
"We are very confident," he said. "Our independent distributors ... are excited about selling the Tastykake brand. We've got
several new items that we continue to introduce - new items
under Tastykake to keep the brand alive and well."
Asked whether, with the benefit of hindsight, Flowers should
have bid on the Hostess snack cake brand in addition to the
Hostess bread assets, Mr. Shiver said he has "no regrets."
"Our focus is building our Tastykake brand," he said.
"Monday morning quarterback, you can look back [and ask],
'Would it have been a good move to buy Hostess Cake?' I'm very
comfortable with the decision that we made, and long term, our
DSD structure will help us build Tastykake into a very strong
national brand. So looking back on it - no regrets here."
- Josh Sosland, Milling & Baking News

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Baking & Snack - September 2014

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