Baking & Snack - February 2016 - 46

HOSTESS BRANDS

A tailwind helping Hostess in its ambitions is overall
annual growth of 3 to 4% in the $6 billion snack cake category, an impressive figure considering the lackluster performance these days for most center-of-store products.
"It's good growth in an industry that's very flat -
which is usually a marketer's way of saying it's really
down," Mr. Toler said. "This is an exciting category. And
it's good margin for the retailers. It's fun for the consumers. It's highly impulsive. Display drives a lot of growth
and upsell, which is why we spend so much time and effort on driving display."
What went into the "blocking and tackling" to return
Hostess snack cakes to the market was nothing shy of
extraordinary, Mr. Toler said.
The story began in November 2012 when Hostess
Brands Inc., years into a protracted labor battle and serious financial woes, abruptly ceased operations in bank-

Socializing B2B
In the baking industry, when someone
mentions social media, the first thought
is that it's a consumer marketing vehicle. But as the digital age continues to
advance, more companies are finding use
for business-to-business social media, as
well as business-to-consumer.
"We are active on all the social media
channels, and we get great feedback from
both consumers and our own buyers who
say they like our social strategy," said Bill
Toler, president and CEO, Hostess Brands,
LLC. While the company uses social
media as a way to tap into consumers'
emotional connection to its brands such
as Twinkies and CupCakes, it has also become a vehicle for its customers to keep
tabs on what's new.
Social media has become an easy way
for retailers across the country to gain
an understanding of how bakers, snack
manufacturers and a host of other food
producers are managing their brand and
image to consumers.
"We get direct feedback from two of
our largest customers, one c-store and
one big retailer, in the Southwest region,"
Mr. Toler noted. "They follow all the big
manufacturers almost daily to see what
their putting out. They want to see how
we are investing our brand and supporting growth in their stores," he added.

46 Baking & Snack February 2016 / www.bakingandsnack.com

ruptcy. Five months later, HB Holdings LLC, an affiliate
of private equity groups Metropoulos & Co. and Apollo
Global Management LLC, paid $410 million for the
Hostess snack cake business. Hostess products already
had been off the shelves for five months at that point.
While the Wonder bread and other components of the
Hostess business were absorbed into existing companies,
HB Holdings relaunched the snack cake business as a
stand-alone company. The architect of the comeback was
Mr. Metropoulos, who brought considerable turnaround
experience to the task. Still, Mr. Toler said Hostess represented a fundamentally different kind of challenge.
"I have been involved in a handful of companies that
have restructured themselves," Mr. Toler said. "Most of
them were Chapter 11, sort of 'balance sheet restructuring.' This was a very different scenario where the products went off the shelf for a 9-month period. It's a restart.
"When Dean first got here, we didn't have a customer,"
he continued. "We didn't have a product on the shelf. We
didn't really have a consumer even eating a Twinkie. It's a
bigger challenge when you have to recreate a distribution
system, open up plants that had been totally idle and invest
in the technology and equipment to make that happen."
The new Hostess required the resurrection of four
baking plants (one that has since been shuttered) and
more than $200 million in capital investments, including
two new lines installed at the Emporia, KS facility (see
"Technology Transplant" on Page 50).
The effort paid off.
"I wouldn't recommend as a business strategy taking your product off the shelf to see if the category goes
down, but since Hostess went through it, we learned we
are the category driver," Mr. Toler said.
After breathing life back into the business through
people, processes and technology, Hostess has been set
on infiltrating every retail outlet from Wal-Mart to cstores. "We've essentially employed a model where we
want to be sold everywhere a candy bar is sold," Mr.
Toler said. "If there's a Snickers or Hershey bar there, we
want to be right beside it."

The new model
Among the more radical decisions made by the new
owners was the adoption of a warehouse delivery model
replacing the direct-store-delivery (DSD) system that
had been intrinsic to Hostess for decades.
In this respect, Hostess is pioneering a new standard for getting fresh baked foods into retail outlets.
The company's warehouse model is enabling large-scale
growth, in many ways by going small. "Our biggest
channel is grocery, but our strongest channels are c-store
and drug, in terms of market share," Mr. Toler explained.
"The smaller format is our strongest business."

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Baking & Snack - February 2016

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