Milling & Baking News - December 23, 2014 - 24

Sweet Goods Update

Hostess puts industry
back on the hot seat
Sweet goods maker's recent success signals another shift in the segment

ostess is back, and the sweet
goods industry is feeling the impact.
In the 18 months since Apollo Global
Management L.L.C. and Metropoulos &
Co. purchased selected Hostess assets
out of bankruptcy the sweet goods industry has been turned on its head ...
twice, in fact.
Initially, the departure of such iconic
brands as Twinkies, Cup Cakes, HoHos
and Ding Dongs from store shelves back
in early 2013 provided an opening for
McKee Foods Corp., Flowers Foods, Inc.,
Bimbo Bakeries USA and other sweet
goods manufacturers to fill the void.
The companies responded, with Flowers
ramping up production of its Tastykake
and Mrs. Freshley's
brands, and Bimbo
Bakeries introducing
snack cakes under the
Sara Lee brand.
The efforts paid off
throughout much of
2013. In the 52 weeks
ended Nov. 3, 2013,
dollar sales at McKee
Foods Corp., the Collegedale, Tenn.based maker of Little Debbie snack cakes,
were up 26% over the prior year, while
Tasty Baking Co. sales were up 31% and
Bimbo Bakeries sales increased 20%, according to Information Resources, Inc., a
Chicago-based market research firm.
Hostess, meanwhile, saw sales fall to
$173,843,700 in the period, down 75%
from the same period a year earlier. The
company not only battled to regain market share, it also worked at a breakneck
pace to do so while implementing a new
warehouse distribution strategy geared
toward expanding the brand's reach
through more channels than ever before.
In late November 2013, Dollar General
Corp., which operates more than 11,000
stores in 40 states, concluded the roll-out
of five Hostess products. Then, in February 2014, Big Lots, North America's
largest broad line closeout retailer operating 1,526 stores in the United States
and 5 stores in Canada, signed on to be
the official "thrift store outlet" for Hostess Brands, L.L.C. The moves were important to the brand's reintroduction to
the market after Hostess had closed its

24 / December 23, 2014

Milling & Baking News

600 Hostess brand thrift store outlets as
part of the 2012 bankruptcy of the former
Hostess Brands, Inc.
With Hostess fully engaged in the marketplace, power in the sweet goods category once again has shifted.
In the 52 weeks ended Nov. 30, 2014,
dollar sales in the bakery snacks category
totaled $2,993,609,728, up 12% from the
same period a year ago, according to I.R.I.
Category leader McKee Foods saw dollar
sales inch up less than 1% during the period, while Tasty Baking sustained a loss
of 4%, Bimbo Bakeries fell 2% and private
label declined 3%.
Meanwhile, Hostess Brands' dollar
sales soared to $544,547,264 in the 52
weeks ended Nov. 30, 2014, and the company quickly regained
an 18% share of the
bakery snacks category, according to I.R.I.
New management
at Hostess has looked
beyond the brand's
traditional distribution outlets to spur the
growth. In addition to
Dollar General and Big Lots, Hostess in
October said it would sharpen its focus
on its convenience store offerings, rolling out eight new single-serve breakfast
items. The items will be sold in individual
single-serve packs for a suggested retail
price of $1.79 nationwide at convenience
stores, grocery, drug, dollar and mass retail outlets starting in January 2015.
Over the past 18 months, executives at
the major sweet goods companies have
said all along that Hostess is a formidable
brand and would likely recover, although
even they may not have expected it to
happen this quickly. The rebound has led
some to reflect on their own situation in
the segment.
Following a third quarter in which the
company's cake sales were down 8.3%,
Allen L. Shiver, president and chief executive officer of Thomasville, Ga.-based
Flowers, maintained an optimistic view
of the category for the company. In a Nov.
12 conference call with analysts he identified a number of paths toward growth for
Flowers in cake.
"We continue to invest in improved
packaging," Mr. Shiver said. "We're

developing new items. We're very bullish
on growing our cake business over the
long haul. There are areas of the United
States where we do not have D.S.D. distribution that offer opportunities for expanding our cake business."
Additionally, Mr. Shiver said the company already has seen evidence that
Flowers' D.S.D. network offers competitive advantages producing results.
"Single-serve Tastykakes are doing
exceptionally well," he said. "It really
works well with our independent distributor model, because in many cases there
are incremental sales that can certainly
help their business as well as ours."
McKee Foods' confidence in the category may be seen through its expansion efforts. In October, the company said it will
invest $34 million to expand production at
its manufacturing facility in Stuarts Draft,
Va. McKee last expanded the Stuarts Draft
plant in August 2012 when it announced
an investment of $19 million to add equipment to produce the company's minidonuts. The plant also
makes a variety of Little
Debbie products.
McKee also is on the
same page as Hostess
in targeting convenience stores.
The company recently introduced
single-serve premium
muffins
under the Little
Debbie brand. The
company said the product is designed
specifically for convenience-store shoppers seeking an "on-the-go snack."
After launching snack cakes under the
Sara Lee brand in 2013, Grupo Bimbo is
tackling another project through its Canada
Bread Co., Ltd., subsidiary. The company
on Dec. 18 announced it has agreed to acquire Saputo Bakery Inc., a subsidiary of
Saputo Inc., for C$120 million ($103 million) (See related story on Page 10.) Saputo
Bakery is the largest manufacturer of snack
cakes in Canada and also sells, on a small
scale, in the United States. Its products are
sold almost exclusively in the retail market
under such brands as Vachon, Jos Louis, Ah
Caramel, Passion Flakie and May West. MBN
- Eric Schroeder
bakingbusiness.com / world-grain.com

http://www.bakingbusiness.com http://www.world-grain.com

Milling & Baking News - December 23, 2014

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