Wednesday, July 10, 2013

Sizing Up The New Hostess

While it may be scientifically impossible for a Twinkie to actually go stale, among consumers, they absolutely have.  Consequently, this led to Hostess' second Chapter 11 bankruptcy in December and subsequent liquidation earlier this year.    

This Monday, the Twinkie makes its triumphant return to stores under the ownership of Metropoulos & Co. and Apollo Global Management.  The private-equity firms paid $410 million for the right to resurrect iconic brands like Twinkies, CupCakes, Ho Hos, Ding Dongs, Zingers, Suzy Qs and Sno Balls.

Although the new owners have the distinct advantage of being freed up from $1.3 billion of debt and the highly restrictive union contracts of previous owners, it's vital to consider the health of the baked goods category that they'll be entering.  Debt and unions weren't the only culprits in its past failures.   

The consumer trend toward healthier eating has been a giant hurdle for the marketer's of baked goods.  But some bakeries are booming.  Under the current market conditions, the growth of the baked goods category is coming from more decadent, premium-priced treats; not the mass market that Twinkies, Ho Hos and Ding Dongs serve.

I suspect that the Hostess' owners know this.  When asked about innovating with healthier ingredients like whole grains and sugar substitutes, Hostess' new owner C. Dean Metropoulos confirmed "those are the categories we're exploring." 

However, I have my doubts that his private-equity firm is developing new brands, which they will need for the healthier snack category, because in that arena, wide-spread distribution and an 83-year-old brand like Twinkie is actually less of an asset and more of a liability.

As always, thanks for reading and for sharing.  

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