Seban sees Hostess, candy competing toe-to-toe

by Eric Schroeder
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KANSAS CITY — A move to warehouse distribution and away from direct-store-delivery will allow Hostess Brands, L.L.C. to compete toe-to-toe in the market for snack treats, said Richard C. Seban, president. In a July 9 interview with Milling & Baking News, Mr. Seban said Hostess is primed to win back its spot on familiar — and new — shelves this summer.

The new distribution approach was one of several significant changes Mr. Seban said will help restore luster to a brand and business diminished by struggles dating back many years. Retail sales of Hostess products are set to resume July 15 following a hiatus dating back nearly eight months.

As part of its acquisition of the Hostess snack cakes business, private equity firm Metropoulos & Co. and Apollo Global Management L.L.C. netted five plants, and Hostess has poured $30 million into four of these over the past few months. The plants are located at Columbus, Ga.; Schiller Park, Ill.; Indianapolis; and Emporia, Kas. A fifth plant in Los Angeles has not been reopened.

“The (four) plants structurally were among the better plants Hostess operated before for cakes, so the plants were structurally in reasonably good shape, but they did need some upgrades, and we spent about $30 million in opening these four bakeries,” Mr. Seban said. “We did invest in upgrading various systems and processes as well as putting in new equipment. Over the next year, we’re putting another $70 million in, primarily in capital equipment.”

Additionally, Mr. Seban said Hostess is looking at opening a fifth facility that he said will be “more modern, state-of-the-art, and be located in an optimal area for both distribution and logistics.” He declined to specify where the plant will be located.

Another significant change for Hostess is a shift in its distribution system, from one based on direct-store delivery to one geared toward delivery to warehouses.

“In a D.S.D. system, each stop has to generate a certain amount of revenue to generate profit because we have our own driver in a D.S.D. system stopping,” Mr. Seban said in explaining the differences between the two systems for Hostess. “So if the stops were too small, and we couldn’t service them on a D.S.D. route because they didn’t do enough volume, then we couldn’t service them. For example, there are 150,000 c-stores in the U.S. In November, we were calling on about 50,000 of them, or about a third. Now, because we’re going through a warehouse direct system, we can use independent distributors … to go after literally everywhere that candy bars are sold. … We feel we now have the ability to sell wherever candy sells, and that opens up an additional 100,000 plus operating units for us.”

Mr. Seban said the biggest challenge in moving to warehouse delivery was making the transition to a SAP system.

“When you’re doing D.S.D. your people fill out the order,” he said. “We now have to accept orders from customers. So it really required us to completely reconfigure our infrastructure. But, given the time we had to get our plants started we’ve been able to rebuild that infrastructure with the help of Acosta, our sales agent. They have been instrumental in getting us up to speed and offsetting some of the things we couldn’t do quickly enough to get our infrastructure in shape. They’ve been able to support us in that way. So the warehouse direct system looks like there is an awful lot of upside for us.”

The full interview of Mr. Seban will be published in the July 23 issue of Milling & Baking News.

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READER COMMENTS (6)

By Cicero 7/12/2013 4:38:38 PM
Just came back from my local store where they have dropped a pallet of twinkies and cupcakes in the store. The Julian date was coded 169 (June 18) and the sell by date is August 22. That is a self life of 65 days, not the 45 days Hostess have been stating. How long before a 6 year old child eats one on these cakes tainted with mold spores and becomes sick. What we know about Hostess now is it's really about profit for the CEO and not about serving a fresh product. Also shame of the stores selling this old, not fresh product and putting their customer's health at risk.

By Tobias Maximus 7/12/2013 3:38:05 PM
To expand on what has been said below, it has been shown time and again, that products with relatively short codes (bread, cakes) must be delivered in a route-system as opposed to direct delivery. Route operators are more invested in their product, pay attention to product rotation and ordering properly, and are able to react more quickly to changing sales conditions/promotions, etc. Direct shipment has been tried time and time again with bread and snack cake products - it simply does not work. The crappy store employees, who are overworked and unmotivated, have a zillion products to deal with all over the store. They will misrotate, over-order, under-order, etc etc Everything will be great at first - sales will explode for three months, the stores will order tons of product and it will move like crazy. Then, when the slowdown happens and pallets of it are getting older and older and never making it out to the floor, the problems will start. As stated in a previous comment, does the store get credit for unsold stale product? It's hard for me to believe that Walmart or Kroger or whomever would agree to take this as one-way business and "eat" the stale losses. In a year, we in the industry will be hearing about significant problems in these areas

By Mike 7/11/2013 12:39:23 AM
Apart from everything else that is misleading,what's forgotten is that it was the Hostess Execs that demanded that we stop delivering to the C stores because according to them they weren't profitable. Now they want them!

By LOUIE 7/10/2013 10:50:43 PM
Columbus Ga, not ohio

By Dave Walker 7/10/2013 6:57:16 PM
Any coded product will not be drop shipped to anyone by anyone. The issue involves credit for expired/damaged products. Seban has his head so far up his ass,he'll never get it out. This system has been tried and failed on numerous occasions. And yes,by Hostess Brands.

By steve d 7/10/2013 2:57:09 PM
I for one will not buy a twinkie with a 45 day code.so much for being fresh all they care about is making a dollar for ceo.