Back in the sweet spot

by Eric Schroeder
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What a year for sweet goods.

Last winter the industry may best have been described as “in transition,” as Irving, Texas-based Hostess Brands, Inc. ceased operations and serious questions surrounded what would happen to the company’s popular Twinkies, HoHos and other snack cakes.

As Hostess searched for a new owner, other major snack cakes makers such as McKee Foods Corp., Flowers Foods, Inc. and Bimbo Bakeries stepped up to fill the void. As a result, bakery snack dollar and unit sales for Hostess’ competitors surged over the past year.

In the 52 weeks ended Nov. 3, dollar sales for the overall bakery snacks segment totaled $2,656,114,000, down 4% from the same period a year ago, while unit sales fell 5% to 1,453,943,000, according to Information Resources, Inc., a Chicago-based market research firm. But the decline could almost solely be attributed to Hostess pulling product from store shelves. Hostess bakery snack sales plummeted 75% in the 52 weeks ended Nov. 3.

Meanwhile, dollar sales rose 26% for Collegedale, Tenn.-based McKee, 31% for Philadelphia-based Tasty Baking Co. (a wholly-owned subsidiary of Thomasville, Ga.-based Flowers Foods), and 20% for Horsham, Pa.-based Bimbo Bakeries. Private label bakery snacks also improved, increasing 10% over the past year.

Since early spring, things have once again begun to settle down in the snack cakes industry. Hostess Brands, L.L.C., a new company being funded by Apollo Global Management L.L.C. and Metropoulos & Co., purchased selected Hostess assets out of bankruptcy, including Twinkies, Cup Cakes, HoHos and Ding Dongs.

Six months after holding a ribbon cutting at its facility in Emporia, Kas., Hostess in early December said it will expand the plant (see related story on Page 9). In addition to plant expansions, Hostess has been actively seeking new avenues of distribution.

In late November, Dollar General Corp., which operates more than 11,000 stores in 40 states, concluded the roll-out of five Hostess products: 8-count CupCakes; 12-count Ding Dongs; 10-count Twinkies; 12-count Zingers; and 10.5-oz bags of Hostess Donettes Powdered Mini Donuts.

Rich Seban, president of Hostess Brands, L.L.C., Kansas City, said Hostess' new distribution strategy has allowed the company “to significantly expand our reach and distribute through more channels than ever before.”

In early November, Wayne, Ind.-based Aunt Millie’s Bakeries entered into a limited distribution agreement with Hostess that will allow Aunt Millie’s to sell Hostess snack cakes through its direct-store delivery route service to convenience stores.

Other Hostess snack cake assets were acquired by McKee Foods. In mid-September, McKee began the gradual reintroduction of several products under the Drake’s brand. Drake’s products include Ring Dings, Yodels, Devil Dogs, Yankee Doodles, Sunny Doodles and Drake’s Coffee Cake. McKee is making the Drake’s snack cakes at its facilities in Collegedale and Stuarts Draft, Va.

Despite offering several products under its Little Debbie brand that are similar to Drake’s snack cake offerings, Mike Gloekler, a spokesman for McKee, said the company does not plan to phase out any products at this time.

Although they may have been left out of the sweepstakes for the Hostess brands, Bimbo Bakeries USA and Flowers Foods both took action to grow their presence in the snack cakes category during the past year.

Bimbo Bakeries USA introduced a line of snack cakes under the Sara Lee brand during the first quarter of 2013. By introducing snack cakes under the Sara Lee brand, B.B.U. has taken a step Sara Lee Corp. did not during the 10 years it was a major player in the fresh baked foods business.

With the introduction of snack cakes under the Sara Lee brand, two different companies (Hillshire Brands Co.) are now selling what are broadly referred to as sweet goods under the Sara Lee brand.

For Flowers, the acquisition of Tasty Baking Co. back in 2011 continues to pay dividends, especially during the period of time Hostess was absent from the market.

“Since we acquired the Tastykake brand in 2011, we have increased sales significantly, almost doubling our cake sales,” said Allen Shiver, president of Flowers, during an Aug. 13 conference call with analysts. “Consumers across the South and Southwest and more recently, New England, are responding well to the Tastykake brand. We believe that direct-store delivery, or D.S.D., is the most effective distribution system for fresh snack cakes as it is for fresh bread and rolls. Tastykake is distributed throughout our D.S.D. system, which serves about three quarters of the U.S. population. Our distributors are in the stores daily and providing the best possible service to our customers.”

While realizing Hostess cakes may have a place in the market, Mr. Shiver said Flowers is confident that its cake business will weather the reintroduction.

Flowers’ confidence in the snack cake business extends to its Mrs. Freshley’s brand, which is Flowers warehouse distributed brand. Mr. Shiver said the brand so far is “holding up.”

“There are many of the qualities from a product assortment standpoint, customer relationships are helping to hold onto that business, but obviously as Hostess reintroduces, that is a direct competitor to our Mrs. Freshley’s business, and we are doing everything that we should be doing to hold onto the gains that we have generated,” he said. “But that business is important to us and we intend to hold onto it just like Tastykake.”
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