Hostess exec foresees 2-4 years above-category growth

by Josh Sosland
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Hostess golden cupcakes
Upcoming innovations from Hostess include apple streusel coffee cake and golden Hostess cupcakes.

BOCA RATON, FLA. — After four years of rapid growth in the snack cake business, Hostess Brands, Inc. expects up to four more years of growth in excess of the category average, the company’s executive chairman said.

In a Feb. 21 presentation, C. Dean Metropoulos, executive chairman, reflected on the Hostess acquisition and prospects for growth longer term. He spoke at the Consumer Analyst Group of New York annual conference at the Boca Raton Resort and Club in Boca Raton.

Having been involved in 82 different acquisitions during his career (he established C. Dean Metropoulos & Co. in 1993), Mr. Metropoulos identified elements of the Hostess acquisition in 2013 that were easier than others and other elements that could hardly have been more difficult.

He noted his history with Hostess dates back to the time in the 1990s Hostess (Continental Baking Co. at the time) was owned by Ralston Purina Co. Intangibles have made acquiring and owning Hostess distinct, he said.

“This acquisition had such an emotional connection with the consumer,” he said. “I’ve never experienced anything like this. It made our jobs easier.”

At the other end of the spectrum, the company’s two Chapter 11 bankruptcies followed by a Chapter 7 bankruptcy in many ways gutted the company, Mr. Metropoulos said.

Hostess snack cakes and donuts
Hostess has the leading market share in the largest sweet goods segments, including 32% share in snack cake and 23% in donuts.

“The baking plants had been drained by years of a lot of cash flow” and the three bankruptcies, he said. Mr. Metropoulos said he was amazed by the lack of internal systems within the company when Metropoulos & Co. acquired the business.

“The company at the time had no visibility at all into the business,” Mr. Metropoulos said. He credited top pre-bankruptcy executives, including Richard C. Seban, former vice-chairman, and Rob Kissick, currently senior vice-president of purchasing, with crucial institutional knowledge to help return Hostess to solid ground.

Looking at avenues for growth longer term, Mr. Metropoulos noted that health and wellness were emphasized by previous CAGNY speakers as a growth key.

While identifying different adjustments the company is exploring to enhance its positioning through whole grains or cleaner labels, including partnering with Corbion North America, Mr. Metropoulos said there is more than one way to view health and wellness.

“Psychological health and enjoyment of an excellent product is just as important,” he said.

Hostess Superior Cake Products
Hostess acquired Superior Cake Products in June 2016.

For growth longer term, Mr. Metropoulos said the June 2016 acquisition of Superior Cake Products, Inc., Stockbridge, Mass., gives Hostess entry into the large and promising in-store baking market.

“We think that space has a lot of growth potential,” Mr. Metropoulos said. “We’re putting a lot of products into the category.”

William D. Toler, president and chief executive officer of Hostess, identified sweet good category opportunities for growth.

The company currently has the leading market share in the largest sweet goods segments, including 32% share in snack cakes and 23% in donuts. The two products account for about half of sweet good sales. In other product categories, though, the company has more modest share, including 11% in brownies, 10% in muffins and 9% in pies. Additionally, the company has a very small share of the cookies market.

Citing data from Information Resources, Inc., Mr. Toler said Hostess accounted for 100% of the growth in the snack cake category over the past year.

Touching on new product introductions, Mr. Toler said upcoming innovations include apple streusel coffee cake and golden Hostess cupcakes.

Hostess bread
Hostess now offers bread targeted at smaller retail outlets.

Asked during the question-and-answer portion of the presentation whether Hostess has been disadvantaged by being out of the bread business, Mr. Metropoulos reminded the analyst that Hostess does offer bread and that “it tastes great.”

“I was skeptical originally,” he said. With a successful strategy targeting smaller retail outlets, Mr. Metropoulos said, “We are selling to more c-store customers today than we were supplying with Old Co.”

Mr. Toler said the cake business enjoys numerous advantages versus bread, pointing out that Hostess bakes all its Twinkies on a single baking line. Bread by contrast requires a couple dozen plants around the country.

“It’s a completely different cap ex strategy in bread,” he said.  
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