Rabobank finds lasting lessons in Twinkie revival

by Jeff Gelski
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NEW YORK — People talk about a Twinkie’s shelf life, and apparently the brand name has lasting power, too. The food industry may draw four lessons from the anticipated July 15 return of Twinkies, which have been off retail shelves for months, according to a report “The Return of the Twinkie; Naughty but Nice?” released July 10 by Rabobank.

“We are constantly being told that consumer trends are dominated by the pursuit of all things natural and organic, and that consumers prefer fresh to packaged foods, and natural ingredients to artificial ones,” the report said. “What then to make of the eagerly anticipated return of the Twinkies snack cake, that American classic and über-processed food, to supermarket and convenience store shelves this summer?

“We draw four lessons that also extend to the market beyond the Twinkie itself — let’s call them Twinkie Takeaways — to snack upon.”

The first lesson involves the power of an iconic brand and a loyal customer base. The previous owners (Hostess Brands, Inc.) of Twinkies had leading market share in packaged snack cakes with sales over $600 million. Consumers stocked up with Twinkies when that company shut down production last November, and one Facebook page had more than 260,000 “Likes.”

For the second lesson, manufacturers of Twinkies and other snack cakes generally have avoided pretending they were healthy, which is fine with many consumers who want an occasional treat. Twinkies remain an indulgence with no conflicting information about being healthy.

Lesson No. 3 issues a warning that recipe re-engineering may do more harm than good. No major Twinkie tinkering took place during such consumer phases as low-carbohydrate, low-fat and high-protein.

“In short, a gluten-free Little Debbie, a high-fiber Tastykake, a cupcake containing chia or similar attempts to ‘healthify’ indulgence is not the route to go,” the report said.

Fourth and finally, makers of Twinkies and other snack cakes might grow profits in the future through distribution strategy, product size experimentation and alternative retail channel exploration.

The report cites Flowers Foods, Inc., Thomasville, Ga., buying the Tastykake brand in 2011 and increasing net retail sales to a projected $275 million in 2013 from about $170 million two years earlier. Flowers succeeded by taking the brand nationwide and recognizing the need to avoid an umbrella brand, according to Rabobank. While Tastykake is an indulgence brand, Flowers has a healthier brand in Nature’s Own.

While Twinkies was and remains a national brand, a direct-store-delivery operation previously constrained it, said Nicholas Fereday, vice-president, global senior analyst, Food & Agribusiness Research and Advisory for Rabobank International and based in New York.

Snack cake makers, for another growth idea, may look to the candy industry and companies that introduced items in wrapper-free, bite-size cubes, often in re-sealable pouches. Miniaturization and portion control may work well for the snack cake market.

“The candy example is really about ubiquity and impulse buys,” Mr. Fereday said. “As we say, Twinkies play well to miniaturization, not least because the portion is already relatively small. We don’t explicitly suggest smaller Twinkies, but clearly that’s an interesting option.”

Alternative retail channels may include discount stores such as Aldi and Grocery Outlet, dollar stores such as Dollar General and Dollar Tree, drug stores, and on-line retailers. The long shelf life of the Twinkie may make it a fit for such outlets.

Hostess Brands, Inc. quit making Twinkies last November when the company suspended bakery operations at all its plants. HB Holdings L.L.C., an affiliate of private equity groups Apollo Global Management L.L.C. and Metropoulos & Co., eventually bought the Hostess and Dolly Madison snack cake businesses, including the Twinkies brand.

Hostess Brands, L.L.C., a new company and employer under new ownership, is set to re-launch Twinkies and other snack cakes.

The track record of the new owners bodes well for the future of Twinkies, according to the Rabobank report. Metropoulos has more than two decades of experience in turning around iconic food and beverage brands, including Pabst Blue Ribbon, Chef Boyardee, Vlasic pickles, Pinnacle Foods Group, L.L.C., Morningstar and Ghirardelli Chocolate. Apollo has more than $113 billion in assets under management, including Sprouts Farmers Market, Ralphs, GNC and CKE Restaurants.

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