CHICAGO — In the $7 billion sweet baked goods market, Hostess Brands L.L.C. regained a leadership position and now drives the whole category forward, said Bill Toler, president and chief executive officer of the Kansas City-based company. “That’s our role,” he said in keynoting the opening session for the American Society of Baking’s annual meeting and BakingTech conference.
Following the November 2012 companywide shutdown, “The category dipped 6.1% in combined annual growth rate (CAGR), but today, it’s up 4.3%,” he said. “And there’s a lot of runway in front of us.”
When Metropoulus & Co. and Apollo Global Management acquired the Hostess assets, the management team quickly reordered the business.
“Even during the darkest days, Hostess never had a demand problem,” Mr. Toler said. In studying the company, they determined that the chief problem was the business model. “We knew there was a better way to do this,” he said.
By changing the model, the company could change the results. The old direct-store delivery (D.S.D.) approach that decentralized production and raised distribution costs was tossed out. The new model streamlined plant operations, did away with D.S.D. in favor of a central warehouse and allowed a “one order, one invoice” relationship with customers.
“This gives us a substantial cost advantage over the old model,” he observed. “Twinkies are made in one place, on one line at one spot and all shipped to the same warehouse location.” It’s the same for the company’s cupcakes, donuts, pies and other baked goods.
Market trends supported their efforts.
“Snacking trends are good, with almost twice the growth opportunity of other packaged goods,” Mr. Toler said. He quoted recent market statistics that reported 3.6% CAGR for snacks versus 2.1% for food products overall. “And this is a category described by my two favorite words, ‘expandable consumption.’ People make six to eight snack choices a day.”
To give his audience of bakery managers an idea of how different the Hostess Brands situation was, Mr. Toler described his previous work with company turnarounds.
“Three of these were balance sheet challenges where the company was still operating,” he said. “This one was totally from scratch. There were no operating bakeries, no employees, no customers. The degree of difficulty is exponentially harder than the rest.”
In April 2015, the company introduced Hostess bread, which carries a 65-day code, unprecedented among bakery products. Mr. Toler explained that customers, particularly smaller formats such as c-stores, asked for bread and buns to put on shelves along with the snack cakes they already offered. Hostess worked out an extended shelf-life formula with its ingredient suppliers and found production partners to bake the bread. It, too, is shipped to the company’s central warehouse for distribution.
“In the first six months, Hostess bread gained the No. 1 position in small format locations and earned a 16 share in six months,” Mr. Toler said. “Although the Hostess brand is new for bread, we had a number of buyers saying, ‘Oh, you’re bringing it back.’“We take seriously our responsibility to this 100-year-old icon,” he told the A.S.B. “Last fall, we passed the $1 billion mark in retail,” he said. “That’s an important mark, and we’re very proud to have achieved it.”