A reestablished leadership position in the sweet goods category leaves Hostess Brands, Inc., Kansas City, MO, ideally situated for further success.
Speaking at the ICR Conference 2017 in Orlando, FL, William Toler, president and CEO of Hostess, said the company’s highly profitable approach would be difficult for two of its larger competitors to emulate. The presentation was one of the first by Mr. Toler since Hostess shares began trading publicly in November 2016.
Explaining the success Hostess has achieved since the business was acquired in 2013, Mr. Toler distilled the strategy the company has pursued into three basic elements, beginning with the power of the Hostess brands.
“The brands at Hostess mean the emotional connection with the American consumer, really, which has driven the power and speed and rate of success,” he said.
Hostess has leveraged the value of its brands through a business model predicated on warehouse, rather than direct-store delivery (DSD) and extended shelf life.
“Our shelf life is 65 days from bake, and we guarantee 45 days to our customer,” Mr. Toler said. “So the first 20 days are us and the logistics team shipping it from our manufacturing plant to our distribution facility out to our customers, so it has the length of time to allow it to go through a warehouse model, something our competitive DSD products do not have.”
Mr. Toler and Tom Peterson, executive vice-president and CFO, offered considerable detail about how Hostess is positioned vs. other snack cake businesses.
“We sell at premium per pound versus our competitor,” Mr. Toler said. “That’s a great place to be because that drives growth. So it’s simple math. Little Debbie, which is actually the category share leader, with 28% to 29%, they are a value brand. It is fairly unique in US consumer products to have the value brand as the share leader, but in this category, we do. This is one of the reasons our premium nature drives growth, because people shift up to the premium price point product. For example, in c-stores, our products sell for $1.79 to $1.89. The retailer will make probably 75¢ on that sale. That 75¢ is the same as the sale price of the items for Little Debbie, so the penny profit category margin (margin per unit) is driven by the pricing structure we offer. We are a huge trade up for retailers. That’s part of the reason they love us.”
Continue reading to learn Hostess's recipe for success.