When Irving, Texas-based Hostess Brands, Inc. ceased operations in late November, perhaps no segment of the grain-based foods industry felt the impact more than the sweet goods category.
The company’s Twinkies, Zingers, Ding Dongs, Ho Hos and Sno Balls consistently have been among the top 20 — and in some cases top 10 — bakery snacks brands over the years. In the 52 weeks ended Nov. 4, Hostess Brands bakery snacks posted dollar sales of nearly $700 million, according to SymphonyIRI Group, a Chicago-based market research firm. That total gave Hostess a 26% share of the market, about 3 percentage points more than the No. 2 player, McKee Foods Corp., Collegedale, Tenn., which had sales of $628 million in the period.
But when Jewel-Osco, a Midwest food and pharmacy retailer, received what was believed to be the final shipment of Twinkies in the United States on Dec. 10, it signaled a shift in the sweet goods category. More than 20,000 boxes of Twinkies were sold at select Chicago-area Jewel-Osco stores on Dec. 11, and there is no indication of when consumers might again be able to find the products in the near term — unless they are willing to pay a premium for the products on eBay.com or amazon.com. Most of the products on eBay have a “best by” date in March or April 2013.
While the shutdown of Hostess has been extremely difficult for the company’s employees and customers, it has meant opportunity for the company’s competitors.
McKee Foods, the No. 2 sweet baked goods player, has been rumored as a potential buyer for certain Hostess assets, but in the meantime the company has experienced an uptick in demand for its products, which are marketed under the Little Debbie brand.
“Almost immediately, retailers began putting pressure on the independent distributors who sell Little Debbie products to help fill empty shelf space,” said Mike Gloekler, corporate communications and P.R. manager at McKee Foods. “We saw this not only in major grocery chains, but also regional grocery chains and convenience stores. In particular, we saw increased demand for those products that directly compete with certain Hostess varieties — Cloud Cakes to replace Twinkies, Cocoa Cremes to replace Ding Dongs, Swiss Rolls to replace Ho Hos, Mini Donuts to replace Donettes.”
The company also has experienced strong demand for its seasonal products, which include Christmas Tree Cakes, Christmas Tree Brownies and Santa Brownies, which are now in their second year.
In general, Mr. Gloekler described the sweet goods industry as being relatively flat or even a little down in terms of volume, but dollar sales have been up as the industry has been battling rising commodity prices.
“The loss of Hostess, which has been a fierce competitor even in bankruptcy, creates a vacuum in the market that remaining competitors will fight hard to get, especially in convenience stores,” Mr. Gloekler said. “There is, no doubt, opportunity to find new consumers who are looking for a suitable replacement for their favorite Hostess snacks.”
Those replacements may come from another company mentioned as a possible suitor for Hostess: Flowers Foods, Inc., Thomasville, Ga. Until a few years ago, Flowers’ sweet goods portfolio mostly was limited to Mrs. Freshley’s and Blue Bird, but in April 2011 the company acquired Philadelphia-based Tasty Baking Co., and the company has been ramping up its presence in the sweet goods segment ever since. In the 52 weeks ended Nov. 4, SymphonyIRI Group said bakery snacks dollar sales for Tasty Baking/Flowers Foods Bakeries totaled nearly $245 million.
Under Flowers’ ownership Tasty products have entered new markets, moving from a predominantly northeastern brand to a more national product.
“As we grow the awareness of the Tastykake brand in the South and the Southwest, we’re seeing the type of incremental sales that go with that, so it’s encouraging,” Allen Shiver, president of Flowers Foods, said in a Nov. 9 conference call with analysts. “It won’t happen overnight, but we are encouraged about the overall growth trend on Tastykake as we’ve expanded it across the country.”
Flowers also is leaning on new partnerships to help grow its sweet goods business. In October, Flowers partnered with The Hershey Co., Hershey, Pa., to offer Kandy Bar Kakes. The snack cakes are available in several varieties, including S’mores Kandy Bar Kake made with Hershey’s cocoa; Peanut Butter Kandy Bar Kake made with Reese’s peanut butter, and Peppermint Kandy Bar Kake made with York peppermint flavor.
Earlier in 2012, Flowers partnered with Cinnabon to offer new Mrs. Freshley’s cinnamon-flavored pastries. The cinnamon Danish, coffee cake and honey bun products are now made with Cinnabon cinnamon.
A smaller, but growing participant, in the sweet goods category is Minneapolis-based General Mills, Inc. The company’s dollar and unit sales in the bakery snacks category were up 150% and 153%, respectively, over the prior 52-week period, according to SymphonyIRI Group.
“We’re growing our sales and the category by innovating,” said Jon Nudi, president of the U.S. Snacks Division at General Mills, Inc. “In 2006 we launched the very successful Fiber One snack bar line and that unlocked a whole new level of market growth. In fiscal 2012 we further expanded the Fiber One line with the introduction of 90-calorie brownies. In one year, just two brownie flavors generated more than $100 million in retail sales.”