BOSTON — Baby Bundts, Hostess Donettes caffeinated Boost and Bouncers stand out as new product success stories and shining examples of how insight is driving innovation at Hostess Brands, Inc.
Executives at the Kansas City-based snacks manufacturer discussed how the company’s customers are recognizing the power that Hostess brings from an innovation perspective to drive category growth at the Barclays Consumer Staples Conference held Sept. 8 in Boston.
“We’re starting to talk to our customers about a three-year innovation pipeline,” said Arist R. Mastorides, executive vice president and chief customer officer. “So not only what we’re doing today, but how we’re thinking about that over three years and really leveraging the (snacking) occasions … and those occasions also inform how we go to market in each of our channels. And all of that is supported with broad-based digital media, including with some of our retail partners. And that’s the power of this new Hostess that we’re talking about.”
Mr. Mastorides said Hostess’ strength of innovation is disproportionately amplified by the company’s ability and unique go-to-market capabilities. Specifically, he mentioned the company’s warehouse distribution model, which he said gives Hostess the ability to reach into every store in the channels it competes in.
“Our customers see that,” he said. “They’re expecting us to be in stock to help them drive their category and our growth. And candidly, that’s something that our DSD (direct-store delivery) partners just simply can’t do.”
Hostess also is driving innovation by leveraging data in its proprietary performance model.
“We’re using that data to collaborate with our retail partners, and we’re setting distribution and merchandising goals for the year and then leveraging that data to make sure that we stay on track and to reward our retail partners for that execution,” Mr. Mastorides said. “The other part that we’re doing with that data is dynamically sending our retail store team into the stores where we have the biggest opportunities. And that’s really working well for us. So we are accelerating our distribution. This year alone, we’ve closed over 100,000 distribution voids. And we’ve sold about 20% more of the single-serve display racks. And so while we have really broad-based distribution, we believe that we’re just getting started.”
The commitment Hostess has shown to the convenience store channel also has been instrumental in its growth. Andrew P. Callahan, president and chief executive officer, said Hostess never stopped investing in the convenience channel, even when things were extremely difficult during the early months of the COVID-19 pandemic.
“We never stopped investing in the consumer,” he said. “When capacity was really tight, we looked at it and said, how do we get more efficient versus how do we cut off our most strategic issues? We’re not stopping investing in advertising now. So a lot that we … kept doing, which is paying off now all in the mindset of profitable growth.”
Mr. Mastorides added that Hostess remains “very bullish” about the convenience store channel and about Hostess’ business within convenience stores.
“So we leverage some industry data and our own data,” he said. “And what we’re seeing in the c-store channel is that as gas prices came up, we did see transactions dip a little bit. But as gas prices have moderated, we’re also seeing those trips start to moderate again. And so I feel like from a trip perspective, we’re in a good shape in the c-store channel.
“I would also say that our category continues to perform really well. We’re up over 15% in the c-store channel. And that’s ahead of some of the other really big categories within c-store, including beverage. … We continue to invest in our business model. C-store has been one of those places where we’ve invested. Over the last four years, we’ve grown 5 points of share in the c-store channel behind some of those investments. And I’m very confident in what we’re doing and how we’re going to continue to drive growth in that channel going forward.”
Mr. Callahan also alluded to what he described as a “secret element” key to Hostess’ success in new product innovation: quality.
He said that part of the reason that Hostess moved to a warehouse distribution model and invested in data insight was to make sure that it not only is able to deliver products to consumers, but to deliver products that consumers really enjoy. Hostess has been able to deliver, he said, generating a repeat buy rate of greater than two times the category.“That repeat sale is really, really good to be twice,” he said. “That’s the math and we spend a lot of time investing in the drivers of liking, understanding, being able to do it at scale, testing it throughout the shelf life. And that’s part of the things that I’m really, really proud of. If you ever tasted our products or you thought about it before, our Baby Bundts products or our Twinkies, they are really, really good products.”