How Twinkies could survive even if Hostess doesn't
For those panicked consumers considering a Twinkie bake set on eBay for some extortionate price, a word of caution.
No matter the outcome of the mediation session between Hostess Brands and the Baker, Confectionary, Tobacco Workers and Grain Millers International Union, Twinkies, Ho Hos, and Sno Balls may yet return to grocery store shelves.
Since Hostess announced last week that it planned to file for Chapter 11 bankruptcy – saying a two-week strike by the bakery union caused irreparable financial damage – a rush for its iconic sugary snacks has hit supermarkets and convenience stores across the country.
Yet that very outpouring of gastronomical grief could be a saving grace. Even though Hostess sales are not as robust as they were in the past, the products still possess strong cultural value – and many companies are apparently eager to purchase Hostess assets if the company continues with its motion to file for bankruptcy Wednesday.
“There is a consumer reaction that comes viscerally when you get rid of an iconic brand," says Susan Fournier, a professor of marketing and an authority on brand research at Boston University School of Management. "That’s just the evidence these brands have resonance, they have meaning, they have value, and [consumers] are going to miss them.”
Top of the suitor list is C. Dean Metropoulos and Co., a private-equity firm based in Greenwich, Conn., that specializes in purchasing heritage brands, such as Pabst Blue Ribbon beer, Bumble Bee Tuna, Chef Boyardee pasta, and PAM cooking spray and rebooting them.
“Our family would love to purchase these iconic brands. We are actively pursuing this deal," says Daren Metropoulos, a company executive told Bloomberg this week. "We have analyzed this opportunity very carefully for a few years now. Shedding the complications of the unions and old plants makes it even more attractive.”
Other companies showing interest would likely share similar supply chains and distribution networks: Flower Foods of Thomasville, Ga., which makes Nature’s Own bread and Tastykake snacks; McKee Foods of Chattanooga, Tenn., maker of Little Debbie snacks; and Weston Foods of Toronto, maker of Wonder Bread and supplier of Girl Scout cookies for the US market.
Most valuable to any Hostess buyer are the company’s intellectual property rights, which would allow the manufacture and sale of certain flagship Hostess products, says Sam Stricklin, a partner in the financial restructuring group at Bracewell & Giuliani in Dallas.
“If the buyer already has a confectionary plant, it would not necessarily need to buy the existing plants" operated by Hostess, Mr. Stricklin says. "That would leave the [former Hostess] employees completely out in the cold because you’d be shifting work for producing that product to a completely new plant.”
Buyers would not necessarily be required to buy all the brands Hostess produces but could be allowed to “potentially bid on individual product lines,” which Stricklin says could mean a divvying up of Hostess brands across several companies.
In court filings, the bakery union criticized Hostess for failing to invest in product development, advertising, and marketing that would have made Hostess products more culturally relevant in the marketplace. That job could fall to a potential buyer, who needs to understand the value of the brands, what it will take to refresh each one to a new generation of buyers, and how to accomplish that using new forms of digital media, says Ms. Fournier.
“These are iconic brands that have an incredible connection with consumers, but the world has changed” since their heyday, she says. The buyer needs to be “a brand-driven, culturally savvy player,” she adds. “Because there’s a lot of work to do.”
