With inflation and the threat of a recession looming, Hostess Brands is situated to withstand tough times as consumers flock to its portfolio of indulgent treats.
While some brands are struggling as shoppers cut back on spending or watch as consumers trade down to less expensive private-label offerings, CEO Andy Callahan said the past has shown that people aren’t as willing to give up on affordable treats and often look for ways to reward themselves.
“We’re well positioned as a value product, and history has shown that we hold up well and also better than most during difficult economic times,” said Callahan, who noted the company’s iconic Twinkie was launched during the Great Depression as an affordable snack.
Hostess Brands’ Twinkies and Donettes, among other products, also have similar pricing at different locations, from dollar stores to higher-end grocers, giving the products mass appeal regardless of where consumers shop or their income level.
Hostess Brands has differentiated itself in the CPG space by focusing exclusively on snacking, making the company a major beneficiary as consumers have shown a propensity to snack more.
The CPG is among the fastest-growing companies in the snacking space, with revenue and earnings growth outpacing its competitors. Hostess Brands also has posted 12 consecutive quarters with net revenue growth of at least 9%, and its Hostess line has increased its market share in sweet baked goods to 21.2%
Hostess Brands is dependent heavily on two brands for 93% of its revenue, its namesake offering and its fast-growing Voortman line, a manufacturer of premium, branded sugar-free and specialty cookies and wafers purchased in 2020 for $320 million.
Callahan said the ability to focus its resources, rather than spread out its time and dollars across multiple brands — as is common at a large CPG — allows the company to be more nimble and hyper-focused. “We’re able to be really agile trying to unlock the greatest potential,” he said.
Bigger isn’t necessarily better
Still, Hostess Brands remains on the lookout for other products it could add to the fold, though Callahan stressed he’s taking a “disciplined” approach when it comes to deal-making.
He’s less concerned about the product — Callahan would even consider acquiring a savory product that ventures away from the food maker’s largely sweet-focused portfolio — as long as it could be incorporated seamlessly into Hostess Brands’ distribution network. The new brand also needs to have room to grow and the ability to benefit from his company’s expertise and experience.
“Our No. 1 priority is our core business, but we have ample firepower to be able to buy the right asset,” Callahan said. “We don’t put a timeline on that. We feel so good about our organic business to create value that we don’t have to feel like we have a timeline. I don’t have to fill a hole to transform my portfolio.”
Despite its success, Hostess Brands executives say the company has room to improve.
While more than 90% of people recognize the brand, fewer than 40% say it’s top of mind when they’re asked to name a snack, the company said. To raise brand awareness, the company is stepping up its marketing and innovation efforts.
Hostess Brands has poured big money to promote its two most recent launches, including spending more than a million dollars each for its new Kazbars, a candy-bar-inspired innovation, and the 2022 debut of Bouncers, tiny versions of Twinkies, Ding Dongs and Donettes.
The Kansas-based snack company also has targeted the fastest-growing snacking occasions — morning sweets, lunchbox, afternoon reward, immediate consumption and afternoon sharing — that it values at more than $65 billion.
This week it rolled out Hostess Donettes Old Fashioned mini donuts and Hostess Chocolate Drizzle Baby Bundts aimed at breakfast. Kazbars, meanwhile, is targeted as an afternoon treat, such as for children returning home from school, drivers stopping for gas at a convenience store or people at work who feel they’ve earned a break. Hostess Brands designed Bouncers primarily for lunch boxes and after-school treats at home.
“We’re not the biggest [food CPG company]. We’re not the smallest, but we’re pretty good scale size to be able to grow at the pace that we’ve historically been able to grow,” Callahan said. “It’s so important for us to be focused on our portfolio transformation.”