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<\/a><\/p>\nBusiness Model<\/u><\/p>\n
Hostess Brands is one of the largest wholesale bakers and distributors of snack cakes in the United States. The company\u2019s cake products sell under brand names such as Twinkies, Mini Muffins, Cup Cakes, Ding Dongs and Ho Hos. Hostess\u2019s roots in American manufacturing go back 150 years, and few brands have as high consumer awareness within the fresh baked sweet goods category.<\/p>\n
Hostess\u2019s key business mission is to sell indulgent snack products to the masses. While the healthy snack segment has received the most press and experienced the most growth in recent years, Hostess targets a very different market. Males aged 18-34, who crave flavor with little regard for nutrition, are the company\u2019s \u201csweet\u201d spot. And while \u201cyou wouldn\u2019t find Twinkies on Whole Foods\u2019 shelves\u2026Hostess had something you can\u2019t find in a locally sourced, chia\u2013seed snack \u2013 millions of nostalgic fans.\u201d<\/p>\n
New Operating Model<\/u><\/p>\n
In order to sell snack cakes post-bankruptcy, Hostess had to shed the burdensome cost structure that weighed the company down for years. As part of the purchase, Apollo and Metropoulos bought only five of the ~40 factories up for sale, believing that these five were strategically located and had sufficient capacity to produce a new Hostess cakes line with reduced SKUs. The owners then instituted several other key operational changes that allowed Hostess to re-launch as a profitable enterprise.<\/p>\n
Reduction of Union and Legacy Costs<\/u><\/em><\/p>\n Hostess\u2019s workforce was historically dominated by two unions: the Teamsters and the Bakery, Confectionery, Tobacco Workers and Grain Millers (BCT). The union structure at Hostess was atypically complex (350 separate CBAs), and the unionized workforce placed several burdens on operations. The unions were also wary of new snack formulations that might\u00a0increase shelf-life and profitability, given they also<\/em> might reduce working hours and re-stocking trips. Lastly, the unions had large pension obligations on the company\u2019s balance sheet.<\/p>\n When Apollo and Metropoulos acquired the Hostess bakeries out of bankruptcy, they did so without needing to also purchase the union cost structure. The company was able to shed all of its union obligations and fired all 18,000 members of the union workforce. Hostess then re-organized in a more lean, and un-unionized fashion, greatly reducing costs.<\/p>\n Changes in Distribution<\/u><\/em><\/p>\n Hostess had previously used a complex and inefficient product delivery system called the \u201cDirect Store Delivery Model,\u201d whereby the company used ~5,000 trucking routes and 5,000 Hostess owned trucks to deliver products directly to the thousands of stores that carried Hostess items. The cost of unionized truck drivers, capital costs and accountability from production\u00a0to delivery eliminated much of the profits of the business.<\/p>\n Instead of delivering Twinkies directly to stores, new Hostess implemented a \u201cHostess Direct Model,\u201d shipping products to customers\u2019 warehouses instead of individual stores. Through this new model, Hostess\u2019s five factories only had to deliver products to a few central locations around the country. Hostess also chose to outsource its transportation and logistics to a third party, further lowering the capital intensive nature of distribution. After switching to the warehouse delivery system, delivery costs dropped from 36% to 16% of sales.<\/p>\n Hostess also gained better access to its target market. The company believed that males age 18-34 were most likely to visit convenience stores for purchases. As it turned out, convenience stores were a major end market that used central warehouses for distribution. \u201cWhereas the company used to focus distribution mainly on grocery stores, where parents shop for items to put into school lunches, the company now plans to sell Twinkies through some 110,000 convenience stores, up from 50,000 under the previous owners.\u201d This allowed the company to better serve its key young male demographic.<\/p>\n Product Chemistry Changes<\/u><\/em><\/p>\n A common misconception is that Twinkies have an infinite shelf\u2013life. In fact, the average Twinkie could historically only sit on the shelf for 28 days. Given the switch to a warehouse model, the new company wanted to find a way to keep Twinkies at warehouses for longer periods of time before expiring. The company chose to invest heavily in R&D to extend the life of its products. \u201cMetropoulos spent millions on R&D, working with food lab Corbion to tweak the formula of starches, oils and gums in Twinkies, finally arriving at an acidity level that would prevent staleness and discoloration.\u201d<\/p>\n The result of the R&D was a Twinkie that could sit on the shelves for 65 days<\/strong> and be indistinguishable from current products. The reformulation allowed Hostess to store Twinkies longer and eliminate waste, thereby reducing costs even further.<\/p>\n Results<\/u><\/p>\n The turnaround was a huge success. Twinkies hit shelves again in July 2013, operating performance in 2014 exceeded expectations, and the company\u2019s owners put Hostess up for sale to take advantage of the positive momentum. In July 2015, the company rebuffed \u201coffers from other companies and private equity firms that valued it at between $2.4 billion and $2.5 billion<\/strong>,\u201d and instead issued a $900 million dividend to its owners. The company will likely IPO in the near-term at an even higher valuation. Based on the initial $410 million purchase price three years ago, it\u2019s clear that Hostess is a winner.<\/p>\n Sources<\/u><\/strong><\/p>\n http:\/\/www.forbes.com\/sites\/stevenbertoni\/2015\/04\/15\/twinkie-billion-dollar-comeback-hostess-metropoulos-apollo-jhawar\/4\/<\/p>\n http:\/\/business.time.com\/2013\/07\/15\/the-rebirth-of-twinkies-now-for-dudes-and-suddenly-everywhere\/<\/a><\/p>\n http:\/\/www.reuters.com\/article\/us-hostessbrands-ipo-idUSKCN0PH1AP20150707#dTEDLieEmZqvoBPp.97<\/p>\n http:\/\/teamsternation.blogspot.com\/2015\/08\/theres-nothing-sweet-about-hostesss.html<\/a><\/p>\n http:\/\/www.wsj.com\/articles\/no-wonder-twinkies-owner-adds-bread-1442482200<\/a><\/p>\n<\/a><\/p>\n<\/a><\/p>\n<\/a><\/p>\n<\/a><\/p>\n