For Andy Callahan, CEO of Hostess Brands, the goal of transforming the century-old producer of Twinkies, Ding Dongs, and Donettes into “a snacking powerhouse” involves both envisioning the company’s future and reflecting on his own past. Nearly two decades ago, while overseeing the Kraft Singles cheese division, Callahan witnessed the challenges of maintaining a competitive edge. Kraft had long differentiated its brand by adding calcium, but this strategy lost its allure as extra calcium became commonplace in various products, including orange juice, bars, and pasta. As consumers found multiple avenues to acquire this essential mineral associated with healthy bones and teeth, Callahan recognized the need for change. However, he felt constrained by top executives who were reluctant to question the viability of their longstanding strategy. “I promised myself I would never let that happen again,” Callahan shared in an interview. “I believe in staying attuned to consumer needs and being bold and decisive in our product strategy.”
Today, at 56 years old, Callahan draws on his Kraft experience to navigate the transformation of Hostess, ensuring the company remains relevant amidst shifting consumer habits and fierce competition from well-funded rivals. Since he took the helm in May 2018, Callahan has focused on accelerating innovation, broadening consumption occasions throughout the day for Hostess’s beloved brands, and strengthening the company’s financial position to facilitate acquisitions that enhance its portfolio of cream-filled yellow cakes and chocolate-covered mini doughnuts. “We can’t dwell on the past. We’ve established innovation targets to remain relevant,” said Callahan, a former Naval flight officer. “Our brand enjoys high recognition and connection; that’s a powerful foundation to build on. Our brands signify something meaningful.”
Hostess’s history almost extinguished Callahan’s hopes of steering a viable company. A decade ago, Hostess teetered on the brink of collapse, having entered its second bankruptcy in eight years due to a complex labor structure, a vast network of delivery routes, and an unwieldy manufacturing system acquired through numerous mergers. In 2013, private equity firms bought the snack cake manufacturer out of liquidation, aiming to rebuild it into a leaner and more sustainable operation. With roots dating back to 1919, Hostess re-emerged as a public entity in 2016 and subsequently invested in staffing and analytics, streamlined its portfolio, and revitalized its innovation pipeline.
Fueled by its reorganization, rising consumer demand for snacks, and a lineup of brands like Ho Hos, Donettes, and the timeless Twinkie, Hostess has quickly distinguished itself in the food industry. Its snacks are now widely available in various retail formats, including club stores, dollar stores, mass merchandisers, and grocery outlets, the latter two accounting for over 70% of its dollar sales. The company has reported eight consecutive quarters of revenue growth exceeding 9% and increased its market share of sweet baked goods by over 4 percentage points during that same timeframe, now representing just over 20% of the category, according to Nielsen data. Hostess has also achieved a compound annual growth rate of 10% in recent years, surpassing its competitors’ 4% growth.
“We don’t have legacy portfolios holding back our growth, which gives us an undeniable edge over some larger companies,” Callahan indicated. “Many brands become stale and lose relevance.” However, despite Hostess’s recent achievements, the company faces pressures from ongoing shifts in food consumption, particularly as it pertains to a portfolio associated with indulgent sweets, or from innovations from other major consumer packaged goods (CPG) firms. Paul Earle, an adjunct lecturer at Northwestern University’s Kellogg School of Management and co-founder of a nutrient-rich macaroni and cheese brand, noted that consumer perceptions of Hostess as a source of sugary, unhealthy snacks could hinder its brands as trends shift back to pre-pandemic preferences.
Although shoppers gravitated towards nostalgic brands during COVID-19, Earle believes this inclination is temporary. He predicts that Hostess’s growth may slow as emerging brands with healthier attributes or a commitment to sustainability capture a larger share of consumer spending. A study from Mondelēz International released in January indicated that many consumers are increasingly aligning their purchasing decisions with their values, a trend that is likely to intensify in the coming years. “I’m not trying to undermine Hostess,” Earle remarked. “Sure, they thrived during the pandemic as consumers returned to familiar comforts, but I wouldn’t count on that continuing.”
Hostess will undoubtedly face stiff competition from other CPGs with equally recognized brands and substantial resources, such as Oreo owner Mondelēz International, Reese’s and Kisses manufacturer Hershey, and privately held Mars Wrigley, responsible for M&Ms and Kind bars. To bolster sales and compete against these industry giants, Hostess is focusing on the most rapidly growing snacking occasions—morning sweets, lunch, afternoon rewards, immediate consumption, and afternoon sharing—which collectively represent more than $50 billion in value.
In the past year, Hostess has introduced new products like Baby Bundts for morning enjoyment, Crispy Minis for sharing, and Hostess Boost Jumbo Donettes, a larger version of its beloved mini doughnut that offers slightly less caffeine than a cup of coffee, targeting consumers seeking a morning boost or afternoon pick-me-up. Additionally, Hostess is considering mergers and acquisitions as a strategy for growth, seeking to replicate the 22% sales growth achieved following its 2020 acquisition of Voortman. Callahan mentioned that Hostess has access to up to $2 billion for potential deals to “significantly scale up our company.”
The focus is on acquiring leading brands that enhance its existing presence or allow entry into new niches, similar to what Voortman did with its wafers and sugar-free cookies. Any prospective acquisition must also be scalable and easily integrated into Hostess’s existing distribution network. Ben Bienvenu, an analyst with Stephens, remarked that Hostess is now a much “smarter, sharper” company, benefiting not only from prevalent snacking trends but also from strategic internal moves that have created a clear advantage over competitors. He noted that the company has prioritized improving product quality, leveraging data for decision-making, and refreshing its portfolio through innovation and acquisitions. During the pandemic, Hostess outperformed its rivals in maintaining product availability on store shelves, strengthening its consumer relationships.
The overall strength of Hostess’s brands, combined with their positioning as impulse purchases, has enabled the snack maker to raise prices more effortlessly as part of its natural business operations, helping to counterbalance rising input costs and supply chain disruptions. Earlier this month, Hostess announced plans to invest up to $140 million to convert an idle factory in Arkansas into a bakery to meet the surging demand for its cakes and Donettes, its largest brand with annual sales exceeding half a billion.
“They undoubtedly have the wind at their backs and are making the most of it,” Bienvenu noted. “They’ve executed exceptionally well compared to some of their larger competitors.” While fluctuations in gas prices could affect convenience store sales, and a return to a more normalized supply chain might diminish some of Hostess’s advantages, Bienvenu believes that any risks to the company are minor, overshadowed by an overall robust business outlook. He anticipates that Hostess will gain additional shelf space, distribution channels, and consumer recognition. “They have momentum now,” he stated. “A lot of credit goes to the management team; they’ve done a fantastic job over the last two years.”
For Callahan, the mission to grow the company and maintain its relevance amid a plethora of choices is deeply influenced by his responsibility to steward a portfolio of brands that have long been staples on store shelves, even as countless other forgotten products have faded away. He is determined not to let Hostess become a mere footnote in food industry history. “We are the caretakers of this 100-year-old brand. It’s our turn to pass it on to the next generation,” he affirmed. “Building the equity and awareness of a Twinkie or a Ding Dong is incredibly costly, but revitalizing these brands in ways that are as relevant and meaningful today as they were a century ago is a magical endeavor for me.”