But if Hostess Brands is going make its investors and creditors happy (firms like Ripplewood Holdings and GE Capital Markets), it will have to build strong, relevant brands that entice new customers and delight old ones. That's the only way out of years' worth of depressing sales numbers. In 2008, Hostess' revenue declined by 3.4% to $2.8 billion and the company lost $144 million. Sales continued to drop, though only by 2%, in the first half of fiscal year 2009.
You have to wonder, though, if Craig Jung, Hostess' latest CEO, is up to the task. Explaining why he decided to change the company's name last November from the ideal blank slate moniker of Interstate Bakeries to the baggage-laden name Hostess Brands, he said: "Hostess has been an important part of America for generations and is synonymous with quality and great tasting treats. It is a name that consumers, customers and our employees recognize and hold in high regard."
What he forgot to say is that Hostess is also a name synonymous with junk food. The Twinkie, in particular, is America's most reliable symbol of a culture of over-processed, nutritionally-void food products. It's not even junk food in the modern tradition of Cool Ranch Doritos or Taco Bell's Volcano Nachos -- just old school, sit-on-the-convenience-store-shelf-perfectly-intact-for-five-years-and-collect-dust junk food. The company says its Hostess brand snacks represent $1 billion in annual sales, but when was the last time anyone you know ate a Twinkie (sales down 1.2% since 2007, according to Information Resources, a Chicago-based market research firm), a Ho Ho (down 7%) or an oblong Suzy Q (up 2.8%)?
Attempting to win over new consumers with these venerable products is almost certainly a losing proposition. Hostess Brands has a infinitely better shot at boosting its revenues and establishing some semblance of brand significance by launching new products like Nature's Pride, a line of 100% whole wheat bread with no high fructose corn syrup, trans fats or artificial ingredients that was introduced last February. IRI says the brand is already a $72 million business, excluding sales from Wal-Mart (WMT) and club stores.
There's a lot of money to be made these days in the business of healthier snacks. It's just too bad that Jung and his team are going to be taking on the challenge at a company named Hostess.