Twinkies Substitutes Surge

Published in CSP Daily News

7-Eleven, Walgreens, Safeway, others seeing snack cake sales bump from Hostess' absence

CHICAGO -- Twinkies could be back on store shelves by the summer, said The Chicago Tribune, after Apollo Global Management LLC and Metropoulos & Co. entered into a "stalking-horse" asset purchase agreement to acquire Hostess Brands Inc.'s sncak cake brands--Twinkies, Mini Muffins, Cup Cakes, Ho Hos, Zingers and Suzy Q's--for $410 million in cash.

The deal could be completed by the end of April, officials said.

The news might not be as welcome to the independent bakers and snack cake rivals that experienced a lift in sales in the two months since Hostess shut down after a bitter contract dispute with its baker's union, the newspaper said.

Before it closed in November, Hostess accounted for 26% of the $2.7 billion in U.S. bakery snack sales, according to the report, citing Chicago market research firm SymphonyIRI Group.

In Chicago, Walgreens, Jewel-Osco, Dominick's, 7-Eleven and other stores have filled former Hostess shelf space with rival branded and private-label product. Compared with the Twinkie's per-cake price of about 68 cents, they're 5% to 50% cheaper, said the report.

Walgreen spokesperson Jim Graham told the Tribune it was "kismet" that its Nice! Sponge Cake and Cupcakes hit shelves the same month Twinkies disappeared.

Safeway Inc., which operates Dominick's stores in the Chicago area, introduced its Snack Artist brand Creme Cake three months before Twinkies' demise, said the report. Neither company would offer specific sales data.

Mike Gloekler of McKee Foods Corp., which makes Little Debbie snacks, told the paper it has "clearly seen a spike" in sales of all products that resemble Hostess treats. Little Debbie introduced Cloud Cakes two years ago. Gloekler said the company, which is the lead bidder to buy Hostess' Drake's cakes, is pleased with sales of all its competing products. The reincarnation of Twinkies under another owner won't change that, it said.

One consumer told the Tribune that while she misses Hostess CupCakes, she is getting her cupcake "fix" with the 7-Eleven brand, 7-Select. "These are good," she said. "I don't have a problem with them."

Bakery owners also say it is business as usual for now, though they are enjoying a nice increase in sales as Twinkies are on hiatus, the report said.

Analysts are divided on whether competitors' recent sales gains will continue if the Twinkie comes back.

"Given the sales success that Twinkie enjoyed and the hyped-up demand lately, it looks like a great opportunity for retailers to seize the market," Todd Hale, senior vice president of consumer and shopper insights at Nielsen Co., told the paper. "While there may be a lot of negative issues out there associated with packaged snacks, we as consumers still have a sweet tooth."

Despite the number of competitors, there will likely never be a store-brand challenger that can recapture or rival the popularity of the Twinkie, said Neil Stern, a retail consultant at McMillanDoolittle. "Once we get past this nostalgic bump, the business issues will remain," he told the paper. Those include a preference for healthier foods in kids' lunchboxes and an explosion in the number of packaged and fresh snack options fighting for the same share of consumers' wallets.

And then there is taste, said the report. "It's a pretty unique product that's difficult to knock off," he said. "No [competitor] has ever made an 'Oreo' that tastes exactly like an Oreo."