A move to warehouse distribution and away from direct-store-delivery will allow Hostess Brands, L.L.C. to compete toe-to-toe in the market for snack treats, said Richard C. Seban, president. In a July 9 interview with Milling & Baking News, Mr. Seban said Hostess is primed to win back its spot on familiar — and new — shelves this summer.
The new distribution approach was one of several significant changes Mr. Seban said will help restore luster to a brand and business diminished by struggles dating back many years. Retail sales of Hostess products are set to resume July 15 following a hiatus dating back nearly eight months.
As part of its acquisition of the Hostess snack cakes business, private equity firm Metropoulos & Co. and Apollo Global Management L.L.C. netted five plants, and Hostess has poured $30 million into four of these over the past few months. The plants are located at Columbus, Ohio; Schiller Park, Ill.; Indianapolis; and Emporia, Kas. A fifth plant in Los Angeles has not been reopened.
“The (four) plants structurally were among the better plants Hostess operated before for cakes, so the plants were structurally in reasonably good shape, but they did need some upgrades, and we spent about $30 million in opening these four bakeries,” Mr. Seban said. “We did invest in upgrading various systems and processes as well as putting in new equipment. Over the next year, we’re putting another $70 million in, primarily in capital equipment.”
Additionally, Mr. Seban said Hostess is looking at opening a fifth facility that he said will be “more modern, state-of-the-art, and be located in an optimal area for both distribution and logistics.” He declined to specify where the plant will be located.
Another significant change for Hostess is a shift in its distribution system, from one based on direct-store delivery to one geared toward delivery to warehouses.
“In a D.S.D. system, each stop has to generate a certain amount of revenue to generate profit because we have our own driver in a D.S.D. system stopping,” Mr. Seban said in explaining the differences between the two systems for Hostess. “So if the stops were too small, and we couldn’t service them on a D.S.D. route because they didn’t do enough volume, then we couldn’t service them. For example, there are 150,000 c-stores in the U.S. In November, we were calling on about 50,000 of them, or about a third. Now, because we’re going through a warehouse direct system, we can use independent distributors … to go after literally everywhere that candy bars are sold. … We feel we now have the ability to sell wherever candy sells, and that opens up an additional 100,000 plus operating units for us.”
Mr. Seban said the biggest challenge in moving to warehouse delivery was making the transition to a SAP system.
“When you’re doing D.S.D. your people fill out the order,” he said. “We now have to accept orders from customers. So it really required us to completely reconfigure our infrastructure. But, given the time we had to get our plants started we’ve been able to rebuild that infrastructure with the help of Acosta, our sales agent. They have been instrumental in getting us up to speed and offsetting some of the things we couldn’t do quickly enough to get our infrastructure in shape. They’ve been able to support us in that way. So the warehouse direct system looks like there is an awful lot of upside for us.”
The full interview of Mr. Seban will be published in the July 23 issue of Milling & Baking News.
