Hostess, Wonder double budgets as parent bids to escape bankruptcy

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The turnaround firm charged with rebuilding bankrupt Interstate Bakeries Corp. has cut a lot of costs, but marketing for top brands including Wonder and Hostess is certainly not one of them.

Interim management from restructuring specialist Alvarez & Marsal plans to more than double last year's $11 million outlay for IBC's Wonder and Hostess over the next year and is spending big on a premium bread line, Baker's Inn.

`SIGNIFICANT CHANGES'

According to interim Chief Marketing Officer Jacques Roizen, the marketing upsurge since IBC's September 2004 Chapter 11 filing is designed to support the "significant changes over the past seven months." IBC, desperate to drive sales, has updated product lines and packaging.

Those changes were as necessary as IBC's 13% reduction of its 32,000 employees and the consolidation of its 10 plants into five. Neuberger Berman analyst Bill Leach said that "though [IBC's] problems were structural issues including high-cost plants and labor, it is also that their products are out of step with today's consumer."

Wonder, for one, needed to be updated to reflect the growing trend toward whole-grain breads. The white-bread segment of the nearly $6 billion bread industry, which Wonder leads, has fallen four years running while sales of whole-grain breads have risen. In response, IBC last month launched its first 100% Whole Grain Wonder bread, a variety dubbed White Bread Fans that mirrors the texture and taste of white bread. The line is being supported with public relations and three 15-second TV spots touting its appeal to kids and to their gatekeeper moms. Campbell Mithun, Minneapolis, handles. Meanwhile, Mr. Roizen has also spearheaded the launch of a vitamin and fiber-fortified white bread, dubbed Wonder Kids, and consolidated the many sizes and variations of the original Wonder white bread to two, Wonder Classic and Wonder Classic Sandwich Bread.

`THE JIG IS UP'

Steven Addis, president of identity and design firm Addis Group, said that "while Wonder always had a healthful nurturing positioning, now that the jig is up and people are beginning to understand what's really nutritional, it's time they start extending the brand to fulfill that promise."

IBC last year introduced a super-premium whole-grain bread brand, Baker's Inn, that has risen to nearly $75 million in its first year and made it on the top 10 list of brands to watch in Information Resources Inc.'s 2004-2005 New Product Pacesetters report, Mr. Roizen said. A TV campaign from Campbell Mithun kicked off in June.

Modernizing Hostess is another story. The snack brand's popular products such as Twinkies and Cup Cakes certainly run counter to current health trends. Sales for the brand fell 9.8% to $187 million over the 52 weeks ended June 19, while competitor McKee Foods' leading Little Debbie brand grew 4.8% to $289 million, according to IRI.

Mr. Addis, however, sees an opportunity. "For every trend there's a counter trend, and it's a great time to exalt Hostess' nostalgic indulgence."

Mr. Roizen is rolling out new Hostess packaging-the first major change in 25 years-that modernizes Twinkie the Kid and introduces a new Cup Cake character. In addition, Hostess will for the first time cater specifically to its largely Hispanic-skewing consumer base with the launch of a Hispanic line, Las Delicias de Hostess, later this month in San Diego, Dallas and Phoenix markets, which will be supported with TV.

The big idea

Hostess’ first new packaging in 25 years is an attempt to modernize the brand. IBC will also cater to its Hispanic base with a new lineup.

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