What to Watch for When Hostess Has Its Bake Sale

Several Brands Within the Troubled Company Are Actually Strong, Despite Underinvestment

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When Hostess Brands begins unloading its products in the coming months it will be the most closely watched bake sale, well, quite possibly ever. The company's demise as a result of a labor dispute has already produced a torrent of media coverage, from breathless reports of snack-cake shortages to philosophizing about what Twinkies mean for America.

This line from a recent USA Today story is typical: "The iconic cream-filled dessert is as familiar to millions as a nursery rhyme, but its cosmic aura -- not to mention its ingredients -- remains as mythical, if not mystical, as science fiction."

Once the liquidation process is complete, the renewed interest in Ding Dongs, Ho Hos and Twinkies might crash faster than a sugar high. But the fact that Hostess' downfall generated so much attention in the first place proves that the brands still hold plenty of value and explains why experts say most -- if not all -- of its brands will be scooped up. 

"There's a cultural foundation for them," said Robert Passikoff, president of brand research group Brand Keys. "Everyone at one time or another grew up and touched them," he said, adding that "real brands" like this are becoming "rarer and rarer."

One potential suitor is Flowers Foods Inc., marketer of Tastykake and Nature's Own. Other contenders include private-equity firm Sun Capital Partners and C. Dean Metropoulos & Co., which owns Pabst Brewing Co., according to published reports.

Hostess' most attractive assets are its snack-cake brands, which despite healthier food trends are still selling at a decent clip. The business, which includes Twinkies, is expected to generate sales of $380.4 million in the U.S. in 2012, up from $377 million in 2011, according to Euromonitor International.

Sales of Hostess-owned Wonder Bread, on the other hand, are expected to fall from $422.5 million last year to $414.4 million in 2012, as consumers gravitate toward healthier whole-grain breads and private-label white breads.

"The snacking business is actually fairly profitable. It's the bread business that has been a challenge for the company," said Rick Shea, owner of Shea Marketing Inc. and former VP-marketing for George Weston Bakeries.

And that 's despite barely any marketing. Hostess spent just $2.39 million in measured media on its snack-cake brands in 2011, including Twinkies, which got almost nothing, according to Kantar Media. "They haven't invested in advertising behind the brands for many years ... because they haven't had the financial strength," Mr. Shea said.

The Hostess brand (which is used on snack cakes) is actually gaining in popularity, according to Landor Associates' BrandAsset Valuator, which measures traits such as differentiation, relevance, esteem and consumer knowledge. "There's a true affection for Hostess that has survived decades of being ignored by the marketing dollars," said Wendy Hunt, executive client director at Landor, noting Hostess' strong word-of -mouth.

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