The Best Bread That Never Was

Hostess rises to occasion, comes to the rescue of convenience stores, drug stores

Hostess bread

KANSAS CITY, Mo. -- This summer, snack cake maker Hostess Brands LLC began selling white and wheat bread under the Hostess name, as well as buns for hamburgers and hot dogs to convenience stores, drug stores and dollar stores.

Under private-equity firms Metropoulos & Co. and Apollo Global Management LLC, which in 2013 bought the snack-cake brands out of liquidation, the company has streamlined production by paring the number of bakeries and upgrading them with larger ovens and robots that pack Twinkies into boxes.

Initially, bread did not interest Metropoulos and Apollo. In the liquidation, Flowers Foods Inc. and other buyers purchased the Hostess breads, which included Wonder Bread and Nature’s Pride.

But Hostess CEO Bill Toler said convenience-store and drug-store customers expressed an interest in having a single brand representing both bread and other baked goods because they were not getting reliable bread deliveries through the bread makers’ direct-store distribution systems, The Wall Street Journal reported.

Toler said Kansas City, Mo.-based Hostess surveys showed that consumers thought Hostess bread already existed even though there never was a Hostess-branded bread.

The fresh bread business is dominated by companies such as Flowers Foods and Grupo Bimbo SAB, which use route drivers who both deliver the bread directly to stores and place it on shelves. Because convenience stores and drugstores do not sell a lot of bread, it’s hard for drivers to justify making frequent trips to every outlet to swap fresh loaves for stale ones.

Hostess, under its new owners, dropped the direct-store delivery model. It now ships products from its three bakeries in Indianapolis; Columbus, Ga.; and Emporia, Kansas, to a central warehouse in Chicago where they are bundled with each customer’s full order of Hostess products and sent to the retailer’s distribution center. At the retailer’s distribution center, Hostess products are loaded onto trucks with other items for delivery to individual stores, where store employees place them on shelves.

As efficient as that is, there are risks.

“In the warehouse model of distribution, the manufacturer’s responsibility stops once the retailer takes control of the product,” and store employees have to make sure they aren’t stocking stale bread, Jim Hertel, managing partner at retail consulting firm Willard Bishop, told the newspaper.

Toler said that for many stores, the Hostess bread is replacing frozen bread that store employees had to thaw. “Our solution is actually easier for the stores,” he said.

Toler, who became Hostess CEO in May 2014, is a food-industry veteran who was CEO of food-service supplier AdvancePierre Foods Inc. and, before that, president of Pinnacle Foods Group Inc. when C. Dean Metropoulos owned it and was CEO.

Hostess is also eyeing other new segments, such as brownies, “a $400 million category that you would think Hostess would be in,” Mr. Toler said. “There are things we can keep doing with this business. There also are questions around cookies, but we don’t want to go too far afield.”

Click here to view the full Journal report.