Snack Cake Takeaways

Report sees positive outlook for wider market in Twinkie, TastyKake moves

NEW YORK -- A new report from Rabobank focusing on the relaunch of the Twinkie identifies four lessons that also extend to the wider snack cake market: the strength of iconic brands such as Twinkie; consumer recognition that there is room in our diet for a little fun and indulgence; the dangers in tampering with a winning formula; and the opportunities to continue expanding the snack cake market.

"When the maker of Twinkies, Hostess Brands Inc., was forced to close in November 2012, many commentators put it down to the unstoppable trends of the 'real food' movement," said Rabobank analyst Nicholas Fereday. "However, the company's snack cakes businesses, Hostess and Dolly Madison, were quickly snapped up by private-equity firms in early 2013, and after just nine months, Twinkies are back on the shelves."

Rabobank identifies four lessons--or "Twinkie Takeways"--about the return of the Twinkie that also extend to the wider snack cake market:

1. Iconic brands have a long shelf life. In an age where the private label is stealing market share from brands, the market for Twinkies is not in doubt. The reasons? An iconic brand and loyal customer base.

2. We never said we were healthy. Twinkies have never pretended to be healthy, and that's just fine with most people. While health is a key trend in the baked goods sector, so is indulgence--around 60% of the population view snacks as an opportunity to splurge, preferring what tastes good rather than what is healthy.

3. Don't pimp my Twinkie! Twinkies are iconic for a reason. They have stoically withstood the changing times as consumers cycled through low-carb, low-fat and high-protein phases. Changing the recipe to fit popular dietary trends may only backfire.

4. Cutting a bigger slice of a larger cake. Marketing innovations from candy manufacturers and the successful takeover by Flowers Foods of TastyKake suggest there are plenty of strategies to continue expanding the snack cake market. Snack cakes also play well to the new snacking culture in terms of portability, convenience and affordability.

According to Rabobank, these four lessons suggest a positive outlook not just for Twinkies, but for the snack cake market in general.

The success of Flowers Foods with its TastyKake acquisition suggests a strategy for expanding the market not only for the Twinkie, but also for the snack cake market at large.

The turnaround in the fortunes of the TastyKake brands shows that snack cakes may be off trend when it comes to health and wellness, but under the right management, they can tap into the trends of indulgence, portability and affordability.

In 2011, Flowers Foods bought TastyKake for just $34 million, and since then, has increased net retail sales from about $170 million to a projected $275 million in 2013, exceeding the company's own expectations. Key to this success has been taking the brands nationwide beyond their core market in the Northeast. Flowers Foods has long recognized the need to play to the conflicting consumer needs of indulgence and healthy eating by avoiding umbrella brands. Instead, it has chosen to create strong brands in each of the segments in which it operates. For example, it has its Nature's Own product line for consumers who want to eat helathy, but it also provides indulgent foods, such as TastyKake and Mrs. Freshley's products, for those who want to consume sweet goods on occasion.

Rabobank Group, New York, is a global financial services leader providing wholesale and retail banking, leasing, real-estate services and renewable energy project financing. Rabobank is a bank to the food, beverage and agribusiness industry.