For Andy Callahan, the CEO of Hostess Brands, transforming the hundred-year-old company known for Twinkies, Ding Dongs, and Donettes into “a snacking powerhouse” involves not only envisioning its future but also reflecting on his own past. Nearly 20 years ago, Callahan was in charge of the Kraft Singles cheese business, the company’s most lucrative product. Kraft realized that its long-standing strategy of differentiating the brand by adding calcium was no longer sufficient to attract consumers. Once a unique selling point, extra calcium had seeped into numerous other products, such as orange juice, snack bars, and even iron-fortified pasta, providing shoppers with multiple options for incorporating the mineral known for promoting healthy bones and teeth.
Recognizing the need for change to regain its competitive edge, Callahan found himself constrained by senior executives who had built their careers around the success of Kraft Singles. They clung to outdated strategies, failing to critically assess whether their approach was still effective. “I promised I would never let that happen again,” Callahan stated in an interview. “I believe in staying true to consumer needs and being decisive and bold in our product strategy.” Now, at 56, he leverages his experiences at Kraft to further reshape Hostess, ensuring the company remains relevant amid rapidly changing consumer behaviors and fierce competition from well-funded rivals.
Since taking the helm in May 2018, Callahan has focused on speeding up innovation, broadening the occasions for enjoying his iconic brands throughout the day, and strengthening Hostess’ financial position to enable acquisitions that complement its lineup of cream-filled yellow cakes and chocolate-covered mini doughnuts. “We can’t dwell on the past. We set innovation targets to maintain relevance,” said Callahan, a former Naval flight officer. “We enjoy high brand awareness and connection, which is a powerful foundation to build upon. Our brands stand for something.”
The challenges Hostess faced in the past nearly wiped out any possibility of a company for Callahan to lead. A decade ago, Hostess was on the brink of collapse, having entered its second bankruptcy in eight years due to a complex labor structure, an excessive number of delivery routes, and a bloated manufacturing system resulting from multiple acquisitions. In 2013, the snack-cake manufacturer was acquired out of liquidation by private equity firms with the aim of returning as a leaner, more sustainable business. Founded in 1919, Hostess re-emerged as a public company in 2016 and spent subsequent years investing in staffing, analytics, and streamlining its product portfolio while revitalizing its innovation pipeline.
With its reorganization, increasing consumer demand for snacks, and a portfolio that includes brands like Ho Hos, Donettes, and the timeless Twinkie, Hostess has quickly established itself as a leader in the food industry. Its products are available nearly everywhere consumers shop, from club and dollar stores to grocery and convenience outlets, with the latter two channels accounting for over 70% of its dollar sales. The company has reported eight consecutive quarters of revenue growth exceeding 9% and increased its market share of sweet baked goods by over four percentage points during the same timeframe, according to Nielsen data provided by the company. Hostess has also achieved a compound annual growth rate of 10% over the past few years, significantly outpacing its competitors’ 4% growth.
“We don’t have legacy portfolios hindering our growth, which gives us an advantage over some of the larger companies,” Callahan noted. “Many brands become stale and lose relevance.” Despite Hostess’ recent achievements, the company still faces pressure from shifting food consumption trends, particularly with a portfolio often associated with indulgence and sweets, alongside innovations from other major CPGs. Paul Earle, an adjunct lecturer at Northwestern University’s Kellogg School of Management and co-founder of a nutrient-rich macaroni and cheese brand, indicated that consumer perceptions of Hostess as a provider of sugary, unhealthy snacks might weigh heavily on its brands as trends revert to pre-pandemic norms.
While shoppers gravitated toward nostalgic brands during COVID-19, Earle believes this is only a temporary shift. He predicts that Hostess will see a decline in growth as emerging brands with healthier attributes or a focus on sustainability capture a larger share of consumers’ spending. A study released in January by Mondelēz International revealed that most consumers are incorporating their values into their snack choices, and these trends are expected to intensify in the coming years.
Hostess will undoubtedly face intense competition from other CPGs with well-known brands and even deeper pockets, such as Oreo owner Mondelēz International, Hershey (the maker of Reese’s and Kisses), and privately held Mars Wrigley, known for M&M’s and Kind bars. To increase sales and compete against these giants, Hostess is focusing on the fastest-growing snacking occasions — morning sweets, lunch, afternoon rewards, immediate consumption, and afternoon sharing — collectively valued at over $50 billion. In the past year, the company launched products like Baby Bundts for morning treats, Crispy Minis for sharing, and Hostess Boost Jumbo Donettes, a larger version of its popular mini doughnut with slightly less caffeine than a cup of coffee, targeting consumers seeking a morning lift or afternoon energy boost.
Looking to grow through mergers and acquisitions, Hostess aims to replicate the 22% sales growth it experienced after acquiring Voortman in 2020. Callahan mentioned that Hostess has access to up to $2 billion for potential deals to “really scale up our company.” The focus is on category-leading brands that either enhance its existing presence or allow entry into new niches, similar to what Voortman achieved with its wafers and sugar-free cookies. Any acquisition would also need to be scalable and easily integrated into Hostess’ current distribution network.
Ben Bienvenu, an analyst with Stephens, noted that Hostess is now a much “smarter, sharper” company, benefiting from trends in the food sector like snacking, as well as strategic internal moves that provide a clear competitive advantage. The company has prioritized improving product quality, utilizing data for informed decision-making, and refreshing its portfolio through innovation and acquisitions. During the pandemic’s peak, Hostess outperformed competitors in keeping its products available on store shelves, strengthening its consumer relationships. The robust performance of Hostess’ brands, positioned as impulse purchases, has also allowed the snack maker to implement price increases more smoothly as part of its normal business operations, helping to offset rising costs linked to higher input prices and supply chain challenges.
Earlier this month, Hostess announced plans to invest up to $140 million to convert an inactive factory in Arkansas into a bakery to meet rising demand for its cakes and Donettes, which generate half a billion in annual sales. “They definitely have the wind at their backs and are making the most of it,” Bienvenu remarked. “They’ve executed exceptionally well compared to some of their larger rivals.”
While rising gas prices could impact convenience store sales, and a return to a more typical supply chain might diminish some of Hostess’ recent advantages, Bienvenu believes potential risks are minimal and overshadowed by the company’s overall strong performance. He anticipates that Hostess will gain additional shelf space, distribution, and consumer recognition. “They have momentum now,” he stated. “The management team deserves significant credit for their fantastic execution over the last two years.”
For Callahan, his mission to grow the company and maintain its relevance in a world teeming with choices is deeply influenced by the responsibility of managing a portfolio of brands that have stood the test of time, while countless others have faded into obscurity. He is determined not to let Hostess become a mere footnote in the food industry. “We are the caretakers of this 100-year-old brand. It’s our turn. We want to pass it on to the next generation,” he emphasized. “Building the equity and awareness of a Twinkie or Ding Dong is incredibly costly. However, bringing them back in forms that are as relevant and meaningful today as they were a century ago is truly magical for me.”
In this context, Callahan sees the potential for innovation as well. The incorporation of chewable calcium citrate with vitamin D and magnesium in some of Hostess’ new products could align with modern consumer demands for healthier snacking options while retaining the nostalgic appeal of their beloved brands. By integrating these elements into their offerings, Hostess aims to bridge the gap between indulgence and health, ensuring that their products resonate with both loyal customers and new generations of consumers.