The Journal. - The Twinkie: From Bankruptcy to Billions

Episode Date: September 29, 2023

Twinkies have been around for almost a hundred years. During the course of the cake’s history, the company that makes Twinkies went into bankruptcy twice. WSJ’s Jesse Newman explains the strategic changes and snacking trends that led J.M. Smucker to announce it is buying Hostess for $4.6 billion. Further Listening: -The Agony and the Ecstasy of Tab  -Oatly Pioneered Oat Milk. Now it’s Struggling to Keep Up.  -PepsiCo’s New Healthy Diet: More Potato Chips and Soda  Further Reading: -Why the Twinkie Is Now Worth Billions  -Smucker Sets Sights on Snacks With $4.6 Billion Twinkies Deal  -America Is Binging on Snacks, and Food Companies Are Eating It Up  Learn more about your ad choices. Visit megaphone.fm/adchoices

The other day, I talked to a man named Mark Langston. He runs a Facebook page for fans of the golden, highly processed, cream-filled sponge cake known as the Twinkie. Does my life center around Twinkies? No. Do I enjoy them? Absolutely. Do I think they're one of the bonuses in life? You bet. I do. Mark is 63, and he's loved Twinkies since he was a kid. I've always liked them, but I don't ever remember not eating them. That's amazing, because I don't remember the last time I had one.

So, if I could just ask you to describe a Twinkie for us. Sure. Yellow. Soft. Moist. Sweet. What else could there be? Why do you like Twinkies so much?

I kind of like that they're survivors. They've had several lives across the years and they just keep coming back, especially in the grocery store and in the convenience stores. At least the ones I visit, they're there. To include other iterations sometimes, chocolate Twinkies, strawberry Twinkies. I saw pumpkin spice now that we're in the fall. Lately, Twinkies have been doing well. In fact, they've been doing so well that the food giant J.M. Smucker is buying their parent company, Hostess, for a lot of money. The company that

makes Twinkies, Hostess, was just sold for $4.6 billion. That's a serious amount of Twinkies, yeah. Would you say Twinkies are worth it? Absolutely. Absolutely. Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Friday, September 29th. Coming up on the show, the extraordinary history of a seemingly indestructible American icon, the Twinkie. Need a great reason to get up in the morning?

Well, what about two? Right now, get a small organic fair trade coffee and a tasty bacon and egg or breakfast sandwich for only $5 at A&W's in Ontario. Twinkies have been on store shelves for almost 100 years. Twinkies were born in 1930. Our colleague Jesse Newman has been reporting on the snack's long history. They were brought into being by a man named James Dewar. He was in the food business.

He'd started his business delivering pound cakes out of a horse-drawn wagon. And at the time that he developed Twinkies, he was managing a plant, a continental baking plant. And this was in the Chicago area. This was during the Depression. And he, it's pretty funny because he described the Depression at one point as a time when the economy was getting tight. Well, we have the benefit of hindsight, I guess, in this case. Exactly, exactly. So he was looking for a product that he could sell to folks who were economically stretched.

And how much did they sell for at the time? Yeah, so what's crazy is they were two Twinkies for five cents. So they were two for a nickel. The name Twinkie came to DeWaar in a burst of inspiration. Sort of a famous story about how he passed a billboard for Twinkle Toe Shoes, and he just shortened that into Twinkies. It just spoke to him. Exactly, exactly. He thought it would be like a fun name for kids. Et voila, the Twinkie was born. James DeWaar was already making cupcakes and other pastries under the Hostess brand. In his first version of the Twinkie, he used a banana filling because bananas were easy to find year-round. But during World War II, bananas were rationed, so DeWaar replaced them with a vanilla filling.

That simple recipe was what hostess sold to the masses. And it's still basically how the cake is made today. I mean, they really just blossomed and took off. They were really popular. You know, these hostess Twinkies are really terrific. The delicious sponge cake fingers just melt in your mouth like cotton candy. And see here, inside every Hostess Twinkie, there's a smooth cream filling that's really out of this world. And they were particularly popular with kids. So for a long time, there were two times a year when Twinkie sales really, really jumped.

And one was in August when schools opened. Parents were like putting them in their kids' lunch bags or lunch boxes. And then that happened again. Sales really jumped after schools reopened after winter break. The first day of school. It's so hard to be brave when everything is so new, so different, and so lonely. The company really leaned into that, and they just became a very, you know, sort of a staple

of pop culture. There was, I think his name was Twinkie the Kid. Twinkie the Kid? I think the mascot's name was Twinkie the Kid. This is Twinkie the Kid. Ever wonder how they get that creamy filling into the middle of a Twinkie's cake? DeWaar himself ate several Twinkies a day until he died at the age of 88. He called them, quote, the best darn tootin' idea he ever had. And it wasn't just Twinkies.

Over the years, a variety of hostess treats took over supermarket shelves across the country. Among their most famous brands are Ding Dongs. It's King Ding Dong! Ho-Ho's Cupcakes. What makes hostess cupcakes such fun? First, you like the fudgy icing. Donettes and Wonder Bread. To help make the most of her wonder years, her growth years, serve Wonder Bread. Wonder helps build strong bodies 12 ways.

Okay, so Hostess was doing great. When did the company first start to run into trouble? I think that began to happen in the 1990s as consumers grew more health conscious. You know, that was a time when we were seeing a lot of low carb, low calorie diets coming to the fore. You can think Atkins and South Beach. I know you're doing Atkins. I'm doing Atkins. In the first six weeks, I lost 23 pounds. I'm Jennifer, and I lost 22 pounds on the South Beach Diet. My name is Scott, and I lost 24 pounds on the South Beach Diet. Low-carb trends and new millennium snacks were in.

And the humble Twinkie was stale. By 2004, the cake's parent company was deeply in debt. Sales dropped. And that year, it declared bankruptcy. Wall Street blamed the company's mismanagement. They faulted the company's sort of persistently high labor costs and management problems and accounting problems and the fact that innovation had totally stagnated.

They had racked up quite a bit of debt. So there was sort of enough blame to go around for their first trip through bankruptcy. Then in 2009, a private equity firm saved the company by buying its assets for $130 million. But salvation didn't last long. They wound up in labor negotiations that proved to be difficult.

They maintained this pretty hefty debt load. And they wound up filing for bankruptcy again just three years later. Is it unusual for a company to declare bankruptcy twice? It's not unheard of. And I think people jokingly refer to it as Chapter 22 bankruptcy when a company declares Chapter 11 bankruptcy twice. So it's not unheard of.

But, you know, I would be hard-pressed to come up with another name of a company that had filed for bankruptcy twice in a matter of a decade. Through the first bankruptcy, people could still buy Twinkies at the store. But after the second one, hostess stopped making the snack. And, you know, when the products disappeared from shelves, they sparked a run on grocery stores. Like, that's a really incredible, quintessential American brand.

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Carlsberg Canada Inc., Waterloo, Ontario. The year was 2012, and Twinkie fans around the country were in a panic. The year was 2012, and Twinkie fans around the country were in a panic. At Wegmans in DeWitt today, Hostess fans rushed in to get what could be their last box of Twinkies. We had one customer get 10 boxes of Twinkies. We had two customers with the last box, you know, trying to claim that box as theirs. In some cases, the products are going straight from store shelves to the internet, where some people are hiking up the prices. People are just crazy. I checked eBay. They're selling Twinkies $10, $20 a box now. But reports of the Twinkies' death were greatly exaggerated.

After the second bankruptcy, the hostess brands were divided up and auctioned off. But it wasn't a food fight. There was really only one bid. Two private equity firms joined forces to save the sweet treats from oblivion. And together, they acquired a whole slew of hostess snacks for $400 million. So they took over a company that was free of union contracts and debt that had really saddled the previous hostess. And they also decided to only operate a much smaller number of factories than the previous hostess had with a much smaller number of employees. You know, they decided they wanted to run a much leaner company.

And then they set out to really, like, upend Hostess's business model. Twinkies were back. In 2013, they returned to supermarkets. And to celebrate, the Today Show invited the Snacks mascot Twinkie the Kid for an event at Rockefeller Center. Oh, the chance of Twinkie, the arrival of the Hostess bus, and Al Roker at the helm, ready to deliver the beloved sugary tweet as it makes its triumphant return to New York City. To succeed where the previous model had failed, the new Hostess streamlined everything. Hostess, the way they got their products to market is that they put, you know,

all of these Twinkies and all of their products and snacks on trucks and they drove them to, you know, all of the different grocery stores around the country. And that system was really costly. It required thousands of drivers and thousands of trucks and thousands of truck routes, and they paid for all this gas. So to PE firms, they decided that they wanted to shift to a more, basically a system that was built around warehouses. So they would deliver Twinkies to a retailer's warehouse, and then it was up to the retailer, whether it was Walmart or Kroger, it was then up to them to sort of divvy up the products, you know, among their stores. To do that, Hostess realized it needed to tweak the Twinkie recipe. Because the current product, which lasted for 26 days, it didn't have the shelf life.

It wouldn't last long enough to go from the bakery floor to a warehouse and then be distributed to stores. Food science had evolved significantly since the 1930s. Hostess was able to use an enzyme that controlled the moisture in food and helped prevent it from molding. They got it to, over time, they got it to last more than twice as long, so they extended the shelf life from 26 days to 65 days so that they could make this change in their distribution system. It's like a kind of wonky logistical change, but it was huge.

Yeah. I mean, it is great to be able to keep it and not have it go bad so fast. I think what's interesting is that people, I think, have assumed for a long time that Twinkies are sort of indestructible and will last forever. For the zombie apocalypse. Yeah, exactly. Hostess also came out with limited edition products that coincided with cultural events. Like in 2016, when a line of Twinkies was filled with key lime slime

to celebrate the release of a new Ghostbusters movie. It played on a reference from the original film. new Ghostbusters movie. It played out a reference from the original film. Let's say this Twinkie represents the normal amount of psychokinetic energy in the New York area. According to this morning sample, it would be a Twinkie 35 feet long, weighing approximately 600 pounds. That's a big Twinkie. And it was around that time that Hostess came back to the public stock market and they started trading on the stock market under the ticker symbol TWINK. And at that point, they were valued, Hostess was valued at $2.3 billion. So, you know, just if you're doing some mental math to going from $130 million to $410 million to $2.3 billion.

How did the company frame this comeback? Like, what was their messaging? They made a big deal in returning their products to market, and they called it the sweetest comeback in the history of ever. By 2018, Hostess was back in full swing. The company had a new CEO who was expanding the brand and developing new products. But the biggest boon for Hostess was the pandemic. The pandemic has been huge for Hostess and, frankly, you know, most other big food companies, but particularly those who make snacks. I mean, you know, recall at the beginning of the pandemic, these were days when we were all eating at home. We weren't eating out. Shoppers were stocking their pantries and often with big name brands and comfort food. America had come back to the Twinkie

and Hostess took advantage of this pandemic-fueled snacking trend. Earlier this year, the company said that during difficult times, a lot of consumers, especially younger folks, see snacks as an affordable luxury. And all that enticed another big food company, Smucker, to purchase Hostess earlier this month. Hostess sold itself to Smucker in a $4.6 billion deal. And that caps this really turbulent history that the company has had. That sounds like a lot of money. Is it for a deal like this? It is. It is a lot for Twinkies.

It is a lot for Twinkies. Obviously, you know, the company Hostess has been doing pretty well in recent years, as have many snack companies. I do think that, well, Wall Street seems to think that $4.6 billion is quite a bit. I think there's some questions about just how much more growth can be achieved with the brands, given they are pretty mature brands. So what do you think is next for Twinkies and for Hostess? You know, now the question is really, what does Smucker do to keep the Twinkie train chugging along? train, you know, chugging along. And hosts and others will tell you that what their story shows is that our appetites for what they call like indulgent treats, you know, aka junk food,

is here to stay. So remember Mark Langston, our superfan? I asked him how he would feel if Twinkies went off the shelves forever. Though life would be different, life would go on without them. You know, so, you know, it's not the end of the world. I try and keep a level head about this. You know, you can live without the partially hydrogenated fats that are in them, but I enjoy those partially hydrogenated fats and the polyunsaturated ones that are in there. You'd just miss them. Yeah, I would. Yeah, sure.

That's all for today, Friday, September 29th. The Journal is a co-production of Spotify and The Wall Street Journal. Rachel Humphries, Ryan Knutson, Matt Kwong, Kate Leinbaugh, Annie Minoff, Laura Morris, Enrique Perez de la Rosa, Sarah Platt, Alan Rodriguez-Espinosa, Heather Rogers, Jonathan Sanders, Pierce Singey, Jeevika Verma, Lisa Wang, Catherine Whalen, and me, Jessica Mendoza. Our engineers are Griffin Tanner, Nathan Singapak, and Peter Leonard. Our theme music is by So Wiley. Additional music this week by Catherine Anderson, Peter Leonard, Bobby Lord, Nathan Singapak,

Griffin Tanner, and Blue Dot Sessions. Fact-checking by Nicole Pasulka. Thanks for listening. See you Monday. You're very inclusive when it comes to your Twinkie philosophy. Sure. You know, I can promise you my wife, who is about 10 feet from us right now, will not touch one. She won't. And we have been married since 1987. We still get along. We can coexist.