The rise and fall (and rise again) of Twinkies
- Despite Hostess' Twinkies iconic status in pop culture and lunch boxes, the beloved brand left shelves in 2012 and almost died for good.
- But two guys had a plan to save the vanilla creme-filled cake. And it worked.
- Business Insider recounts the rise, fall, and rise again of Twinkies.
- Visit Business Insider's homepage for more stories.
Following is a transcription of the video:
Narrator: A mainstay in pop culture and lunchboxes for more than 80 years…
– That's a big Twinkie.
Narrator: The Twinkie is an American icon. The vanilla cake stuffed with cream even made it into the National Millennium Time Capsule.
Alex Bitter: When you think about kind of the pantheon of food brands, there aren't a ton that kind of rise to the level of Twinkies.
Narrator: But two bankruptcies, heavy debt loads, and changing tastes pushed Twinkies off shelves and almost to their death.
Andy Jhawar: People were starting to sell boxes of Twinkies on eBay for $1,000 a pop. I mean, just crazy stuff, right? It was like the death of a piece of Americana.
Narrator: But just when everyone thought that they were gone for good, Twinkies rose again. So, what happened?
Twinkies were invented in Schiller Park, Illinois, in 1930. This guy, James Dewar, managed a bakery plant at the start of the Depression. He wanted to make better use of expensive strawberry shortcake equipment sitting unused when strawberries weren't in season. So he stuck banana cream in a shortcake. Dewar sold the Twinkies in packs of two for 5 cents. When bananas were rationed during World War II, the simple vanilla cream we know today became the filling.
In the next two decades, Twinkies and its parent brand, Hostess, dominated the packaged-cake market. Marketed to children in everything from TV commercials to Batman comics, Twinkies rose to the status of a cultural icon.
Buffalo Bob: You're getting ready for school. Here. Here's a swell dessert that you can take along with you. A package of two big Hostess Twinkies.
Narrator: The Hostess snack cemented itself in kids' lunchboxes across America.
Jhawar: It was affordable indulgence for families. It was just so woven into the fabric of the culture of America.
Narrator: In 1971, the brand introduced its mascot, Twinkie the Kid.
Wizard: It's Twinkie the Kid!
Twinkie the Kid: Yahoo!
Narrator: The anthropomorphic cowboy Twinkie became popular among kids for sharing his namesake cakes. But growing talk of Twinkies' high sugar content would soon butt heads with the brand's kid-friendly marketing.
First, the Federal Trade Commission came down on Hostess for false nutritional claims. The agency concluded that sugar was the main ingredient in Twinkies. And then, in '79, the trial of a San Francisco man charged with murdering the mayor gave rise to the term "Twinkie defense." The defense team argued he had "diminished capacity" thanks to his addiction to Twinkies, and the murder charges were lessened to manslaughter.It was a trial that balked at the wholesome cake brand Hostess was trying to build.
Ad: Fresh, wholesome Hostess meets my tough standards. So when I say yes, it's Hostess.
Narrator: Then began a string of new owners for Hostess. In the '70s, telephone company ITT ran Twinkies' parent company. In the '80s, dog-food maker Purina acquired Hostess. And a decade later, it landed under its final owner, Interstate Bakeries Corporation.
The sale created the largest baking company in the US, with, at its peak, 58 factories, over 10,000 delivery routes, a boost in Twinkies sales, and $3.2 billion in total sales. But in the late '90s, America's changing tastes would soon spell trouble for the sugar-packed Twinkies.
With the growing popularity of low-carb, Atkins, and later the South Beach diets, some Americans were becoming more health-conscious. Loaded with calories, sugar, and preservatives most people hadn't heard of, let alone could pronounce, Twinkies became a casualty of the health revolution. Sales fell, and then flattened.
In October of '98, because of missed earnings, shares dropped 25% in just one day. But it wasn't just the product that was the problem. Pensions and raw goods got too costly. As other food companies were modernizing manufacturing, Hostess ran inefficient factories, operating at 54% capacity utilization.
Jhawar: That's very poor in the manufacturing world.
Narrator: The company also relied on a tired delivery system.
Jhawar: A DSD model, direct-store-delivery model, has really high costs because you've got trucks, drivers, gas, insurance that you have to pay for. And you're going to every store in America every few days to drop off product.
Narrator: Delivery alone ate up 36% of revenue.
Hillary Clinton: An important way to capture this moment in time would be by filling a national time capsule.
Narrator: In 1999, President Bill Clinton included a Twinkie in the National Millennium Time Capsule. So Twinkies still had a huge fan base, but by then, the damage to Hostess' bottom line had been done. By 2004, with $700 billion in debt, Twinkies' parent company, Interstate, filed for Chapter 11 bankruptcy.
Over the next five years, Interstate cut 7,000 employees and shut down eight factories. The company came out of bankruptcy in 2009 and rebranded itself Hostess Brands, but it didn't work.
Jhawar: But, unfortunately, many of the legacy problems that really hampered the company didn't get solved through that bankruptcy.
Narrator: Then the recession took a huge hit on Hostess' bottom line, with year-over-year sales down 20%. To make matters worse, a worker strike and labor dispute soon followed.
Jhawar: That fight turned into production stopping, and the management team then threatened to shut the company down, given pressure from its creditors. And that's exactly what happened.
Narrator: By January 2012, with nearly a billion dollars in debt, Hostess Brands filed for Chapter 11 bankruptcy again.
Broadcaster: The company that makes Twinkies, Wonder Bread, and Ding Dongs announced this morning that it is going out of business.
Narrator: In November, Twinkies were pulled from shelves, and headlines across the country reported the death of Twinkies.
Jhawar: Customers started honestly losing their minds over it.
Bitter: People who would have never cared about Twinkies, in fact, suddenly wanted them. Or thought, "Oh, my God, well, if they're going away forever, I need to stock up.
Broadcaster: The rush was on to grab the last of those tasty treats.
Broadcaster: People scrambled to get the last Twinkies off those store shelves.
Jhawar: It was like the death of a piece of Americana.
Narrator: In December 2012, Hostess began laying off all its employees. Things were looking bad for Hostess, but this guy still saw value in the nostalgia attached to the brand.
Jhawar: There was a real brand here, and it's hard to kill a good brand.
Narrator: Andy is half of the duo credited with saving the Twinkies.
Jhawar: If you polled people age 20 and over, there's 95% brand awareness. I mean, it's unbelievable. It's not every day that you can buy a brand like this, that's ubiquitous in consumers' mind and has leading market share, had a billion dollars in revenues, and an 80-year legacy.
Narrator: After the second bankruptcy, Andy approached legendary investor Dean Metropoulos about joining him in rescuing Hostess. Dean had turned around…
Jhawar: Bumble Bee tuna, Chef Boyardee, Vlasic pickles, Pabst Blue Ribbon. Dean's reputation historically really fit well for this.
Narrator: But unlike the first Hostess bankruptcy, in 2012 there was no coming out of it with a simple restructure.
Jhawar: That bankruptcy process was unique because it turned into a true liquidation and what's known as a 363 asset sale process.
Narrator: Basically, what was left of Hostess was sold for parts. Instead of having to inherit that expensive delivery system, underfunded pension plans, and old union contracts, Andy could cherry-pick what he and Dean actually wanted and forget the rest. So the two showed up to the 363 asset sale ready to fight for Hostess.
Jhawar: Not one buyer showed up other than us. Anybody could've showed up and topped our bid, and nobody showed up. It was frankly very surprising to me.
Narrator: Andy and Dean purchased Hostess for $410 million. Out of the sale, they got the Hostess brands including Twinkie, recipes, and five factories.
Jhawar: That's it. There was no employees, there was no ingredients, there was no inventory. And I have to tell you, it was very odd during diligence, walking through plants where, when you walk in, they're empty and the person who's walking me through the plant has to turn on the lights.
Narrator: And, quickly, Andy and Dean got to work fixing the company. First, they tackled that delivery system.
Jhawar: The old company did direct store delivery. We were gonna transform it into a distribution-to-warehouse model. Instead of going direct to every grocery store in America, you then go to Walmart's distribution centers or Kroger's distribution centers instead, and then they ship it out to their various stores.
Narrator: But in order to move Twinkies through a warehouse, they first had to increase the shelf life. Historically, Twinkies only lasted 25 days.
Jhawar: People would put Twinkies in their earthquake shelters because everybody had this perception that Twinkies would last forever. That really, it wasn't the case.
Narrator: Andy and Dean invested millions to develop a Twinkie that tasted the same, but lasted longer.
Jhawar: We were at first able to get the shelf life to 45 days, and then ultimately to 65 days of shelf life. And so that really helped get the retailers comfortable that they could take it into their warehouses and that the product quality would not be compromised.
Narrator: The new recipe and warehouse-delivery model helped cut delivery costs by 20%. It also meant Hostess could affordably deliver Twinkies to drugstores and dollar stores, markets they'd never reached before.
Jhawar: Dollar General became one of our top five customers.
Narrator: Next up, Andy turned to factory efficiency. Andy and Dean wanted to be able to make $1 billion worth of cake yearly, but with a ninth of the labor and a fifth of the factories.
Jhawar: We ended up doing, getting to 85% capacity utilization plus.
Narrator: Finally, the duo worked on innovating the product line with smaller pack sizes and mini Twinkies.
Jhawar: Those products really didn't get the resonance in the marketplace. And so then we just jumped wholeheartedly into embrace the brand, embrace what you are, which is indulgence.
Narrator: The team had to make all these changes in a matter of months. In July 2013, the once dead Twinkies returned to shelves to tons of fanfare.
Broadcaster: The world is a better place tonight because Twinkies are back.
Jhawar: The tagline was, "The Sweetest Comeback in the History of Ever." It all went viral. It was really kind of unbelievable. A lot of that, frankly, that excitement and buzz, ironically could've never come about if Twinkies never came off the shelf.
Bitter: The trite saying is, what? "You don't know what you've got until it's gone."
Narrator: Twinkies quickly sold out in stores across America.
Jhawar: During our first year, we had $555 million in revenues, from nothing, with profit margins of 27% in a company that lost money and had to go bankrupt twice.
Narrator: By 2015, Hostess was making 1 million Twinkies a day, 400 million a year, and $180 million in profit. At the time, Twinkies made up 80% of the company's product output, and the success just kept rising. In 2016, Apollo and Metropoulos took Hostess public. The IPO valued the company at $2.3 billion, nearly five times what Andy and Dean had paid for it. Apollo and Metropoulos' gamble, that Americans still loved Twinkies, had paid off. But was the beloved snack revived for good?
Jhawar: The stock price has been relatively flat to a little down, but overall the health of the company is very strong.
Narrator: The coronavirus pandemic has helped Hostess.
Bitter: That's because a lot of Americans are buying more food, especially more processed foods. But the key question going forward is, to what degree will that continue? Do they continue eating Twinkies?
Narrator: Alex says adding more limited-time-offer flavorings like peppermint and s'mores Twinkies could help. Or diversifying into new product lines, like Twinkies cereal.
Bitter: Twinkie's a big brand, but at the end of the day, Hostess probably realizes that they need to diversify.
Narrator: And while diversifying certainly might be part of it, Hostess' greatest success has come from leaning into Twinkies' nostalgia.
Jhawar: It'll always have a special place in my heart and my stomach.
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