Hostess Brands: Indulgent, better-for-you snacks are additive, not competitive as consumers adopt ‘this and that’ stance

“We are often asked if indulgence is a sustainable trend relative to better-for-you, and our short answer is absolutely,” Dan O’Leary, Hostess Brands’ chief growth officer, said last week at the Consumer Analyst Group of New York’s conference. “Many people jumped to the conclusion that if better-for-you is growing, it must be at the expense of indulgent snacking. I’m here to say that is a false choice,” he said, explaining that “as the number of snacking occasions increases throughout the day, consumers take a balanced sheet approach when making decisions on what to snack on from healthy to indulgent. “For example, consumers may choose a healthy snack at one point in the day, and then treat themselves with something sweet at another point in the day and feel great about both choices because everything is in balance.” Pointing to results from an in-depth consumer study conducted by Hostess Brands, O’Leary noted 74% consumers describe their eating approach as a “balance sheet” with room for sweet treats, and 80% of adults see sweet snacks as a reward during times of uncertainty. “Few consumers are absolutist about their snacks since snacking is the ultimate repertoire category, ” and as such most consider better-for-you and indulgent not as a this or that choice but a this and that choice, O’Leary said. To meet consumers’ diverse need, Hostess Brands offers both better-for-you options through its acquisition of Voortman Bakery line in 20202 that brought it zero sugar wafer and cookie options, as well as it iconic indulgent brands, including donettes, Twinkies and Ding Dongs. A new paradigm Hostess also is reframing its marketing to better align its portfolio with consumers’ open-minded ‘balance sheet’ approach to snack selection, O’Leary said. “The traditional approach of looking at the market is defined by categories, but this is not really how the consumer views their choices. They don’t say, ‘I want to opt into category X or category y,’ but they say, ‘I want a snack and I have a range of options to choose from,’” he explained. As such, Hostess built an “occasion based framework to understand and target those consumer needs,” he said. Proprietary research by the company identified five unique snacking occasions, each with products from a range of categories that meet consumers needs in those moments, and which together make up a large addressable market of more than $65bn in retail sales that has been growing faster than total snacking, O’Leary said. These categories including the ‘morning sweet start,’ with a market size of $6.7b, the lunchbox, worth $7.2b, the afternoon reward, worth $15.1b, the immediate consumption segment worth $9.8b and the afternoon sharing segment worth $26.1b, he explained. “The view of the market through occasions allows us to understand how consumers think about and buy their snacks. As a result, we can better target our marketing and innovation to meet their needs,” said O’Leary, adding initial investments are paying off with Hostess brand consideration up more than five points to 80%, which outpaces its sweet bakery competition. The impact of the company’s new framework and ability to appeal to consumers seeking both better-for-you and indulgent offerings also is visible in its 2022 financial results, including a 19% increase in net revenue, 9% increase in adjusted EBITDA and 11% increase in adjusted EPS, according to the company.

Hostess Brands: Indulgent, better-for-you snacks are additive, not competitive as consumers adopt ‘this and that’ stance

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