Hostess Bets on Twinkies as Pabst Blue Ribbon of Junk Food

(Bloomberg) -- It's a playbook that worked with Pabst Blue Ribbon: Breathe new life into a moribund brand by cultivating hipster credentials. Now, the investors who helped revive Pabst beer are taking Hostess Brands public, banking on introducing a new generation of consumers to Twinkies, the company's most famous baked product.

Metropoulos & Co., the private equity firm founded by billionaire C. Dean Metropoulos, made a killing on Pabst, netting a profit of more than $450 million four years after the investment firm acquired the brewing company. Sales climbed steadily as the new owners cultivated the brand's aura, sponsoring concerts and burlesque festivals and selling PBR trucker hats and jackets. That deft marketing helped transform the light lager into the brew of choice for millions of young image-conscious American beer drinkers. Can Twinkies also be cool again?

It's a risky bet. The yellow sponge cake tube, first introduced in 1930, is an American pop-culture icon. But nostalgia for the sugar-filled, artificially colored snack may go only so far with today's health-conscious customers.

The new owners are “fighting gravitational forces in the world of food that are very different than the beer market,” said Allen Adamson, former North American chairman of the branding company Landor Associates. “With Twinkies, they have to get people to consume a product that is bucking all the health trends."

Metropoulos and Apollo Global Management, who bought Hostess in 2013, are betting good money on the future of Twinkies. And they're now joining forces with other investors to take the sweet-snack maker public. Twinkies will be the centerpiece of the company's portfolio, including new varieties to be rolled out later this year. Frozen fried Twinkies anyone?

"Hostess has incredible brand power," William Toler, the chief executive officer of Hostess said on a conference call said. "It has an amazing emotional connection with consumers."

Hostess has been close to extinction twice in the last decade as consumers turned away from many of the grocery staples that long dominated shelves. Processed sugar, in particular, has been branded a health boogeyman. Hostess emerged from bankruptcy in 2009, then went under again roughly three years later.

Much to the horror of junk-food aficionados, Twinkies disappeared from store shelves for about seven months after its then-owner filed for bankruptcy in 2012 and planned to liquidate the company, spurring laments from fans who worried the iconic cakes were gone for good.

Natural Ingredients

Apollo and Metropoulos rode to the rescue the following year, paying about $410 million for the brand. The new management has slashed jobs and transportation costs and and boosted distribution since taking over. To help keep trucking costs down, Hostess more than doubled the average shelf life of its products to 65 days. A long-held urban legend has it that chemical-laden Twinkies could stay fresh for years, if not decades. But they are fresh baked goods that use “natural ingredients” as preservatives, according to Hostess.

Hostess sales plummeted when Twinkies disappeared from stores but have rebounded under the new owners to roughly $650 million in 2015 and are forecast to grow 11 percent to $722 million this year, according to a company presentation.

Hostess is counting on Twinkies' strong brand sparking a youth rebellion to the healthy food movement as it moves toward a public offering later this year. A brand like Twinkies, that has achieved a certain pop-culture status, might have enough cache for customers to set aside their sugar aversion.

"They get a lot of press for being extremely unhealthy,” said Emily Balsamo, an analyst at the research firm Euromonitor. “There's a trend that kind of indulgence."

To contact the reporter on this story: Craig Giammona in New York at cgiammona@bloomberg.net. To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Rick Schine, Melinda Grenier