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Hostess Brands CEO on ‘reward yourself’ behavior during and after COVID-19

Yahoo Finance’s Brian Sozzi, Myles Udland, and Julie Hyman speak with Hostess Brands CEO Andy Callahan about how the company is faring amid the coronavirus pandemic.

Video Transcript

BRIAN SOZZI: The breakfast of choice in this ongoing war from home life looks to be a Hostess Twinkie or Jumbo Donette, or hey, maybe both. Let's bring in Hostess CEO Andy Callahan, hot off his company's latest earnings report. Andy, I remember-- always good to see you, first of all. I remember talking to you at the beginning of the pandemic. And you told me, Brian, people are starting to stock up food because of the pandemic. And it really was an interesting tell into what lay ahead for the pandemic. What are you seeing in your business right now? Are they stocking back up?

ANDY CALLAHAN: Well, Brian, first of all, great, always, to be here. You know what? Well, I think it's a little bit more than a stock-up for us. And Julie mentioned it just previously. Consumer behavior is a little different than what we hear a lot of the headlines. Their behavior is always small indulgences. They take them in the-- they have it in the morning, mid-afternoon, and later at night, typically. We did see a surge during the pandemic.

But what we've seen as we get into phase two is more of continuation, and maybe at a higher rate, of a continued behavior, where consumers look either to treat themselves or reward themselves. And Hostess is a great option. Very convenient. High quality. It's an accessible price point. You know, you can have it on the go or stocked up within the home. And we're seeing that continue, and actually accelerate with the number of households and the repeat purchases.

BRIAN SOZZI: So Andy, I'm reading through your-- I was reading through your earnings call. And I would argue that for the first time since you took over as CEO, you're now starting to really focus more on the product innovation-- not that you weren't before. But some of your biggest ideas are now starting to come to life. Jumbo Donettes-- these are innovative products in the food space. What does 2021 hold for Hostess on the innovation front?

ANDY CALLAHAN: Well, I appreciate that, Brian. Well, reestablishing the foundation and a profitable growth model, and in a scalable platform, was really that relaunch over the last several years. And now we do have something. We bought the Boardman business. So we've diversified the portfolio. And innovation is critical.

And it comes in three phases. We bring new flavors, contemporarize the brand. We have usage. But also, we have new platforms. And that's what we're doing this year. We're moving into crispy minis-- allows us to be more of the grazing with Hostess brand. We're also moving into breakfast. Our breakfast business is on fire, as you mentioned. Cream cheese was doing really well. And now we have Baby Buns coming in. So we're moving in.

And with Boardman, we haven't stopped innovating in Boardman. We also-- we're the number one sugar free both cookie and wafer. And we're now moving into multi-grain, and also providing through Mega, single serve option that's going to enable us to move into our very strong convenient channel platform. So those are, as opposed to the innovation, that we really drove the contemporizing the brand and contemporary flavors, we're actually moving into new need states, new occasions, and new channels with the business. So that's very exciting for the incrementality of the growth.

JULIE HYMAN: Hey, Andy. I want to pick up on something that I was just saying before as well, which is, how long do you expect this sort of indulgence trend to continue? What do you expect, in terms of what you're product flow is going to look like as we hopefully start to come out of the pandemic?

ANDY CALLAHAN: Well, I don't expect the indulgence trend, so to speak, to really slow down. It's been sustainable. It's been steady. It's happened before the pandemic. It's happened after the pandemic. So I don't expect it to change. We're not looking for overindulgence. We're looking for an appropriate, one occasion to reward yourself behavior of a balanced diet. And I expect that to continue as we move out of the pandemic, both in the morning, and what we call AM snacking with our sweet treats in the morning, and in the afternoon. I don't see it-- I don't see it really ending.

MYLES UDLAND: And then Andy, I guess, related to that, a lot more people have been inside grocery stores a lot more often than they had been in pre-pandemic times. And I think a lot of those trends are very interesting. And I'm just curious, in terms of where people are finding your brands, how that has changed through this time. What the-- e-commerce part of the business, is that something that-- how important is that to you guys? Because I just think that a lot of people, again, in an urban setting like New York City, they are buying their own food at a much higher rate. And they are probably exposed to your products a lot more often than they had been in the last few years.

ANDY CALLAHAN: Yeah, the e-commerce business is a relatively small piece of our business beforehand. It's growing at four or five times the rate of our total business. So I expect that those trends to continue. We've actually recently updated what we call our digital shelf and our e-commerce, and we're capturing and talking to consumers be about digital path to purchase. A lot of that behavior is less around our online delivery business, but more shop, pickup, click and collect, or buy at the store. And that behavior within our core base is really growing.

One of the incredible things though, Myles, you brought up about our results, and one of the reasons I'm really proud of the team, is our business was balanced between immediate consumption-- the front of the grocery store checkout, convenience stores, where we have a large rack. During the pandemic, that business really declined, was really impacted. Because it's more dependent on traffic and foot traffic. But our multi-pack business-- i.e. Buy them, bring them in the home, and then use them at your convenience-- really accelerate it. But despite that decline, we've still been able to grow meaningfully, increase households, increase the repeat rate of those households at more than twice the category.

And I expect that those new consumers we have to continue in the franchise. They've learned-- they've reintroduced themselves them Hostess, or new households. And as traffic in the economy opens up-- we're hearing some positive news now that that's optimistic-- as traffic increases, that's all good news for us. We've grown share within the convenience channel. And as we've reimagined the front of the grocery store, I expect that to be additive. I don't think they're related. I think we're going to continue to grow and recover as that happens.