Retail Snack Attack - The War of “Bids!”

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The largest US discounter and other gigantic retail chains are among a pack of emerging bidders for some of the much-loved brand names to be auctioned off by bankrupt baker Hostess Brands, according to a recent report. The maker of Wonder Bread, Twinkies and Ding Dongs —has attracted a bevy of would-be breadwinners betting that America’s love affair with junk food isn’t over yet. Wal-Mart (NYSE: WMT) is among the 24 bidders for assets being sold by Hostess Brands. Also ogling Hostess brands is grocery store giant Kroger (NYSE: KR) which has 3,226 groceries and convenience stores in the US. “A few of the bids are for all the assets, some are for just the cakes or breads businesses, and others are interested in individual Hostess plants or products,” according to the report. The report said other bidders include Mexican baking giant Grupo Bimbo as well as Alpha Bakers.

The Beginning of the End of Hostess

Hostess employs nearly 200 workers at 19 locations in Alabama, including 135 employees at a Birmingham bakery. Changes in American diets led to years of declining sales at Hostess, while ingredient costs and labor expenses climbed. While a shift towards healthier eating habits among consumers helped push Hostess into insolvency, the cake maker was also scrambling to recover from years of mismanagement. A standoff with striking union workers triggered liquidation auctions of Hostess’s brands, recipes, plants and other assets. The Bakery Confectionery Tobacco Workers and Grain Millers International Union went for a strike on Nov. 9 after U.S. bankruptcy judge, Robert Drain, imposed contract concessions which was opposed by more than 90 percent of the union members. The union represents more than 5,000 Hostess workers. The maker of several iconic brands, including Twinkies, Wonder Bread and Ding Dongs, last month began liquidating its business and firing more than 18,000 workers after failing to reach a deal with its striking bakers union on concessions to help it rebound from its second bankruptcy. Last month, it was reported that Hostess liquidation sale may generate about $1 billion.

Hostess emerged from an earlier bankruptcy in 2009 as a private company controlled by buyout firm Ripplewood Holdings LLC and lenders. The company was previously known as Interstate Bakeries Corp. and changed its name to Hostess Brands in October of that year. Hostess entered its latest bankruptcy in January. It has $900 million of a secured debt and about $150 million administrative claims.

Kroger as a Competitor

Kroger has a strong market position in the US. The company operates 2,486 supermarkets and multi-department stores in 31 states. The company has a strong market position in the grocery and food retailing segments. One of the company’s banners in the grocery retailing category, Fred Meyer, is the nation’s third largest supercenter operator. Kroger's strong market position is attributed to its wide product range, attractive locations, competitive pricing and brand equity.

The Road Ahead for Wal-Mart

Wal-Mart over the years has acquired numerous defunct labels, such as White Cloud toilet paper, which it snatched up after Procter & Gamble failed to renew its trademark. Wal-Mart had been Hostess’s biggest customer, accounting for 40 percent of the baker’s production of Ho Hos, Suzy-Qs, Fruit Pies and Sno-Balls, among other sugary snack cakes. If Wal-Mart wins the bankruptcy court auction for the Twinkies brand — or any other Hostess asset — it could mean that the snack foods would be available only in the 4,479 Wal-Mart and Sam’s Club stores in the entire US, further enhancing its dominant position in the retail market. This would also enhance its overall sales figure which has taken a hit in the past few years as depicted below:-

<img src="/media/images/user_15190/walmart1_large.PNG" />


The overall bidding process has been kept very secretive by all the top notches because of the sensitivity of the matter. Bob Goldin, executive vice president of Chicago-based Technomic said a retailer is not the most likely suspect to make the purchase. But he believes that Wal-Mart and Kroger are interested in the brands of Hostess, rather than the physical assets. But that brings up the big question, how would it work? Would Wal-Mart use them for their internal production or sell to outside channels? Could the giant retailers buy the brands and outsource them to other bakers? Well, we shall have to wait and watch!

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