WSJ: How Smuckers Screwed up Hostess

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In 2024, Mark Smucker, chief executive of food giant J.M. Smucker, took the stage at an industry conference and bit into a golden, creamy Twinkie. “Tastes like growth,” he said.

His company had just acquired Hostess, the maker of Twinkies, in a $5 billion deal and it seemed like a coup.

The Covid-19 pandemic had supercharged America’s snacking habit: Some 70% of consumers were eating at least two per day, Smucker said. Buying the owner of Ding Dongs and Donettes gave the jam-and-jelly maker entry into a $65 billion market for snacks. Smucker had beat out other suitors for Hostess, most notably General Mills.

Three years later, the deal isn’t tasting quite so sweet.

Sales for Smucker’s snack division, which includes Hostess, have declined for the last six quarters....

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But some are of the company’s own making. Hostess donuts and cupcakes, it turned out, are surprisingly unlike Smucker jams, peanut butter and coffee. When it folded Hostess into its business, Smucker weakened key Hostess operating strengths tied to distribution and sales, several former and current executives and employees say.

Chief Financial Officer Tucker Marshall, in a recent interview, said: “We did have some internal execution issues that we’ve really right-sized and worked through our last fiscal year.” (Um, yeah)

A 14-year veteran of Smucker’s financial operations who now oversees Hostess, Marshall added that the company is focused on stabilizing the business.

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Twinkies’ shelf life is considered a wonder of food science. But it tripped up Smucker.

The enriched flour, high-fructose corn syrup, and tallow that help make up the American classic give each small sponge cake about 65 days to be consumed. Hostess had worked, before the Smucker acquisition, to lengthen that shelf life.

Still, 65 days is a blink of an eye compared to the shelf life of many core Smucker products—fruit spreads, canned coffee and dog food—which can last for at least a year.

As a result, Hostess products require quicker delivery than Smucker’s. Products must turn faster through a central warehouse, and there is a greater risk that spoilage or production hiccups result in unfilled orders, executives and employees said

.When Hostess was a small, stand-alone company, the Hostess IT systems controlled every step of a Twinkie’s journey, from a retailer’s order to production to shipping. Smucker’s efforts to fold Hostess into its own systems stumbled, resulting in late and incomplete orders, the current and former executives and employees say.

Previously, Hostess could be nimble. If necessary, employees could call a plant and divert a truckload of strawberry CupCakes to a store that needed more inventory. Such moves became harder under Smucker, whose systems and longer lead times were less well suited to more perishable items.

There was another problem: Smucker mainly serves supermarkets’ center aisles, with brands like Jif, Folgers and Meow Mix. By contrast, some 40% of Hostess sales are in convenience stores.

Smucker separated Hostess employees who handled sales to grocery stores from those in charge of convenience stores, making it harder to forecast total demand, the current and former executives and employees say. Hostess lost shelf space and display opportunities to competitors.

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