Investments let Hostess brands rise again

Bread is being baked in Lenexa again; snack cakes are rolling off the line in Emporia, Kan. Different companies have succeeded in the turnaround of the former Hostess operations that failed amid labor turmoil and bankruptcy. These freshly baked Twinkies travel down the conveyer belt to the packaging area at the Hostess Emporia plant.
Bread is being baked in Lenexa again; snack cakes are rolling off the line in Emporia, Kan. Different companies have succeeded in the turnaround of the former Hostess operations that failed amid labor turmoil and bankruptcy. These freshly baked Twinkies travel down the conveyer belt to the packaging area at the Hostess Emporia plant.

Three years ago, iconic products like Wonder Bread and Twinkies were dead, killed in a bankruptcy that shut down the once-thriving Hostess bakeries of a Kansas City-based company.

Today, at bakeries in Lenexa and Emporia, Kan., and other spots around the country, the brands are reborn. Phalanxes of loaves, buns and snack cakes are baked, packaged and shipped, bound for consumers who never lost their appetite for them.

At the newly reopened Flowers Baking Co. plant in Lenexa, 9,000 loaves an hour, two shifts a day, five days a week slide into an oven the size of a tennis court. The Wonder and Home Pride breads, along with bun production, line retail shelves the next day.

Ninety-eight miles southwest of the Lenexa bakery, staggering daily totals — 1.8 million mini-doughnuts, 1.4 million chocolate cupcakes, 1.5 million Twinkies — shoot through production lines 24 hours a day, six days a week in the new Hostess Brands LLC snack cake plant in Emporia. Within minutes, they’re out of the oven and snuggling into plastic sleeves, bags and boxes.

There’s scant sign that low-carb, low-sugar diets are winning the American palate. Even as the new Hostess company makes a foray into producing a healthier whole grain muffin elsewhere in its system, the sugary old favorites still rule. In fact, the Emporia plant is working on a new brownie line for another sweet option.

The paths to resurrection of the old Hostess Brands Inc. brands may be as convoluted as the conveyors winding through the big bakeries. But the results are not hard to follow. Some of America’s most recognizable brands are back in business after labor turmoil, debt burdens and a second failed attempt at bankruptcy restructuring led to shuttering 36 bakeries and firing 18,500 workers in November 2012.

The renaissance was gradual and partial. It first required asset sales of Hostess Brands Inc., a successor to Kansas City-based Interstate Bakeries Corp.

Interstate had slid downhill from a mid-1990s peak when it was the largest wholesale baker of bread and snack cakes in the United States. In fact, national brand recognition prompted the company to rename itself in 2009 as Hostess Brands Inc. But by 2012, the company had failed, union contracts were severed and its brands disappeared.

Fast forward to 2013. Flowers Foods, a publicly owned baking company based in Georgia, paid $355 million in court-ordered proceedings to acquire 20 closed Hostess bread and bun bakeries. To date, Flowers has returned three former Hostess sites to production — in Lenexa, Knoxville, Tenn., and Henderson, Nev. (Another former plant in the Missouri/Kansas region, in Boonville, Mo., was not reopened and is for sale.)

Separately, a private investor partnership of Metropoulos and Co. and Apollo Global Management LLC paid about $410 million to buy five of the former Hostess snack cake bakeries. It reopened four. But after amping up production in Emporia, it closed one, leaving bakeries in Columbus, Ga., and Indianapolis in operation. Emporia’s site came back on line in mid-2013 after being dark for only half a year.

Loaves and buns

Paul Frankum, president of Flowers Baking Co. of Lenexa, walks the 137,000-square-foot bakery floor like a proud papa, pointing out gizmos and people who make the place hum. Metal stairs and catwalks navigate conveyor lines transporting rivers of dough to pans before proceeding through the baking, cooling, slicing and packaging chain.

“I grew up on a chicken farm. This smells much better,” beamed the 30-year veteran in the Flowers company, who came from Georgia to reopen the plant.

Pulling a just-sliced loaf off the line to offer a taste, he touts the former Hostess brands as well as Flowers products. A “fantastic reintroduction of Wonder Bread,” he said, has vaulted it to a best-seller status among the Nature’s Own, Home Pride and Sunbeam breads and buns made at the plant. (According to Flowers Foods, Nature’s Own is America’s top-selling bread.)

After $10 million in updating, the bakery’s two production lines — one for bread, one for buns — cycle through 525,000 pounds of flour a week, 58,000 pounds of yeast, 65,000 pounds of sugar. Nearly a million pounds of finished product are trucked weekly from the plant.

Frankum credits Amber Mangiaracino, the plant’s director of manufacturing and a grain science major from Kansas State University, for part of the bakery’s successful revival.

“We’re lucky to have her,” he said. “She can go places in this industry.”

The Lenexa plant earlier this year geared up with an employment structure different from what it had before the bankruptcy shutdown. The big change: No union affiliations.

The Bakery, Confectionery, Tobacco Workers and Grain Millers union had represented about 100 of the former bakery’s employees, the Teamsters union represented its delivery drivers and the Operating Engineers represented the plant’s maintenance workers. Fighting year after year of pay and pension givebacks to assist the old Hostess company in reorganization, the Lenexa bakery union led the 2012 walkout that eventually contributed to the total Hostess shutdown.

In rebirth, the Lenexa plant now has about 100 Flowers Foods employees — all in management, bread production or skilled machinery operation. An additional 70 workers in packaging and warehouse operations are supplied by Ambassador, an employee leasing company.

Cleaning is outsourced too. Deliveries to stores are made by franchise operators who own the rights to serve specific geographic territories in Missouri, Kansas and Nebraska.

Frankum said about two dozen of the plant’s current workers had worked there before. He said pay on the bakery line starts at $13.50 an hour and rises to a top range in the $20s. According to a union leader who previously dealt with the plant, that’s about $5 an hour lower to start than union members earned before the shutdown.

Creme-filled cakes

It’s not possible to see from one end of the Hostess bakery in Emporia to the other, partly because the 290,000-square-foot plant is big and partly because it’s filled with floor-to-ceiling equipment that snakes up, down and around the plant.

Wearing the required hair and beard nets, Kevin Sandefur, senior director of operations strategy, points out more than $40 million in upgrades to the plant. That includes work on the six production lines, which usually run two 12-hour shifts a day. One change turned two of the snack cake lines into superspeedy operations. The injection of filling in Twinkies, the application of little white frosting squiggles atop chocolate cupcakes and the insertion of cakes in plastic sleeves happen in a blink.

The private investor partnership that bought Hostess snack cake assets has kept the corporate headquarters of the new Hostess Brands LLC in Kansas City. From 1 E. Armour Blvd., CEO Bill Toler and a staff of about 90 manage the company. They make decisions about product mix and production of Twinkies, Hostess Cupcakes, Donettes, Zingers, Snoballs and the newer brownies.

Since reopening the Emporia bakery, originally built in 1964 as a Dolly Madison plant, the company has added a 36,000-square-foot warehouse. It now operates with about 500 on payroll, similar to the plant’s pre-bankruptcy employment. The new Hostess plant also is non-union.

Toler declined to cite starting pay or pay ranges at the Emporia plant. He said the company “can’t accurately compare pre- and post-bankruptcy pay.” He also said the new Hostess company doesn’t track how many of the employees were rehires from the old Hostess. The plant was well known as a top payer in the community, so even at lower non-union pay rates, a union official said it was likely to have attracted some workers to return.

Toler said the company prefers to concentrate on “how consumers have come back to the brand.”

He said, “Our challenge now is picking the priorities for growth. … It’s a curse of riches.”

One of the equity investors in the new Hostess, Metropoulos, already was known for buying and selling Chef Boyardee, Vlasic and Bumble Bee after turning them around. The other major investor, Apollo Global, had bought and sold Carl’s Jr. and Hardee’s after making improvements. The stock market buzzed this summer with suggestions that the equity team might be heading for an initial public offering of Hostess, valued at about $2.5 billion.

But executives, including C. Dean Metropoulos, said the prospect was premature and there still were potential growth opportunities for Hostess.

Brownies and whole grain muffins figure in the growth plans. CEO Toler pegged brownies as a national $400 million market segment that Hostess should be in. He also said that a “healthier recipe” for whole grain products, made in Indianapolis, could become a strong response to consumer demand.

Meanwhile, the new Hostess operations in Emporia reflect another new way of doing business. All products made at the plant are boxed and shipped to one of two warehouses in Chicago and Carthage, Mo., before being trucked to retail locations.

“We used to use route trucks directly from the bakery,” Sandefur said.

Now robotic arms stack pallets that go to brokered carrier trucks to one of the centralized warehouses.

“It’s a more efficient operation,” he said.

From the two warehouses, the snack cakes generally are distributed to stores within three days to three weeks, he said. Unlike the next-day delivery of bread and buns, Hostess snack cakes don’t have the same speed-to-market concern.

“Twinkies shelf life? We usually say 65 days,” Sandefur said, grinning with acknowledgment that consumer lore sometimes extends it much longer.

Diane Stafford: 816-234-4359, @kcstarstafford

Related stories from Kansas City Star