The next new product from Hostess (TWNK) your entire family can’t get enough of may have been developed in the home of one of the Twinkie maker’s employees.
Welcome to life amidst the COVID-19 pandemic, where access to vast R&D kitchens to test new products is limited for many big food companies such as Hostess. But with competition always fierce in supermarket aisles — especially now — the need to innovate is as important as ever to growth sales and profits.
“Innovation is in our DNA. It’s part of the lifeblood of what we do. We’re a 100-year-old brand that is as relevant as it was 100 years ago. The way you do that is you continue to bring new, new relevant ideas. We just had a town hall yesterday. Our R&D team as we closed the offices, they are developing products in their home kitchens. So that’s the spirit and energy of our Hostess hero’s to be able to do it,” Hostess CEO Andy Callahan told Yahoo Finance’s The First Trade.
Callahan says there is still no substitution for being in the test kitchens at the office. But, the innovation being done by Hostess employees in their home kitchens is positioning the brand for success in the months and years ahead.
“They are able to be inspired. They are able to develop their creativity. They are able to get on Zoom and share things with people. Innovation doesn’t happen in a vacuum. It doesn’t happen at home. It happens through sharing. And it happens by integrating with products, consumers and customers. That’s what our innovation lab does. It’s the spirit of the people. But you eventually need to get in the lab with the scaled up equipment and get in the plants,” Callahan explained.
Hostess’ second quarter inspired investors, too.
Sales surged 11.7% from a year ago as Hostess saw consumers stock up on Twinkies and other sweet treats while staying at home more. Adjusted operating profits rose 24.8% from a year ago.
Shares of Hostess have gained 16.8% over the past three months.
“Hostess is one of the food companies under our coverage that not only should post accelerating top-line trends into next year (driven by channel improvement, distribution gains, base innovation, and acquisition revenue synergies), but also margin expansion, given cost synergies, and base business efficiencies, all likely leading to outsized industry growth,” wrote Jefferies food analyst Rob Dickerson in a note to clients.