What? No Twinkies, no Ho Ho’s, no Ding Dong’s? No Sno Balls to make bikini cakes? Is the world ending in 2012? Hold on, it’s not quite the end of the world yet. Even though Hostess was unable to mediate an acceptable contract with the unions, Hostess can convert to Chapter 7 liquidation and sell the rights to the Hostess brands to another company. So, stay calm, Twinkies will live on.
Regardless, when news that the Hostess factories were shutting down for now, Twinkies addicts rushed to store shelves and grabbed every Hostess product available in order to pile up supplies for any upcoming global disasters. We have personally seen our local grocery stores depleted Hostess products, and instead they are pushing their own private brands.
With all the hoopla surrounding a possible Twinkies extinction, and exorbitant prices on eBay for the “last remaining Twinkies”, how is the value of the Hostess brand effected? Nostalgia is making these Hostess snacks a hot commodity, creating increased brand value. How do you put a price on that? How will Hostess, or any potential buyer, value the iconic brands?
Conspiracy theorists may offer up the idea of “no more Twinkies” as a ploy to increase the value for a potential bidding war for Hostess brands. Look, really, a seller on eBay posting a $21,000,000 auction price for a shopping bag’s worth of Hostess products? And there are many more in that general price range (not that anyone has actually sold anything at that price). The number of online auctions for Hostess products is astonishing. There are over 60,000 auctions on eBay alone, ranging from $0.35 for Blueberry Toaster Pastries, to the aforementioned $21,000,000 for a “rare” box of Twinkies, with a best by date of 11/15/12 — the day Hostess stopped manufacturing (although the seller does say 95% will go towards Hurricane Sandy relief efforts.)
Of course, someone in marketing should have promoted the nostalgia angle much earlier, and maybe they wouldn’t be in this situation. Maybe Hostess should continue on as a premier product, with limited supplies available, and increase the price accordingly — something like a fine wine. Twinkies does have a long shelf life. Like artist’s lithographs, Hostess can offer the 2012 Twinkies winter vintage, number 1 of 1,000.
But, as the parties eventually go to the auction house (or gather around a conference room), there is more to consider when negotiating a price then just the value of Hostess’ recent spike in popularity. There is value in all their and licensingpotential. Anything retro is valuable these days. What can be more retro than Twinkies and the offshoot of products that can be imagined?
The big value will be in their trade secrets — what is the recipe for the Twinkies creamy vanilla filling? And what about the original 1930 banana crème filling recipe, is that available? And there’s more than just the Hostess brand for them to sell. The brands include: Dolly Madison, Drake’s, Merita, Butternut, Wonder, Nature’s Pride, Home Pride, Beefsteak, and a number of regional brands. Hostess is pretty big. Buyers will look at all the brands, or select ones that may fit into their own business. Flowers Foods, who makes Tastykakes, already received an extended $500 million loan facility on Monday; possibly in anticipation of an offer to buy?
At CONSOR, we like to value the big picture. Not only is there present value, there is future value, and the potential for future brand extensions. Our valuation methodologies take all those factors into consideration, and so should the parties when they enter into negotiations. No matter what the end result will be, it will be sweet!