Diving Into This Week's News From Smucker, Albertsons and Paqui

0:00What moves have Kroger and Albertsons made in order to gain regulatory approval for their upcoming merger? Why did JM Smucker Corporation acquire Hostess? And industry insight into the news that a teen has passed away after taking the Pocky One Chip Challenge.

0:26Hi everyone, I'm your host Carol Ortenberg. On the Nosh Podcast, we go inside the business of natural, organic, sustainable, and healthy food. Today, the team discusses some of the top news in the industry from players, including Smuckers, Kroger, and Pocky. Joining us today are reporters Adrian DeLuca. Hello, Carol. Hello. Lucas Southerd. Hi. Hi. And Editor-in-Chief Jeff Kleinman. Thanks for having me. Adrian, kicking things off, there was some big news surrounding Hostess and J.M. Smucker this week. What's going on? That is true, Carol. Smuckers announced today as we're recording this, which is Monday, that they are purchasing Hostess for$5.6 billion.

1:14That includes all those baked good brands, but also their manufacturing facilities, distribution facility, 3 ,000 employees. They're bringing the whole business in. That's a whole lot of Twinkies. Oh, yeah. Snowballs would be my favorite. Yeah. There's all kinds of great treats that they make, and they all last for a lifetime. Anyone ever see Zombieland? The movie? Yeah, where Woody Harrelson spends his entire existence looking for Twinkies in a post-apocalyptic world. Yeah. Probably the only thing that would survive. Adrian and I were talking about this, and neither of us have ever eaten a Twinkie.

2:03What? I think I was peddled some fact when I was a child that like a Twinkie was equal to like 50 strips of bacon. I think my mom might have made that up. I had a similar story that was told to me. I don't know if it was urban legend or what. I may once have eaten a Twinkie wrapped in bacon. whenever i think of twinkies though i think of my one of my all-time favorite movies ghostbusters and them talking about the the giant twinkie that would would happen if all the like spirits were unleashed in the world just i can only imagine how much how much fun i would have eating that giant twinkie which i think speaks to the uh value of the twinkie brand and the hostess brand You know, I mean,$5.6 billion is a lot, particularly for a company that's been in and out of bankruptcy a couple of times in the past decade.

2:59But, you know, Hostess has made an incredible comeback. And it's at least partially due to that sort of flight to comfort during the pandemic. That is exactly the sentiments echoed on their very, I guess, last minute call about the deal from Smuckers this morning. Their CFO, you know, emphasized that, as you mentioned, Jeff, over the years, hostesses had some issues, but they've delivered some strong mid-single-digit growth the past few years, and they don't really expect that to change just because of, you know, consumer loyalty to specifically the Twinkies, Ding Dongs, those core brands in their lineup.

3:39I'm curious because I saw they said that there was complementary product technology with Uncrustables. So is the same way you get peanut butter and jelly into an Uncrustable the same as how you stuff a Twinkie? Like, I'm curious here, what is this product technology? Well, I'm no food scientist, but I'm glad Jeff brought up earlier how long Twinkies would last, because I think that speaks to what they're going for here. Apparently, they recently launched a new version of Uncrustables that is shelf-stable for five days. So they're hoping, you know, Hostess's presence in the C-Store channel will also help accelerate that product and really push Encrustables into C-Stores a little bit more.

4:22Well, that's interesting that it's sort of Smuckers acquiring Hostess C-Store access while both do a lot in supermarkets. So that's an interesting throw in on the deal or an attractive part of the deal. It was, you know, the Wall Street Journal was talking about it being a pretty high multiple for that type of company. You know, financial engineering, notwithstanding, it's pretty cool that you can rescue a brand like that and keep it afloat. I mean, they're going to be sort of longstanding health care or healthier food headwinds here. But brands like Twinkie are, you know, tough to kill. Definitely.

5:18They're expecting, I think the number was like 1.5 billion in net sales after that first year of integration. So definitely a strong business to bring in. I wonder what'll happen to Twinkie the kid do you think he was part of the deal definitely not you had to pay an extra million just for the the mascot suit you know I mean if we're lucky we might get an Uncrustable's uh like Fluffernutter that's what I'm thinking like a little bit of like a maybe marshmallow peanut butter Uncrustable you know with the Twinkie filling I mean I do they not have that by now I feel like they should they should they have ham and cheese.

5:59How do they not have Fluffernutter? I remember the ham and cheese launch. And I think I remember thinking, why isn't Fluffernutter come out yet? I just, I'm excited because the last time I went to NACS, I had my picture taken with Twinkie the kid. And I'm expecting that he'll be handing out money instead of baked goods this time. It was also interesting to me that they said that they saw Vortman as the growth engine of the deal. When you think of their array of brands, I don't know if that's top of mind for me, but they've certainly, we've covered the fact they've done a lot of low sugar launches recently.

6:41So I'm curious to see how they position that going forward. Definitely sounded like Vortman, you know, within Hostess's ownership has been the focus of their innovation, especially in those, like we said, better for you offerings as those headwinds come in. Well, that will be interesting to see because it's, you know, certainly not their stock in trade. Just can't compete with a Ding Dong or a Twinkie. So no diet Twinkies is what I'm hearing. Or those delicious Hostess cupcakes. I've never had any of these things. Why is it anyone talking about snowballs? Never eaten any of these. Snowballs are the best.

7:21I don't mind like the mini donut things. The donuts? Yes. That is convenience store food in a nutshell or in a sack with a window. Adrian, it did make me think of your story around donut full. Will this deal and the strength of these brands, you know, incentivize more folks to enter the better for you category? Certainly food stores tried to do that. I think there's some frozen offerings, but in Better For You feels like it's pretty wide open still. Well, Carol, in that story, if you remember, they did hint Donut Full is coming to more categories than Donut Soon. So we shall see where they look to compete with Hostess, I think, by the end of the year.

8:08Do they have to change the name, though? Is it a Donut Full Twinkie? Like, is this a hybrid mashup? Like, what are we going to get? I'm not sure we can disclose that. Ooh, stay tuned. Well, continuing with the news, last week Kroger revealed it would divest over 400 stores to CNS Wholesalers in order for its merger with Albertsons to move forward. CNS will pick up 413 stores to be exact, notably the Mariano's banner, and eight distribution centers over 17 states. Jeff, have there been similar divestments in the past that you thought about when reading about this deal? Well, when Albertsons merged with Safeway back in 2015, I believe, there was a similar spinoff of stores, I think about 150 or so, that were bought by Hagen out west.

9:05And that really didn't work out very well. In fact, the buyers sued Albertsons for sort of giving them the chaff of their store footprint. And eventually Albertsons bought a bunch of the stores back. Now, it's common for any kind of merger to feature the two companies that are getting together to spin off some aspect of the trade in order to avoid accusations of a monopoly. And we've seen that in everything from the Megabrew merger of SAB Miller and Anheuser-Busch InBev. One of the things that I think is interesting about in this particular case is that there's sort of a balloon number up to about 650 in the deal.

10:05So, you know, there's a chance the FTC will say, well, you're not cutting deep enough. And they've identified another couple hundred stores that they could throw in. Just to be clear, there are a lot of moving parts to this. The unions are not thrilled about the way this is going down. A lot of consumers are not particularly happy about it. There are lawsuits in a bunch of different states trying to stop this merger. when you mess with someone's supermarket, you really do hit them very close to their hearts, I think. One difference when compared to Hagen is that they had 18 stores and I think they picked up just under 150.

10:51So, you know, they expanded their presence really quickly. In this case, you know, CNS has a little bit more scale. They have about 160 stores now, and certainly that's a big jump up. At least they've had some room to see what the retail business is like when you're across states and in a larger footprint. They also distribute to over 7 ,000 stores. And I thought that was a really interesting part of their acquisition strategy is that now they'll kind of own the distribution side and the store side. I don't know what that means for other distributors though, of course. It's an interesting way of seeing this sort of really actually old, you know, 100-year-old company, gradually pivot.

11:35They lost a big chunk of their distribution business a few years ago when Ahold, the owners of Shaw's and Stop and Shop up in New England, decided to go to their own self-distribution model. So they have gotten into the business of buying some supermarkets themselves. Do you all think that this makes CNS kind of like a major player? I mean, it seems like a lot of the store count, as you said, was on the West Coast and can make them a bit of a force to be reckoned with in grocery on the West Coast, or is this just not a big enough move for them to become a household name? So you're dealing with a spinoff of maybe 10 % of the total stores that combined Safeway Albertsons would have, which would be a 5 ,000-store network.

12:37There's a ton of consolidation still going on throughout grocery land. We're even seeing some smaller independent chains combined in the Northwest. So there's this ongoing market for chains, I don't know if this deal alone would make someone like CNS a formidable landowner in supermarket land, but they may have more coming. The price of these stores is probably favorable to the buyer given the necessity that they be divested for the deal to go through. But again, it could be an opportunity to shave off underperforming stores. And I think people are going to find that out as they start to dig into it, just how good a deal they've gotten on these.

13:39There was also some sadder news last week as a Massachusetts teenager passed as a result of, his family says, consuming the Pocky one chip challenge. The company maintains that there's a warning on the packaging stating that it's only for adults without pre-existing conditions such as asthma, but at the same time has had prior issues with teenagers getting seriously ill after consuming this seriously spicy chip. Jeff, I know you've been talking to some experts. What were some takeaways they had about this news? First of all, you've got to understand that this particular marketing piece really put Packy on the map as a company.

14:22Initially, it was bought by a company that ran Skinny Pop, and it was a kind of small but intense tortilla chip brand, and they just needed something to ignite the brand. And the one chip challenge really went viral. You know, they couldn't keep it on shelves, and it was something that even a bunch of stores rejected initially until they were able to sell it online, and it just became a social media sensation. They started off with the Carolina Reaper as the pepper. And over the years, they've added a little bit more pepper heat every year. And they try, you know, I don't think you put this out without a significant number of disclaimers.

15:27And it went through legal at Packy. but it's something that grew and coincided with a lot of eating challenges and let's face it we're sort of in a in a cultural moment where people are trying to pack on you know a lot of spice and they're trying to uh impress other people on social media and and i think that there are times unfortunately, where people have adverse reactions to many kinds of products. And in this case, the one chip challenge, you have a lot of people who are eating things that are way, way, way too spicy for them. A lot of schools had already been on alert and talked to parents and students about trying the one chip challenge.

16:30And it's one of these things where you market on products, you say, this chip is not for someone under 18. This energy drink is not for someone under 18, but it's really hard to not sell a product unless it's age-gated in a regulatory sense. That means that the consumer is kind of signing their own release with their money. Now, it's up to the manufacturer to make sure that they're not putting a dangerous product out there. And if they are, it's appropriately labeled. At the same time, this is tragic, and the brand has to be really sensitive to the fact that you had a kid who ate this chip, whether or not it felt too old for him, and he died.

17:38And his parents blame this company for what happened. And the only way that a brand can really survive this is to be compassionate, sensitive, do the right thing by pulling the product from the shelves until there's medical evidence and proof about what happened. And people react differently to different stimuli. And I've covered a number of cases in which kids have either been injured through improper usage of products or through proper usage of products. It's a time when we're very sensitive to food allergies. It's a time when we're very aware of litigation. and a time when these parents have to be hurting.

18:41And I hope that they're able to find some peace and that the brand itself is able to act as responsibly as it can during this time. The brand itself has to have known that this was, I mean, maybe not like that it would cause a death, it would be possible, But they knew that this product, yes, you can eat it, but it's not really a food. Like nobody, you're not getting any nutritional value out of this. It's more about the stunt of eating something so incredibly hot that it causes you to, most of the time, vomit or worse.

19:22We had someone in the office who tried it, who loves spicy food and still had a pretty aggressive reaction to it. nothing that required medical attention, but still was far spicier than what they could handle. And their tolerance was pretty high. Yeah. So they had to know that this was a possibility, at least. I can't imagine that this conversation wasn't had amongst the powers that be in, you know, Pocky, Amplify, you know, that they were putting a product out there and knowing that a lot of the consumers are going to be social media, you know, addicts, teenagers, people who really kind of latch onto these kinds of trends and that there was a risk of an adverse or worse in this case, health, you know, incident.

20:12And so like, I'm, I'm just, I'm, I'm torn with the kind of the morality of it, as I'm sure we all are in that, like, where, how, how, where do you draw the line as a, as a business and as a brand? And how do you make that decision to put something out there that you know could cause irreparable harm to someone? On the other hand, there's a little bit of let the buyer understand, let the buyer beware, and let the buyer also look at all the social media videos that they're trying to emulate. I mean, if you're seeing people vomiting on social media, it may not be something that you want to try. But I can tell you that as a parent of teenagers, there's pretty much no limit to what they'll do when they're prompted by social media.

21:13And we've seen kids eat things like, you know, tablespoons of cinnamon and Tide Pods when prompted by a social media challenge. It's probably not, you know, in the end, the best way to say a product's going to be a keeper, you know, by creating one that's damaging. But building awareness is not necessarily damaging to the public, particularly if you're clear about what it is this product can do. Any number of products can be dangerous if they're not used in the way that they're intended. Now, I will say that the intent of this particular product is clear. You're going to eat this and challenge yourself to survive eating it.

22:12And there are a lot of incidents coming, sort of bubbling up as people report on this tragedy of folks having pretty terrible reactions to eating this kind of thing. And that might be what actually torpedoes the one-chip challenge in the long run. But I think that the brand itself has behaved responsibly by pulling itself from shelves and by contacting its retailers and by, I believe, offering refunds to people who want to return it. It's hard. You know, I love jackass movies. I was thinking the same thing when we were talking about this earlier, that this reminds me a lot of when Jackass came out and I was a teenager and everyone got their camcorder out and was like running around, you know, grocery stores in carts and crashing into each other and jumping off buildings and stuff.

23:20And it was like it just it smells very similar. But yes, go on. Sorry. And I'll tell you, Lucas, that seemed like good fun at the time, right? I mean, yeah, when I was 13, it seemed like, you know, because you do have that teenage mentality of you are invincible and like it won't happen to you. And I can vaguely remember feeling that way. And luckily, there wasn't as much social media. Just to follow that thought a little bit, though, you know, Jackass ran for a long time and continues to make movies. and what starts the show or the movie a warning yeah and they didn't have to put that warning in or i mean they didn't have that warning in the first at least a couple episodes if not the first season and they got into mtv got into a little bit too much hot water over people getting injured yeah but the show continued the disclaimer the warning went out front and and paki has operated with warnings for a long, long time.

24:29And I know we don't want to hypothesize about the future of the brand, but do you think like them slapping an even bigger warning label or even putting it behind, you know, like an 18 or older type of like, like with cigarettes in a convenience store that you can't buy this product that they'll, you know, relaunch the product after this? or is it kind of the damage has been done to the brand itself? Well, I mean, that's an interesting question. And the one thing I wondered is, how many times do you have to do this challenge? Isn't it kind of lazy marketing to do the one chip challenge year in, year out, and just make the chips more intense?

25:13I mean, it's sort of like, well, we're going to give you an H-bomb and we're going to give you, you know, a fission reactor and a fusion reactor on one chip. It's just, it's already too hot to eat. So, you know, we all get the joke. Let's try something different, maybe. but annual celebrations of torture, you know, I guess are... Did it back to the Roman Empire or further? Jeff, you referenced the fact that maybe a chip throwing up isn't the best motivator for a brand, but also, you know, I heard people who even like Spice said it was just gross. Like it didn't taste good, even if you could handle the heat.

26:03And it's not like they don't have other hot chips. They have a ghost pepper. They have jalapenos that are supposed to be really flavorful. So I'm not sure why burning your tongue off or just eating something that doesn't taste good, it makes you want to eat other products. Look, there's no accounting for taste, but they apparently sold a lot of these every year. You know, I mean, there are people tend to repeat themselves, not necessarily in their best interest, all over the world, all over the country and in all walks of life and throughout the day. I can't explain why someone who doesn't like the taste of this product would buy it and film themselves eating it and turning bright red and seeing the steam come out of their ears.

27:05But I think that's just what we do now. It's kind of insane, actually, the longevity of this trend. Like the fact it stayed so popular. I'm TikTok wasn't around when it was started. And yet, year after year, people like to eat spicy things and get sick from them. It's kind of notable almost because I can't think of many other popular trends that have withstood the test of time that much, that long. I remember days back in middle school when kids would bring in like ghost peppers, and it was like a thing to see who could last the longest. So I feel like, as you said, Carol, Like the will to like see how much you can tolerate is just a trend itself around spice.

27:53I don't know if it's just Paki. I think that's true. And I think, again, teens love, you know, kids love a competition and they love to do competitions sort of together, especially if they're able to extend that togetherness through social media. I remember, you know, one of the first stories I wrote about the company that eventually gave birth to Bang was about four kids in middle school who drank, you know, this concentrated version of Redline energy drink. And a couple of them went to the hospital. They were 14 as well. And the package wasn't meant to be sold to kids under 14. but these things have a way of getting into kids' hands, and unless you're going to actively age-gate them in a regulatory way or in a store policy way, they have all kinds of opportunities to do terrible things to themselves.

28:58That's why we had to have a campaign telling them to not eat Tide Pods. It reminds me of my conversation a few months back with Neil Boer, who at the time of the interview was VP of Crisis and Risk Management at Edelman. And one of his main points was with any good PR campaign, every department needs to do a pretty significant amount of risk sensing. He also explained just exactly how brands should maybe think about approaching a situation before they even take those steps to react. Well, Adrienne, let's hear a clip from that interview now. Sometimes initial crisis-related statements have become kind of this boilerplate type copy and are a lot of the times drafted out of pure necessity of just getting something out there.

29:53How do you weigh putting out that timely response versus, you know, one that's a bit more substantive or has a bit more quality behind it? And are there times when one's more appropriate than the other? Having sat in these rooms, the part that you quickly realize is just how incomplete your knowledge is at the beginning of any incident, where you're getting so many questions that are basically along the lines of what happened and what are you doing about it? You don't really know the answer to either. You have a little bit of a picture of what happened. You don't know exactly why it happened or who's responsible or even the scope of it, much less to say anything about what those plans are going to be.

30:30And so what pops out then is just these very generic, very vanilla, blasé statements that are like, we are aware of this incident and working to address it. And it doesn't say much, right? It gives consumers really nothing to work on. It gives regulators nothing to say other than we should keep a very close eye on this. Your legal team is probably the only one who's comfortable with that statement of like, at that point, you're not conceding any facts and you're not taking any positions. You are simply stating the very obvious inarguable point of something has happened and you are aware of that.

31:10Some great insight from Neil and for our listeners, if you want to hear that entire interview, we'll link to that in our comments. We'll be following these stories and more on NOSH, so stay tuned for future coverage. That wraps up our episode of the NOSH podcast. We hope you'll subscribe, leave a review, and continue to tune in next week on your podcast platform of choice.