TASTYKAKE – the “Value” of An Iconic Brand

I grew up loving TASTYKAKE products.  They were a treat in our household and were often the high point of my lunch box.  Chocolate cupcakes were my favorite while my wife loved the Butterscotch Krimpets……yummmm. 

As many of us in the Philadelphia area know, the company has been under pressure lately. Costs of ingredients are way up, the new factory at the Philadelphia Navy Shipyard is up and running, but not yet realizing its promised savings.  And finally, a big customer, A&P and Pathmark, has declared bankruptcy. The company’s sales and gross profits are no longer high enough to cover their fixed costs.  As loans were coming due against big debt for the factory, Governor Rendell pledged $1 million of taxpayer money, over the $5.5 million obtained in private financing, to keep the company running while it explores strategic options.

The Value of a Brand

Successful iconic brands have built consumer loyalty by consistently delighting consumers.  TASTYKAKE certainly lives up to that measure.  Generations of consumers across the northeast, and especially in Philadelphia, would agree. 

A successful brand also has “value”.  That value is the intangible asset that that makes a company worth more  than tangible equipment and plants.  It allows a company to profit in a segment when the low-price competitor that has a lesser brand cannot command pricing, and profitability. Given this yardstick, TASTYKAKE might be loved and cherished in the memory of a consumer, but is not giving “value” back to its owner. 

Lets look at TASTYKAKE “Value”

These numbers from the company’s Published financial reports:

	2009	2008
Net Sales	$180.6	$173.9
Cost of Sales	$116.6	$119.2
% of Net Sales	64.6%	68.5%
Gross profit	$64.0	$54.8
GP % of Net Sales	35.4%	31.5%
Selling/overheads	$67.6	$62.2
% of Net Sales	37.4%	35.8%
Profit before tax	($3.4)	($7.5)

If you compare their 35% Gross profit to an industry “average” (I eyeballed about 5 other big food companies – remember, this is a blog) the gross profit is always north of 40% and the Selling / overheads is usually 30%) leaving 10+ points of operating income.   For TASTYKAKE bakery, its SG&A of 37% is too high and needs to come down. But the real issue is ultimately that the pricing they can command is not high enough to cover the true cost of making these wonderful products and is probably hindered by the strength of the trade and the strength of its competitors (Hostess and Entenmann’s, for example).  They really need to merge with a large company or at least pair with another midsized company to gain efficiency if they cant price higher.  Also, they need to optimize the product line for profitability.  Running a mid-sized bakery is not for the feint of heart.

This all brings home a hard truth about a brand.  Consumer love is extremely important, but should lead to creating “value” for a company.  The true measurement of strength is in translating consumer love into the ability to command sustainably strong profits and higher prices in the market.  

Philly is rooting for them.