The Rise And Fall Of America's Favorite Junk Foods | Rise and Fall | Business Insider Marathon

These iconic brands went from all-American staples to endangered eats. At one point, Kraft controlled 40% of the U.S. cheese market. It's good. I do like it. And believe it or not, a jello dish like this was once a dinner party delicacy. And Twinkies, well, they were everywhere. So what went wrong? And can they recover? Kraft cheese has been a staple in American kitchens for over a century. But in recent years, people have been reaching for healthier options. So how did the craze for processed cheese start? And will Kraft survive? The Kraft story began in 1903 when Canadian-born businessman James L. Kraft moved to Chicago and started selling cheese out of a wagon. Business was so successful that in 1909, Kraft and his brothers formed their own cheese company. A few years later, they opened a factory in the small town of Stockton, Illinois. It was here that J.L. Kraft took on the challenge to turn leftover scraps of cheddar cheese into a longer-lasting product with consistent taste. Now look, J.L., you know it'll never work. When you heat cheese hot enough to make it heat, it's going to separate. But it did work. Kraft discovered that if he heated the cheddar with an emulsifier, it would create a smooth cheese that would have a much longer shelf life. He was making what we now call American cheese. And in 1916, Kraft became the first person to patent this process. His invention couldn't have come at a better time. When the U.S. military deployed over 4 million soldiers in World War I, it needed a huge supply of non-perishable food. The Army bought 6 million pounds of cheese from Kraft, over a pound and a half per soldier. By 1921, Kraft was selling 1,000 tons of cheese per month. Kraft built on this success by acquiring competitors like the Velveeta Cheese Company in 1927 and merging with the Fenix Cheese Company the following year. In 1929, Kraft's annual sales surpassed 86 million dollars. The 1930s would see another masterstroke, a box of elbow macaroni with a foil package of Kraft cheese. Macaroni and cheese makes a hit, and it's simple with Kraft macaroni and cheese dinner. Only a nickel a serving, too. And once again, the timing couldn't have been better. The United States was in the late stages of the Great Depression, and a box of Kraft macaroni and cheese could feed a family of four for only 19 cents, or roughly three and a half dollars today. It was an instant hit. Kraft sold 8 million boxes in the first year. Sales continued to rise during World War II, when ration coupons could be traded in for Kraft's macaroni and cheese dinners. And just as it had in the First World War, Kraft supplied tins of cheese to the U.S. military. The next game-changer came in 1950, when Kraft invented a way to slice processed cheese. Fabulous flavours, and so quick. Mum said it took them no time at all to make enough for the party. Trouble with Kraft cheese slices is they're so good, there's no such thing as enough. And 15 years later, it launched the now ubiquitous individually wrapped slices. Singles are individually wrapped, so every single one stays fresh, even if it's the last one in the package. Luckily for Kraft, Americans' appetite for cheese was skyrocketing. By 1980, Americans were consuming 17 and a half pounds of cheese per capita, more than twice as much as in 1950. Kraft wasn't afraid to tell consumers to put cheese on just about anything. Arrange on greens with chicken, tomato and avocado, top with sprouts and bacon. By the mid-90s, Kraft controlled over 50% of the processed cheese market. And when Kraft Foods went public in 2001, it was the second largest IPO in U.S. history. Americans' seemingly endless appetite for processed foods had fuelled Kraft's growth for nearly a century. But all that was about to change. Over time, what really happened was this kind of cultural awakening to what the heck was all that stuff that we were adding to food, and then putting in our bodies. In late 2002, the Food and Drug Administration accused Kraft of violating its labelling standards. The company was making its singles with milk protein concentrate, an ingredient the FDA does not allow in products labelled pasteurised processed cheese food. Rather than change the recipe, Kraft just relabelled its singles as pasteurised prepared cheese product. But Americans were waking up to the potential negative health impacts of ultra-processed foods, and Kraft began to worry. The company listed consumer concerns about food's safety, quality and health as one of its major challenges in 2004. Kraft responded by removing trans fat from some products and offering low-fat cheese slices. Still, in 2006, the company reported a 2% decline in the processed cheese market. Awareness of healthier eating only grew when influential figures like Michelle Obama launched a national campaign to fight childhood obesity in 2010. Today, we know that we can no longer let our kids eat whatever they want. A 2013 petition to remove artificial dyes from Kraft macaroni and cheese gained over 360,000 signatures. And a report at the time said that more than half of consumers were concerned with the nutrition of processed cheese. Kraft did remove synthetic dyes from its macaroni and cheese, and also ditched the artificial preservatives in its singles. But revenue from cheese products hadn't increased much since 2008. Warren Buffett took a gamble on the company in 2015, partnering with Brazilian private equity firm 3G Capital to finance a merger between Kraft and Heinz. The move aimed to turn Kraft's fortunes around by slashing expenses and cutting 2,500 jobs. In focusing so much on cutting costs, did Kraft-Heinz miss out on some opportunities to do things that actually grow the top line? But 2018 brought more bad news. Kraft-Heinz announced the market value of its brand portfolio had declined by a whopping $15.4 billion. They were respectively saying that these brands are not, you know, as powerful as they thought they were. The Kraft brand itself was responsible for a loss of $4.1 billion because the company anticipated less growth in the processed cheese category. The whole debacle even led Warren Buffett to admit... We paid too much money for Kraft. To some extent, our own actions had driven up the prices. Since the merger, Kraft-Heinz's stock has sunk about 45%. But Kraft tends to thrive when disasters strike. In 2020, when the pandemic drove consumers to stock up on non-perishable goods, Kraft products were suddenly in high demand. Sales of its macaroni and cheese were up 27% during the first quarter, compared to the same period in 2019. But Kraft continued to be plagued by concerns over its ingredients. Critics also accused Kraft of showing healthy food in a bad light in commercials targeted at children. For the win-win. In 2021, Kraft-Heinz sold off its natural cheese division to French dairy company Lactalis Group. But processed cheese is something the company is still holding on to. That same year, the average American ate over eight pounds of processed cheese, the highest amount since 2003. And Kraft remains one of the most powerful companies in the food industry. Jell-O was once a beloved dessert for the American upper and middle class. But after its peak in the 1960s, sales plummeted. So what happened? And can they win over the next generation of customers with new packaging and ingredients? Before the pre-packaged boxes and colorful, jiggling cups we've come to recognize as Jell-O, gelatin was served in the Middle Ages. Gelatin is made of collagen, and early recipes involved melting and filtering pigs' ears and feet. It eventually became a status symbol because you needed to have access to a lot of meat to have enough bones to boil. You also needed a large staff to do it, and some were cool to sort a gelatin so it could set properly. The jiggling dish was served to European royalty, and it eventually made its way across the Atlantic to the United States. Soon, people were looking for an easier and faster way to make gelatin. But early attempts just didn't taste that great. However, one instant gelatin product would quickly become a staple in American households. Invented in the tiny town of Leroy, New York, by struggling cough syrup maker Pearl Waite and his wife May, Jell-O combined gelatin with sugary fruit syrups, which made it sweeter than other instant gelatin products. But the small-town couple didn't know how to market Jell-O. So in 1899, they sold the patent for $450, the equivalent of almost $14,000 today, to orator Frank Woodward of the Genesee Pure Food Company. Just three years later, Jell-O sales rose to $250,000, or $7.4 million today. Jell-O found its success in a series of highly strategic and successful advertising campaigns. It printed its own recipes, showing and teaching consumers all the different ways they could serve Jell-O in a meal, which generated demand for the product. The company commissioned cookbooks and advertisements from American artist Norman Rockwell, who created colorful drawings of Jell-O in family-friendly settings. This helped to establish the company's wholesome reputation. In 1923, the Genesee Pure Food Company changed its name to the Jell-O Company. Two years later, the Jell-O Company became part of a larger food empire, which would eventually become General Foods Corporation. When the Great Depression hit, recipe books promoted Jell-O as an affordable food option, highlighting its ability to preserve foods and transform just a few ingredients into a satisfying meal. And during World War II, Jell-O salads became a creative way to put meals together with rationed goods. Convenience also began to play a bigger role in the meals people prepared. In World War II, when you had many more women mobilized in the workforce and people were looking for something easy, it was probably much easier to just make some Jell-O and stick it in the fridge for the next day than to try and bake a cake or make a pie when fat was rationed. And in the post-war era, elaborate Jell-O salads became a popular choice for home events like dinner parties. These were sort of public events in a private space, so it was important that you impressed your guests. But the qualities that once made Jell-O a staple in American homes started to backfire. While Jell-O's low price point made it accessible during hard times like the Great Depression, its cheapness also degraded Jell-Oton's once glamorous reputation. Not to mention, Jell-O's association with wartime rations made it less than appealing to consumers who no longer had to stretch out ingredients. So by the 50s, Jell-Oton was seen as something to stick leftovers in or serve to kids. And by the 70s, Jell-O sales began to decline. In response to its slipping sales, Jell-O hired comedian and actor Bill Cosby as a spokesperson in 1974. The partnership is one of the longest celebrity endorsements in American advertising history, lasting 29 years. At the time, Cosby's endorsement helped boost sales, but Jell-O took a hit as it ramped up production of its pre-packaged single-serve cups. It was seen as a snack food for children, something served in a school cafeteria or in a hospital, not a filling meal for a family. Tobacco conglomerate Philip Morris bought General Foods in 1985, and in 1989 merged it with Kraft Incorporated, creating Kraft General Foods. When the low-fat diet trend emerged in the 80s and 90s, Kraft tried to market Jell-O as a diet food with fat-free flavors to keep up. So in the 80s, there were all of these products where manufacturers were trying to take away the fat and then add a bunch of preservatives and other ingredients and sugars to make the food still palatable without fat. But for Jell-O, doing this wasn't enough to turn things around. Instead, it now had the added reputation of being a diet food. Which only increased in the early 2000s as Jell-O pivoted to promoting its sugar-free products to take advantage of the Atkins diet craze. When DAT didn't help bounce sales back, Jell-O attempted to play up its family-friendly reputation. And although consumers had embraced Jell-O during the Great Depression as a way to cut costs, the Great Recession didn't seem to have the same effect. From 2009 to 2014, Jell-O sales declined by double digits, falling from $932.5 million to $692 million. So Jell-O is basically the opposite of what consumers are looking for right now. It looks artificial. Its ingredients are unrecognizable. It has a bunch of added sugar. And even though it's fat-free, we all know now that that is not necessarily healthier. So is this the end? Despite its falling sales numbers, Jell-O remains popular in places like Salt Lake City and the surrounding area, otherwise known as the Jell-O Belt. The area has a large Mormon population and Jell-O's wholesome family branding aligns with Mormon values. Jell-O even became the official snack food of Utah in 2001. And the trading pin for the 2002 Salt Lake City Winter Olympics was a bowl of green Jell-O. The company also encourages people to get creative with Jell-O recipes on social media, which feels like a return to Jell-O's origins when the company would print recipes to teach confused housewives what to do with a strange new product. And in 2023, Kraft decided to rebrand the snack food. They launched a bold and modern design to attract a younger audience. So while Jell-O may no longer be the dinner table staple it used to be, it's still alive and jiggling. A mainstay in pop culture and lunchboxes for more than 80 years, the Twinkie is an American icon. But Twinkies almost disappeared from store shelves entirely after two bankruptcies forced hostess to lay off workers and shut down factories. So what happened? Twinkies were invented in Schiller Park, Illinois in 1930. This guy, James DeWaar, managed a bakery plant at the start of the Depression. He wanted to make better use of expensive strawberry shortcake equipment sitting unused when strawberries weren't in season. So he stuffed banana cream in a shortcake. DeWaar sold the Twinkies in packs of two for five cents. When bananas were rationed during World War II, the simple vanilla cream we know today became the filling. In the next two decades, Twinkies and its parent brand Hostess dominated the packaged cake market. Marketed to children in everything from TV commercials to Batman comics, Twinkies rose to the status of a cultural icon. You're getting ready for school. Here. Here's a swell dessert that you can take along with you. A package of two big Hostess Twinkies. The Hostess snack cemented itself in kids' lunchboxes across America. It was an affordable indulgence for families. It was just so woven into the fabric of the culture of America. In 1971, the brand introduced its mascot, Twinkie the Kid. It's Twinkie the Kid! The anthropomorphic cowboy Twinkie became popular among kids for sharing his namesake cakes. But growing talk of Twinkie's high sugar content would soon butt heads with the brand's kid-friendly marketing. First, the Federal Trade Commission came down on Hostess for false nutritional claims. The agency concluded that sugar was the main ingredient in Twinkies. And then in 79, the trial of a San Francisco man charged with murdering the mayor gave rise to the term Twinkie Defense. The defense team argued he had diminished capacity thanks to his addiction to Twinkies. And the murder charges were lessened to manslaughter. It was a trial that balked at the wholesome cake brand Hostess was trying to build. Fresh, wholesome Hostess meets my tough standards. So when I say yes, it's Hostess. Then began a string of new owners for Hostess. In the 70s, telephone company ITT ran Twinkie's parent company. In the 80s, the dog food maker Purina acquired Hostess. A decade later, it landed under the ownership of Interstate Bakeries Corporation. The sale created the largest baking company in the U.S., with at its peak 58 factories, over 10,000 delivery routes, a boost in Twinkie sales, and $3.2 billion in total sales. But in the late 90s, America's changing tastes would soon spell trouble for the sugar-packed Twinkies. With the growing popularity of low-carb, Atkins, and later the South Beach diets, some Americans were becoming more health-conscious. Loaded with calories, sugar, and preservatives most people hadn't heard of, let alone could pronounce, Twinkies became a casualty of the health revolution. Sales fell and then flattened. In October of 98, because of missed earnings, shares dropped 25% in just one day. But it wasn't just the product that was the problem. Pensions and raw goods got too costly. As other food companies were modernizing manufacturing, Hostess ran inefficient factories, operating at 54% capacity utilization. That's very poor in the manufacturing world. The company also relied on a tired delivery system. A DSC model, direct store delivery model, has really high costs because you've got trucks, drivers, gas, insurance that you have to pay for. And you're going to every store in America every few days to drop off product. Delivery alone ate up 36% of revenue. An important way to capture this moment in time would be by filling a national time capsule. In 1999, President Bill Clinton included a Twinkie in the National Millennium Time Capsule. So Twinkies still had a huge fan base. But by then, the damage to Hostess's bottom line had been done. By 2004, with $700 million in debt, Twinkies' parent company, Interstate, filed for Chapter 11 bankruptcy. Over the next five years, Interstate cut 7,000 employees and shut down eight factories. The company came out of bankruptcy in 2009 and rebranded itself Hostess Brands. But it didn't work. But unfortunately, many of the legacy problems that really hampered the company didn't get solved through that bankruptcy. Then the recession took a huge hit on Hostess's bottom line, with year-over-year sales down 20%. To make matters worse, a worker strike and labor dispute soon followed. That fight turned into production stopping, and the management team then threatened to shut the company down, giving pressure from its creditors. And that's exactly what happened. By January 2012, with nearly a billion dollars in debt, Hostess Brands filed for Chapter 11 bankruptcy again. The company that makes Twinkies, Wonder Bread, and Ding Dongs announced this morning that it is going out of business. In November, Twinkies were pulled from shelves, and headlines across the country reported the death of Twinkies. Customers started, you know, honestly losing their minds over it. People who would have never cared about the Twinkies, in fact, suddenly wanted them, right? Or thought, oh my god, well, if they're going away forever, I need to stock up. The rush was on to grab the last of those tasty treats. People scrambled to get the last Twinkies off those store shelves. It was like the death of a piece of Americana. In December 2012, Hostess began laying off all its employees. Things were looking bad for Hostess, but this guy still saw value in the nostalgia attached to the brand. There was a real brand here, and it's hard to kill a good brand. Andy is half of the duo credited with saving the Twinkies. If you hold people age 20 and over, there's 95% brand awareness. I mean, it's unbelievable. It's not every day that you can buy a brand like this that's ubiquitous in consumers' minds and has leading market share, had a billion dollars in revenues, and an 80-year legacy. After the second bankruptcy, Andy approached legendary investor Dean Metropolis about joining him in rescuing Hostess. Dean had turned around... Bumblebee tuna, Chef Boyardee, plastic pickles, half-blue ribbon. Dean's reputation historically really fit well for this. But unlike the first Hostess bankruptcy, in 2012, there was no coming out of it with a simple restructure. That bankruptcy process was unique because it turned into a true liquidation and what's known as a 363 asset sale process. Basically, what was left of Hostess was sold for parts. Instead of having to inherit that expensive delivery system, underfunded pension plans, and old union contracts, Andy could cherry-pick what he and Dean actually wanted and forget the rest. So the two showed up to the 363 asset sale, ready to fight for Hostess. Not one buyer showed up other than us. Anybody could have showed up and talked our bid, and nobody showed up. It was frankly very surprising. Andy and Dean purchased Hostess for $410 million. Out of the sale, they got the Hostess brands, including Twinkie, Recipes, and Five Factories. That's it. There was no employees. There was no ingredients. There was no inventory. And I have to tell you, it was very odd during diligence walking through plans where when you walk in, they're empty and the person who's walking you through the plan has to turn on the lights. And quickly, Andy and Dean got to work fixing the company. First, they tackled that delivery system. The old company did direct store delivery. We were going to transform it into a distribution to warehouse model. Instead of going direct to every grocery store in America, you then go to Walmart's distribution centers or Kroger's distribution centers instead, and then they ship it out to their various stores. But in order to move Twinkies through a warehouse, they first had to increase the shelf life. Historically, Twinkies only lasted 25 days. People would put Twinkies in their earthquake shelters because everybody had this perception that Twinkies would last forever. That really wasn't the case. Andy and Dean invested millions to develop a Twinkie that tasted the same, but lasted longer. We're at first able to get the shelf life to 45 days, and then ultimately to 65 days of shelf life. And so that really helped get the retailers comfortable that they could take it into their warehouses and that the product quality would not be compromised. The new recipe and warehouse delivery model helped cut delivery costs by 20%. It also meant hostess could affordably deliver Twinkies to drugstores and dollar stores, markets they'd never reached before. Dollar General became one of our top five customers. Next up, Andy turned to factory efficiency. Andy and Dean wanted to be able to make a billion dollars worth of cake yearly, but with a ninth of the labor and a fifth of the factories. We ended up getting to 85% capacity utilization plus. Finally, the duo worked on innovating the product line with smaller pack sizes and mini Twinkies. Those products really didn't get the resonance in the marketplace. And so then we just jumped wholeheartedly to embrace the brand, embrace what you are, which is indulgence. The team had to make all these changes in a matter of months. In July, 2013, the once dead Twinkies returned to shelves to tons of fanfare. The world is a better place tonight because Twinkies are back. The tagline was the sweetest comeback in the history of ever. It all went viral. It was really kind of unbelievable. A lot of that frankly, that excitement and buzz ironically could have never come about if Twinkies never came off the shelf. The trite saying is what you don't know what you've got until it's gone. Twinkies quickly sold out in stores across America. During our first year, we had 555 million in revenues from nothing with profit versions of 27% in a company that lost money and had to go bankrupt twice. By 2015, Hostess was making a million Twinkies a day, 400 million a year and $180 million in profit. At the time, Twinkies made up 80% of the company's product output and the success just kept rising. In 2016, Apollo and Metropolis took Hostess public. The IPO valued the company at $2.3 billion, nearly five times what Andy and Dean had paid for it. Apollo and Metropolis's gamble that Americans still love Twinkies had paid off. But was the beloved snack revived for good? The coronavirus pandemic helped Hostess. As people stayed indoors more, they bought more processed foods at the grocery store. By the end of 2020, the company's net revenue had reached a billion dollars. And in September 2023, the jelly giant Smuckers secured a takeover of Hostess brands for $5.6 billion. Having come back from the brink, it seems America isn't ready for a life in a post-Twinkie world just yet.