The cookie is crumbling in the competitive $9 billion category.
Hydrox owner Leaf Brands plans to sue snacking heavyweight Mondelēz International this year for violating antitrust laws. The company and its CEO Ellia Kassoff claim the Oreo manufacturer is intimidating retailers and instructing workers who restock its creme-filled chocolate cookies in stores to hide, misplace or move Hydrox to less desirable locations.
“I’m going to be pursuing a lawsuit against them,” Kassoff said in an interview. “Mondelēz doesn’t want to lose even a penny, even one little market share because it could be a sliding scale. Rarely do we lose a taste test between Oreo [and Hydrox] and I think that’s what scares them.”
Kassoff, who grew up with Hydrox and now oversees the brand from his home in California, admitted it will be “hard to stop” Mondelēz. He’s interviewing attorneys willing to take on an antitrust case, which “can be very expensive,” especially against a deep-pocked food manufacturer.
Kassoff has expressed concern about Mondelēz’s before. Upset with the Chicago-based company’s efforts to diminish his brand’s presence in the competitive cookie aisle, he filed an official complaint with the Federal Trade Commission in 2018 seeking $800 million in damages. Kassoff said he has yet to hear back from the agency.
A spokesperson for the FTC, responsible for overseeing market competition, declined to comment when contacted by Food Dive.
To have a strong antitrust claim, Herb Hovenkamp, a professor at the University of Pennsylvania Law School, said Hydrox would have to prove a significant loss of market share and sales from these practices, a “showing that’s not easy to make.” It would be more likely to succeed in state courts where damages could be awarded for bad conduct.
Rebecca Haw Allensworth, an antitrust professor at Vanderbilt University Law School, added that it appears difficult for Hydrox to prove an antitrust case based on its arguments of retailer intimidation and the movement of products on shelves, even with convincing evidence.
“There’s so much common business practice around, put our cookies out front, put our cookies on an end cap, put our cookies on the front display. That’s all fine under the antitrust laws,” Haw Allensworth said. “It’s a little bit of a step beyond that to say ‘Throw Hydrox in the trash.’ It’s hard to tell a really solid anti-trust story here.”
A behemoth in the cookie space
Oreo, with more than $4 billion in annual sales, has evolved into a juggernaut in the retail cookie category.
In addition to its signature cookie, Mondelēz has rolled out dozens of permanent and limited-time flavors, including Birthday Cake, Churro, Watermelon, Cotton Candy, Lemon and Toffee Crunch. It even has a presence in cakes, cereal and ice cream, among other sweets, through its own innovation and partnerships with other CPG manufacturers.
In an email to Food Dive responding to Hydrox’s allegations, Mondelēz defended its business. “Our shelf placement in stores stems from the fact that Oreo is the #1 cookie in the US, loved by consumers, and retailers typically align their placement decisions to serve that consumer demand,” a spokesperson said. “We always operate with integrity, and we are proud to be America’s favorite cookie.”
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Permission granted by Hydrox
Since it filed its case with the FTC, Kassoff said Mondelēz has grown even more ruthless.
His upcoming lawsuit will claim that Mondelēz is intimidating retailers such as Publix and Wegmans by vowing to pull Oreo from their shelves or stop supplying them with certain flavors if they carry Hydrox. He said customers, product brokers and even Kassoff himself have noticed Hydrox still getting hidden on shelves where it is available — a practice designed to lower sales with the eventual goal of getting the product discontinued.
Hovenkamp said if Mondelēz did threaten to pull Oreo, it was likely part of a negotiating tactic, especially if consumers were interested in purchasing both brands. He also doubted whether retailers would allow food manufacturers to engage in practices that hurt the store and its customers.
“You can’t just assume the groceries are going to be passive and just put up with all this. They’ve got their own interests,” Hovenkamp said. “They want to represent their customers. But if their customers want both brands, then they’re not going to put up with something that excludes or suppresses one brand.”
Twists and turns
More than two decades ago, Hydrox nearly became the latest once-popular food brand to disappear from the market permanently.
The Hydrox cookie was introduced in 1908, four years before the Oreo cookie, by Sunshine Biscuits. The name Hydrox comes from the combination of hydrogen and oxygen.
Keebler Foods, which eventually acquired Hydrox, was purchased itself by Kellogg Co. in 2001. The cereal maker discontinued the cookie two years later. Fans of Hydrox urged Kellogg to bring it back. The company eventually did, but only for a few months in 2008 as part of the brand’s centennial.
Soon after, Hydrox disappeared from shelves again, until Kassoff purchased the trademark in 2015 for his company Leaf Brands. The firm specializes in reviving discarded products such as Astro Pops and Wacky Wafers.
“You can’t fault the product,” he said. “You can fault the brand managers on these products.”
Hydrox met its demise after owner Keebler changed the name to Droxies to distance the cookie from its chemical-sounding name. It also made the cookie sweeter to go head-to-head with Oreo.
Kassoff connected with Sunshine’s former CEO and head of production to recreate the original Hydrox formulation of the 1960s and 1970s, before high fructose corn syrup and artificial flavors and colors surged in popularity. Kassoff added in real cane sugar and vanilla. He also made them non-GMO and certified Vegan.
By March 2016, Hydrox could be found on shelves at 4,000 retail outlets, including Walmart and Kroger, that were attracted by the brand’s history and growing demand for nostalgic products from consumers. Sales in 2017 were about $500,000.
But there were signs of trouble early on, Kassoff said.
During one meeting with a buyer for Walmart in 2017, Kassoff claimed she told him that while she would bring the product back, she warned him that Mondelēz would hide Hydrox in stores to try and get them discontinued. She added that he needed to watch for a sharp drop in sales at some locations, a sign that Mondelēz was hiding Hydrox at that specific store. This was the first time Kassoff heard of this practice occurring.
“They come to our stores a couple of times a week … when they do the restocking, they’re gonna hide your product, any chance they get,” Kassoff recalled the buyer telling him.
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Lillianna Byington/Food Dive
Soon the product’s resurgence started to fade.
Shoppers and retailers started telling Kassoff that his cookies weren’t available on shelves where they were supposed to be. At one Ralphs store in California, which is owned by Kroger, Kassoff found Mondelēz’s Nutter Butter in its place and Hydrox moved to the top shelf.
Walmart stopped carrying the products in its stores in 2017. Kroger did the same a year later.
Today, Hydrox is carried in about 1,000 different locations, including restaurant chain Cracker Barrel and home improvement store Menards. It’s also available online with Amazon.
The decline, Kassoff said, is “all based on the anti-competitive tactics of Mondelēz, not the cookies.”
“We make about as much product as Oreo throws out every day. We don’t make a lot. It’s not like we’re not gonna win [the cookie war.] I’m not looking to win,” he said. “I’m looking to compete and also to give that customer a choice. … You go to any store, you’ll see it’s either that you’ve got Oreo and you’ve got the store brand. That’s it.”
