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  1. #1
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    Who's behind Hostess demise

    Yesterday I read this great article about the demise of Hostess.

    In the past, I have read people blaming the unions. It turns out, they had been pretty darn cooperative. It turns out, this was a case of vulture capitalism. The owners did not want a going business. When compared to the business practices of their competitors, they took the point of view that investing in long term investments and current marketing were not what they wanted. They drained the company of its ability to compete.

    It is well worth the few minutes it will take, to read this, to get a pure business point of view, why Hostess failed.

    Let's get a few things clear. Hostess didn't fail for any of the reasons you've been fed. It didn't fail because Americans demanded more healthful food than its Twinkies and Ho-Hos snack cakes. It didn't fail because its unions wanted it to die.

    It failed because the people that ran it had no idea what they were doing. Every other excuse is just an attempt by the guilty to blame someone else.

    Take the notion that Hostess was out of step with America's healthful-food craze. You'd almost think that Hostess failed because it didn't convert its product line into one based on green vegetables. Yet you only have to amble down the cookie aisle at your supermarket or stroll past the Cinnabon kiosk at the airport to know that there are still handsome profits to be made from the sale of highly refined sugary garbage.

    It's true that the company had done almost nothing in the last 10 years to modernize or expand its offerings. But as any of the millions of Americans who have succumbed to Twinkie cravings can attest, there has always been something about their greasy denseness and peculiar aftertaste that place them high among the ranks of foodstuffs that can be perfectly satisfying without actually being any good.

    Hostess management's efforts to blame union intransigence for the company's collapse persisted right through to the Thanksgiving eve press release announcing Hostess' liquidation, when it cited a nationwide strike by bakery workers that "crippled its operations."

    That overlooks the years of union givebacks and management bad faith. Example: Just before declaring bankruptcy for the second time in eight years Jan. 11, Hostess trebled the compensation of then-Chief Executive Brian Driscoll and raised other executives' pay up to twofold. At the same time, the company was demanding lower wages from workers and stiffing employee pension funds of $8 million a month in payment obligations.

    Hostess management hasn't been able entirely to erase the paper trail pointing to its own derelictions. Consider a 163-page affidavit filed as part of the second bankruptcy petition.

    There Driscoll outlined a "Turnaround Plan" to get the firm back on its feet. The steps included closing outmoded plants and improving the efficiency of those that remain; upgrading the company's "aging vehicle fleet" and merging its distribution warehouses for efficiency; installing software at the warehouses to allow it to track inventory; and closing unprofitable retail stores. It also proposed to restore its advertising budget and establish an R&D program to develop new products to "maintain existing customers and attract new ones."

    None of these steps, Driscoll attested, required consultation with the unions. That raises the following question: You mean to tell me that as of January 2012, Hostess still hadn't gotten around to any of this?

    The company had known for a decade or more that its market was changing, but had done nothing to modernize its product line or distribution system. Its trucks were breaking down. It was keeping unprofitable stores open and having trouble figuring out how to move inventory to customers and when. It had cut back advertising and marketing to the point where it was barely communicating with customers. It had gotten hundreds of millions of dollars in concessions from its unions, and spent none of it on these essential improvements.

    The true recent history of Hostess can be excavated from piles of public filings from its two bankruptcy cases. To start with, the company has had six CEOs in the last 10 years, which is not exactly a precondition for consistent and effective corporate strategizing.

    The most recent and presumably final incumbent, Gregory Rayburn, had been with the company all of nine days before taking over in March when Driscoll, who earlier had been described in court papers as "key to the future well-being" of the company, departed suddenly and without explanation.

    Hostess first entered bankruptcy in 2004, when it was known as Interstate Bakeries. During its five years in Chapter 11, the firm obtained concessions from its unions worth $110 million a year. The unions accepted layoffs that brought the workforce down to about 19,000 from more than 30,000. There were cuts in wages, pension and health benefits. The Teamsters committed to negotiations over changes in antiquated work rules. The givebacks helped reduce Hostess' labor costs to the point where they were roughly equal to or even lower than some of its major competitors'.

    But the firm emerged from bankruptcy with more debt than when it went in in with $575 million, out with $774 million, all secured by company assets. That's pretty much the opposite of what's supposed to happen in bankruptcy. By the end, there was barely a spare distributor cap in the motor pool that wasn't mortgaged to the private equity firms and hedge funds holding the notes (and also appointing management).

    As management experts such as Peter Drucker have observed, the goal of a successful business must be to find and serve customers. Do that, and the numbers take care of themselves. The Hostess approach was entirely backward meeting the numbers became Job One, and figuring out how to grow the business became Job None.

    The post-bankruptcy leadership never executed a growth strategy. It failed to introduce a significant new product or acquire a single new brand. It lagged on bakery automation and product R&D, while rivals such as Bimbo Bakeries USA built research facilities and hired food scientists to keep their product lines fresh. At the time of the 2004 bankruptcy, Hostess was three times the size of Bimbo. Today it's less than half Bimbo's size. (Bimbo, which has been acquiring bakeries such as Sara Lee and Entenmann's right and left, might well end up with Hostess' brands.)

    Hostess contended its biggest burden came from the multi-employer pension plans covering its unionized employees. Its contention is that these plans are designed so that when any employer goes out of business or otherwise withdraws, its obligations to its former workers are inherited by the companies that remain.

    Consequently, Hostess says, a large portion of its required pension contributions benefit employees of other long-departed firms. This claim has been swallowed whole by Hostess' mourners, but it's fishy.

    For one thing, many Hostess competitors contribute to similar plans, some at an even higher rate than Hostess. For another, the real problem is that for years the employers allowed the pension plan to become underfunded, either by skipping required contributions while they were in business or raiding the fund to pocket supposedly excess assets that proved to be not so excess. Hostess is guilty of the same practice.

    In any event, the $989 million in pension liabilities Hostess ended up owing various union funds, according to its bankruptcy filing, didn't accumulate in secret, like termite damage. It accrued because Hostess and its sister bakeries judged their retirement obligations to be relatively unimportant in the grand scheme of things. Now that the bill has come due, Hostess blames the workers for demanding what they were promised.

    The record shows that Hostess' unions were willing to talk with management at virtually every stage to keep the firm alive. There are plenty of companies and industries in which such talks have been fruitful, including the auto industry. But they can succeed only when everyone is confident that the guys at the other side of the table are committed to the same goals.

    In this case, the unions finally realized that the Hostess strategic plan started and ended with extracting yet another round of cutbacks from employees. To argue that capitulating might at least save thousands of jobs is to accept the corrosive mind-set that manufacturing workers should be glad they've got any job at all and take what they're offered.

    The union members could see that their supposed management "partners" hoped to rescue their own investments by placing workers on a glide path to life on a minimum-wage existence, without pensions and without healthcare, after they had given and given again. You want to claim that they should have accepted the latest management demands as better than nothing instead of voting it down, OK. But you should ask yourself two questions: Where do you think this trend would have ended, and how much would you take?
    Here is the question of the day, does anyone think that wealthy people should pay a lower percentage of their income to taxes than middle class people? Don't argue tax brackets, just a simple question. Do you think someone earning 46 million dollars should pay a lower percentage of their income than say someone earning sixty thousand?

  2. #2
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    Snowballs. No one likes them.

  3. #3
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    Who? Transfats!

  4. #4
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    From everything I've heard and read, they were just a horribly ran company.

  5. #5
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    Good article. On the news we heard "oh well Hostess' workers are protesting" and a couple days later the company is out of business, so seems like naturally people want to blame the unions. This article is valuable b/c at the very least gives recent historical context.

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    Obama.

    EBOLA EBOLA EBOLA

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    Quote Originally Posted by Buckwheat View Post
    Obama.
    DAMN!!~
    you beat me too it.

    Like in most things when you get to the heart of the matter it is almost never the workers.They are just the only place to turn to when you need to make up for the bad decisions Management has made.

    Another interesting story is Blockbuster Video.
    The internet and Red box killed them right?
    wrong.
    Blockbuster got rich off of vhs rentals.they had set deals with all the media companies regarding royalties on rentals.
    When DVDs were introduced, Blockbuster, having become a huge company in their own rights told the studios that they were going to change the royalties agreements on the new format(DVDs) and their attitude was what are you going to do about it?

    The studios faced with lost revenues were forced to look for other streams of income to protect their stocks.
    Up to that p[oint ,If you wanted to own a movie...any movie..You were looking at 30.00 bucks a pop.
    There was no new release, mega hit, and oldie 5 dollar bins.
    Rocky was 30.00 bucks
    Snow white was 30.00 bucks.
    with the lowered production costs associated with DVDs, they went out on a limb a little and changed the buisness model from low volume/high price to High volume/low price.
    making movies available to purchase for about what a 3 day rental and a week of late fees would cost.
    when that worked like really, really good.
    then they upped production to the point where why rent when you can buy for a couple of dollars more.
    Greed killed Blockbuster.
    Netflix and Redbox were only the last couple of nails in the coffin.

  8. #8
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    Correct me if I'm wrong, but wasn't their demise pretty widely reported to be because of the unions?
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  9. #9
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    Quote Originally Posted by natepro View Post
    Correct me if I'm wrong, but wasn't their demise pretty widely reported to be because of the unions?
    Okay, you are wrong, ........ or, right. It depends on how widely one is gathering one's news.

    The conservative non business media reported it as unions.

    The mainstream media just reported people selling Twinkies for a fortune on Ebay.

    The actual business media reported it as bad management.

    The liberal (MSNBC) reported it as Bain reborn.
    Here is the question of the day, does anyone think that wealthy people should pay a lower percentage of their income to taxes than middle class people? Don't argue tax brackets, just a simple question. Do you think someone earning 46 million dollars should pay a lower percentage of their income than say someone earning sixty thousand?

  10. #10
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    This is a standard smear tactic. A big company with household recognition goes down and blames the unions and that's the initial story that got sold and thrown around Ironically, even the stories who talked about why its not the union's fault just drew more attention to the non-issue.

    Then they work through it, find out the unions were not the problem and basically treat the story with one of those 5 days later page 32 of the paper error notes. "Oops, wasn't the unions.....oh well".

    The stigma sticks and 3 months from now when there's another union standoff people will casually cite this instance in arguments against the union.

  11. #11
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    I put the blame on the union and then realized it wasn't all the unions fault. The company was mismanaged the union contracts were also unfavorable and pensions underfunded.

    Like I have said before I don't have a problem with unions and sustainable benefit packages. I don't have a problem with companies and unions figuring out those deals and making adjustments when needed to save jobs and business.

    The real bummer in all this is more Americans out of work and no longer having health benefits. I am not sure how you fund billions in pension while not even doing a billion in sales. Pretty sad situation all around, hopefully someone that runs a sustainable bakery will pick up the good stuff and we can have Twinkies and Choc O Diles back ASAP.
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    Michelle Obama is banning all the good ****

  13. #13
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    Quote Originally Posted by Randy West View Post
    I put the blame on the union and then realized it wasn't all the unions fault. The company was mismanaged the union contracts were also unfavorable and pensions underfunded.

    Like I have said before I don't have a problem with unions and sustainable benefit packages. I don't have a problem with companies and unions figuring out those deals and making adjustments when needed to save jobs and business.

    The real bummer in all this is more Americans out of work and no longer having health benefits. I am not sure how you fund billions in pension while not even doing a billion in sales. Pretty sad situation all around, hopefully someone that runs a sustainable bakery will pick up the good stuff and we can have Twinkies and Choc O Diles back ASAP.
    My guess is that Bimbo will buy the brands and the recipes. They are a really well run company, and this would fit right in with their earlier strategies. If they do, you will start seeing advertising and growth for a brand that I think still has value.
    Here is the question of the day, does anyone think that wealthy people should pay a lower percentage of their income to taxes than middle class people? Don't argue tax brackets, just a simple question. Do you think someone earning 46 million dollars should pay a lower percentage of their income than say someone earning sixty thousand?

  14. #14
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    Quote Originally Posted by GGGGG-Men View Post
    This is a standard smear tactic. A big company with household recognition goes down and blames the unions and that's the initial story that got sold and thrown around Ironically, even the stories who talked about why its not the union's fault just drew more attention to the non-issue.

    Then they work through it, find out the unions were not the problem and basically treat the story with one of those 5 days later page 32 of the paper error notes. "Oops, wasn't the unions.....oh well".

    The stigma sticks and 3 months from now when there's another union standoff people will casually cite this instance in arguments against the union.
    Exactly. This is one of the main issues with the 24-hour news cycle.

  15. #15
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    Quote Originally Posted by GGGGG-Men View Post
    This is a standard smear tactic. A big company with household recognition goes down and blames the unions and that's the initial story that got sold and thrown around Ironically, even the stories who talked about why its not the union's fault just drew more attention to the non-issue.

    Then they work through it, find out the unions were not the problem and basically treat the story with one of those 5 days later page 32 of the paper error notes. "Oops, wasn't the unions.....oh well".

    The stigma sticks and 3 months from now when there's another union standoff people will casually cite this instance in arguments against the union.
    I agree. This seems like the old Mohawk Valley Formula. Typical union bashing.

    Only filthy rich and wealthy people have a reason to hate unions. Unions would help the rest of the population, and it would help get wages back up since real wages have been dropping since 1979.

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