Hostess to Shut Down

by Dave Schuler on November 16, 2012

The strike by the members of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union that began last week has broken Hostess Brands, producer of many familiar products including Ding Dongs, Twinkies, and Wonder Bread:

Hostess Brands Inc., the bankrupt maker of Twinkies and Wonder Bread, said it had sought court permission to go out of business after failing to get wage and benefit cuts from thousands of its striking bakery workers.

Hostess, which has about $2.5 billion in sales from a long list of iconic consumer brands of snack cakes and breads said it had suspended operations at all of its 33 plants around the United States as it moves to start liquidating assets.

There are two sides to every story:

Union President Frank Hurt said the company’s failure was not the fault of the union but the “result of nearly a decade of financial and operational mismanagement” and that management was trying to make union workers the scapegoats for a plan by Wall Street investors to sell Hostess.

I have no first-hand experience of Hostess or the baking industry in general. My impressions about what’s going on here are that Hostess has been unable to adapt to a changing market, the company is probably worth more to the investors dead than alive, and what the workers expect to receive on unemployment or disability might well exceed what Hostess was willing to pay them.

Over the period of the last several decades small independent bakeries have practically disappeared, there’s been a tremendous growth in franchises, and there’s been a move to healthier (and fresher) products. One of the biggest changes is the move towards in-store baking in groceries and specialty stores. Even my little independent grocer, Happy Foods, bakes some products in the store.

Hostess relied on a business model that’s been around since the Great Depression—a network of regional industrial-style production facilities with local distribution. That’s a setup that’s a lot more amenable to organization than the model of commercial baking that I see emerging.

I think the union has made a major miscalculation. They should have been going for equity for a long time. Many of the Hostess brands will be acquired and continue to exist but the new owners of those brands probably won’t have any use for Hostess’s production facilities.

With 20,000 employees Hostess is a major player in the baking industry. That’s just a bit smaller than Chicago-based Sara Lee, a likely candidate for taking over some of the brands. A lot of those union workers will in all likelihood never work in the baking industry again. Grupo Bimbo, the Mexican-owned largest bakery in the U. S., probably doesn’t need them.

When Hostess closes its doors its pension obligations for its salaried employees will go to the Pension Benefit Guarantee Corporation, i.e. you and me whether we have pensions or not, while the pensions of its union members will go their unions. I don’t have hard statistics but I strongly suspect that the membership of the BCTWGMIU has been shrinking for decades and is about to shrink again.

{ 10 comments… read them below or add one }

TastyBits November 16, 2012 at 9:04 am


… Many of the Hostess brands will be acquired and continue to exist but the new owners of those brands probably won’t have any use for Hostess’s production facilities.

I like Little Debbie more, but if there is a demand for the brands, the market will provide a supply.

Even if the production facilities are used, the existing union workers would be laid-off by the existing company, and the new company would hire non-union workers. With high unemployment, there timing is a little off.

If there is a political gain, they can be declared “to big to fail” requiring a gov’t bailout.

Mark November 16, 2012 at 9:27 am

TBits, I know you were being sarcastic, but if Hostess had made this move a month ago (b4 the election) they might have actually rec’d a gov’t bailout! After all, why are the GM & Chrysler union workers more deserving of federal intervention to save their jobs & benefits than the Hostess union workers?

Dave Schuler November 16, 2012 at 9:34 am

Prefacing my remark with my belief that no private or publicly-held company should ever be bailed out by the federal government, I think the answer that would be given for why bailing out GM made sense was that GM’s closing its doors would have greater knock-on effects, effects much farther across the production and distribution channels, than Hostess’s closing would.

I’m skeptical of that. I don’t believe the results would have been nearly as disastrous as the calamitists were predicting except for the UAW. The companies that would have picked up the slack for GM would mostly have been non-unionized.

PD Shaw November 16, 2012 at 9:39 am

One of the PE guys that was trying to reorganize Hostess was on CNBC this morning, and agreed that the company had been mismanaged. What they wanted were wage concessions (8%) and substantial revision of the workplace rules that required things like multiple drivers. If I understood him correctly, the bakery union did not respond, but immediately went on strike, but the teamsters did not honor the strike. He thinks the bakery union was told that PE guys had a buyer lined up, which he denied. (Perhaps the union thought that they make the concessions, the company is sold and they are forced to make new concessions?)

The PE guy was using the opportunity to market the brands, some of which I didn’t i.d. as Hostess, either as popular commodities they expect to sell to someone to make the product _or for their shelf space._

PD Shaw November 16, 2012 at 9:47 am

It looks like the Teamster’s accepted contract modification:

“This was a difficult decision,” said Teamsters General Secretary-Treasurer Ken Hall. “Our members are frustrated at being in the position to bail out the company again, but overall were willing to accept modifications with the hope that Hostess will recover and be in a better position in the years to come. At the end of the day, our members recognized that they can’t replace their pay and benefits in the non-union sector.”

Mark November 16, 2012 at 9:50 am

Dave, I agree with everything you just said. I think that if those 18,500 jobs were concentrated in a battle ground state the outcome would be different.

TastyBits November 16, 2012 at 10:41 am

@Mark

The sad truth is that I do believe it. It is all about power and money.

jan November 16, 2012 at 12:05 pm

What I’ve heard is that Hostess had been in financial trouble for some time, leading to a bankruptcy judge to intervene and set the terms of how Hostess would be able to stay afloat. The Union leaders rejected the terms. Hostess held out until Thursday evening for the Union leaders to change their mind, before they would be forced to dissolve the company and sell off assets. The Union leaders held firm, as it was only their membership who had their money and jobs on the line, not themselves. And now 18,500 people are unemployed.

This reminds me of how GM’s problems were settled — the shareholders got nothing, while the costly factors of GM’s financial problems remained intact — wages and pensions/benefits of GM workers. Delphi pension plans also got the shaft, as did taxpayers. This is how the selective intervention of government operates, aided and abetted by the Union leaders who are in cahoots with them. And, after the WH meeting the other day, these same leaders seemed assured that Obama will be supporting card check legislation in his upcoming term, taking away the right of a private vote for union employees and ultimately giving more leverage and power to Unions leaders, regarding their ability to openly coerce membership in their vote.

thisguy November 16, 2012 at 12:33 pm

But … but … what about the chocodiles? And BRING BACK THE DEVIL DOGS!!

Andy November 16, 2012 at 5:15 pm

Don’t let the door hit you on your way out, Hostess.

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