RIP Twinkies

The demise of Hostess Brands, Inc. is not only sad for Orange Hostess Cupcake fans like me, it is emblematic of the ills this country has faced over the years. 18,500 folks have lost their jobs which will cost the taxpayer a cool $450 million in unemployment benefits to cover them. That’s no Twinkie.

Hostess has had a troubled past, filing for bankruptcy once before…then doing it again as the cost of basic foodstuffs rose and the demand for product fell as Americans changed their eating habits. Union contract issues were the immediate cause for the closing, but so were management issues…aggravated by unions.

Over the years, Hostess Brands, Inc. did not have internal organic growth. It grew by acquisitions. It started out as a bread manufacturer named Interstate Bakeries Corporation in 1930 located in Kansas City. In 1937 it began an aggressive series of mergers and acquisitions that extended clear through the late 1900’s. ln mid 1995 it purchased the Continental Baking Company, itself having a history of acquisitions and mergers, from Ralston Purina acquiring the Hostess and Wonder Bread brand names…and it kept on buying more bakeries. Each of these merged and/or acquired companies had their own culture…and their own union contracts.

This pastiche of union contracts and diverse corporate cultures forced the publicly traded Interstate Bakeries (IBC) into bankruptcy in 2004. It emerged from bankruptcy in 2009 as a privately held corporation named Hostess Brands with a fresh infusion of cash from its private investment firm owners, such as Ripplewood and GE Capital among others. The unions made concessions in exchange for the cash infusions to keep the company going.

But the root of the problem still existed. There was no single unified contract, with various segments of the company operating almost at diverse purposes. CEO’s came and went every couple of months as they realized it was too unwieldy to control. Work rules were crippling. By January 2012 Hostess Brands debt exceeded $860 million, much of it in ununfunded pension obligations. Meanwhile, company executives were giving themselves liberal raises sometimes in excess of 80%.

Hostess then filed for bankruptcy protection again in January 2012, and in July issued possible layoff notices as required by Federal law while urging the workers to stay on the job while the owners attempt to rebuild the company. Everything collapsed on November when the Bakers Union rejected a new contract by 92% of the vote…and the rest is history.

There is plenty of blame to go around for the demise of this American institution. Due diligence would require those running the company to examine the outcome of purchasing numerous companies with different cultures and union contracts. Spoiler alert: it won’t work!!! Unions also were willing to turn a blind eye to the fundamental problems facing the company, and were unwilling to resolve the contractual issues with the owners to simplify the company’s operation to efficient levels. Sometimes pay may be what the members are interested in…but work rules may be the ultimate deal breaker.

Hostess Brands was an old style American company that has gone the way of other American companies founded in the early twentieth century whose growth was non-organic. No matter what the product from steel to light bulbs to bakery goods to cars…that old management/union model has proven to be problematic in modern America. The digital age is an age of efficiency on steroids. The old way just doesn’t cut it. You can’t have a union requiring the delivery of Wonder Bread and Ding Dongs in two different trucks to the same store.

More likely than not, the major brands owned by Hostess will re-emerge in a non-union setting, in a right to work state, in a modern and efficient bakery with modern work rules and product delivery systems. In the meantime, we will miss our Twinkies.