At the end of last week, Hostess announced plans to wind down its business operations, shut its factories and lay off some 18,500 employees. Even in boom times, this would be bad news. Over time, it seems likely that some of its iconic brands may be revived but, for now, a large number of people just had a miserable Thanksgiving.
The easy explanation has always been to blame the unions; especially if you happen to be a Republican. The same was true when America’s car companies failed. But while costs count, of course, one has to ask the more serious questions:
- How responsive was this business to a changing, competitive and technologically advanced marketplace?
- Why weren’t labor issues tackled earlier and more equitably?
- What was the management strategy?
- What did the unions really want and was it something that every employee wants?
THIS is Micro Not Macro Economics-Debt Matters
This business failure will not be easily explained by something abrupt. After all, it is their second bankruptcy. Neither have tastes in unhealthful snacks undergone any radical change. But the company has been sold three times since the 1980s, and at each juncture racked up more debt. So this is the characteristic story of a company that isn’t being run for its customers, isn’t being run for its employees, isn’t driven by a love of product, but which is held purely and simply as the medium for pecuniary operation. The people who ran it time after time awarded themselves pay increases, while creating no future for the business that paid them so well. They quite astoundingly killed the goose laying the eggs.
It’s become very trendy to write about business failure caused by galvanic changes in the market place, fierce competition, unpredictable social change and globalization. But, like its products, this is an old-fashioned tale of bad management: Over-paid managers who just didn’t care about their future nor those of their 18,500 low-paid employees.
There used to be a familiar anecdote that Twinkies were the only food that could survive a nuclear holocaust. What those Twinkies couldn’t survive was gluttonous, short-sighted, short-term leadership by cynics who had no vision for the future and simply didn’t care.
Hostess and its striking bakers union were even pressed by New York Bankruptcy Judge Robert Drain into mediation to try to end the walkout and save the company and its 18,500 employees’ jobs to no avail.
Hostess, which also makes Wonder Bread and Drake’s cakes, plans to request that Drain approve a plan to begin a piece-meal liquidation of the 82-year-old company.
Ken Hall, Teamsters general secretary of Hostess’ largest union, Bakery, Confectionary, Tobacco and Grain Millers Union, and representing approximately 30% of the entire workforce, expressed frustration at the failed talks after the Teamsters had accepted an 8 percent cut in wages in an attempt to save the company.
“This is a tragic outcome and our thoughts and prayers go out to all Teamster Hostess members and all Hostess employees,” Hall said in a statement.
The BCTGM leaders have expressed optimism that there are buyers primed to bid for the company, and bankers and analysts expect the company’s best-known brands to live on under a new owner or owners.
Bankers have said competitors, including Flowers Foods and Mexico’s Grupo Bimbo, were expected to be interested in parts of Hostess, but not all of their various brands.
Private equity firms have also shown interest. Sun Capital Partners is interested in bidding for all of Hostess and Metropolous & Co is reportedly also interested.
It is possible to stop the never-ending chase for lower costs and better efficiency, and instead invest in new products that meet emerging needs at higher margins. Like the famous turnarounds at IBM and Apple, it is possible for leadership to change the company.
But for too many leadership teams, it’s a lot easier to blame it on the Twinkies. Unfortunately, when that happens everyone loses.