Hostess – What went wrong?

I’m still trying to wrap my head around the possible disbandment of an American brand that managed survived for 80 years through world wars and bomb fears. Although I doubt the Baker’s Union caused the downfall of a company undergoing multiple fractures in the past seven-ten years, which particular issue catalyzed the company’s downfall or was it multiple items simultaneously?

Was it worker dissatisfaction?

Was it a poor work environment that contributed to the company’s downfall? Hostess brands recommended a 17% cut in health benefits, a decrease of its $100 million annual pension balance obligation, a worker pay cut by 8%, and raised worker healthcare costs by 20%. But worker dissatisfaction didn’t start recently. Looking at Glassdoor.com, Hostess had negative worker reactions that increased four-five weeks ago. In as far back as February and April 2012 — and most recently in August and September, workers complained about cut wages, lost benefits and overpaid management who didn’t understand the business. None of the reviews are 100% positive, but they grew increasingly negative as they shifted towards September. In April 30, 2012, a Gulfport, MS employee wrote “The company is in financial turmoil, upper management is clueless, lies are abundant and the employee is not valued.” Five weeks ago a WI employee wrote “lots of hours,first start out 70 ours a week.” Four weeks ago another worker typed, “It was a good job before they took nearly 1/4th of the salary away.” Heck, there are concerned posts in October 2010 with titles, “Struggling to Gain Traction” and “We need to go back 30 years.”

Was it executive greed?

Did the amount of funding executives received for their salaries cause the collapse? After all, former CEO Driscoll went from $750,000 a year to $2,550,000, with the possibility of receiving a $1.95 million compensation if Hostess were liquidated or he were fired (without cause). Other top executives received increases from around  $90,000-$400,000, including current CEO Rayburn, who receives $100,000-$125,000 a month. Plus, CEO pay grew 127 times faster than normal worker pay, since the 80s. Although Hostess doesn’t want to pay health costs of its 18,000+ work force, it proposed $1.75 million in bonuses for 19 of its executives for its liquidation plan.

Was it the lack of marketing?

I haven’t seen Hostess advertised on TV in the past 8-10 years. What happened to that? I totally remember Wonder Bread commercials as a kid. They made me WANT moist, roll-able white bread more than anything else. One of my childhood memories includes making Grape Jelly Rolls from my Strawberry Shortcake cookbook on Wonder Bread. Why haven’t I seen commercials introducing Ding Dongs to a new generation, like the other items from my childhood? My gosh, when Hostess created creme filled pies back in the day, the commercials let me know it and they remained my favorite pie for awhile.

Was it production costs?

Did Hostess Brands look at the current market and consider cutting production costs? One of the Glassdoor employees complained about wasting supplies like cardboard. And, let’s be honest, executives were correct in wanting to reduce the number of plants. If there aren’t as many people eating Hostess products, they don’t need to make as much. Driscoll recommended making smaller Zinger cakes which could’ve saved the company millions and rolled out to other products.

Was it the health-oriented customers?

Did America’s recent health craze stamp out Hostess? According to the L.A. Times, “Sales of Twinkies slipped 0.8%, Ding Dongs fell 8.7% and Ho Hos tumbled 6.3% from May 2011 to May 2012.” I’ll be honest. I stopped eating Twinkies in high school for fear of becoming “fat.” But, that didn’t stop me from partaking of donuts, cupcakes or any other trendy dessert. Plus, one Twinkie cake only contains 4.5 fat grams and 150 calories. So, why do I avoid Twinkies like the fat plague but not other fattier desserts? If we all ate one Twinkie once a month for a year, we could all help an American business without getting “fat” or breaking our pocketbooks. But, let’s be honest, Twinkies, mass-produced cakes, aren’t for adults. While Generation X-ers love them for their childhood memories, they’re snake cakes for kids. Maybe I won’t eat as many Twinkies as an adult, but I’m inclined to purchase them for my niece and nephew.

Was it bankruptcy?

Was it the continual flip-flopping between Chapter 11 filings that made the company unstable? Bankruptcy plagued the company in the past decade. In 2004, Interstate filed for bankruptcy and Hostess Brands filed again in December 2011. Plus, its net revenue steadily declined in the past three years from $2.585 billion in 2010 to $2.467 billion this past June.

Are the executives out of touch?

In GlassDoor.com, multiple Hostess employees blamed out-of-touch executives. I think it’s interesting that after receiving the liquidation go ahead and threatening to fire over 18,000 people, Hostess continues to add job postings in the past week. Four days ago a post appeared on Monster.com for a route sales position in Joplin, MO.  Yesterday, two positions opened up in MA and OK for a retail store clerk and a route sales representative on Jobs-to-Careers. Even more positions appeared 3-5 days ago. Is the company slow to take these down because they have other things on their mind? Or are they hiring new people to help with the shutdown/replace certain workers. Or, does Hostess know something I don’t? Keep in mind Hostess approved executive bonuses after the December 2011 bankruptcy filing.

Is it the potential buyers?

Is it possible Hostess didn’t try as hard because they knew they had potential buyers? The brands have multiple potential interested parties like Flowers Foods, who makes Tastykakes; Mexico-located Grupo Bimbo, who owns Sara Lee, Entenmann’s and Thomas'; and Canadian-located Weston Foods, who makes Wonder+.

So which issue was it that catalyzed the company’s downfall? In my opinion, all of them. Hostess had ongoing tiny fractures for the past decade which it needed to fix, not just spackle over. It wasn’t the Baker’s Union that caused the company to collapse, despite Hostess Brands’ bold declaration. It merely catalyzed the inevitable. And, a company desperate to save itself isn’t only going to have one fallback plan. Yet, despite the clear mistakes in recent years, I want this company to succeed.  Like Ford and Chevy, Hostess cupcakes are a part of my American heritage. Hostess/Interstate/Continental Baking made the products we love and still love. Although they faded from recent memory, that doesn’t reduce its potency. Who knows, maybe if the new Hostess Brands owner restructures, they can turn the product into a high quality niche product. Something we can buy on-line if we want, but won’t break the company’s bank if we don’t. Either way, despite the potential loss of an American icon, I hope it returns. We can’t lose anymore American icons.