Decoding the Hostess Demise; The ‘Twinkie Defense’ Rests

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Hostess Bankruptcy 2012

Like the Twinkie, Wonder Bread remained virtually unchained for generations. Image by  Dwight Burdette 

Although many brand names remain strong, many have fallen over the last five years, enough to indicate both the ferocity of the Great Recession and changes in consumer tastes over the  years.

Hostess’ fatal flaw was in miscalculating the gravitas of its own name in a world that no longer valued name brands as it once did. Without a full-scale reboot and by instead trying to grow its core products against the headwinds of a consumer base spending a larger and larger percentage of its discretionary income on healthier options, the company was unable to meet its projections and saw liabilities swell to $935 million, virtually even with their reported assets of $981.6 million.

Those numbers would give Hostess a debt-to-equity ratio of 20:1, roughly ten times higher than that which was needed to be considered strong.

Burgeoning debt, along with a messy labor dispute, forced the company back into bankruptcy in January of this year. The Teamster’s Union, their backs against a perceived wall, voted in favor of a new contract in September.

The baker’s union, on the other hand, did not. “Our members decided … they were not going to agree to another round of outrageous wage and benefit cuts and give up their pension only to see yet another management team fail and Wall Street vulture capitalists and ‘restructuring specialists’ walk away with untold millions of dollars,” said BCTGM International Union President Frank Hurt. Instead, it went on strike — the final straw in Hostess’ decades-long decline. Unable to emerge from its second bankruptcy in eight years without full union concessions, it threw in the towel and filed for liquidation.

The Blame Game: Who Sunk Hostess?

Delicious? Without question. Nutritious? Hardly. Credit: By Evan-Amos

The inevitable finger-pointing has already begun. “The people who are running this company are not interested in making bread,” said Roger Harrison, who works at the Hostess plant in Lenexa, Kansas, and has been with the company for 35 years. “They are not in the baking industry; they are just interested in the money.” A former Human Resources Manager had a different opinion, however, stating flatly that “The union has been the death of this company.”

In all probability, both issues helped shape the demise of the company, but as with most businesses, management also deserved a large share of the blame. Consumer tastes have trended inexorably toward health and nutrition, and Hostess was simply unable to adapt. This was no sudden maelstrom like the one which struck the financial sector in 2008; the handwriting has been on the wall in the junk food industries for decades.

No More Twinkies?

Most of the Hostess product names will survive. A competitor will snap up Twinkies, Ding Dongs, Ho Hos, Fruit Pies and others, and re-market them in some way, shape or form. A Chapter 7 bankruptcy will be initiated, and the assets of the company will be liquidated. And yet, the sheer nostalgia of the commercial above or the long-time brand name is prima facie evidence that the end of an era is at hand. Hostess will be yet another big-name casualty of war, in large part due to its own mismanagement. For all intents and purposes, and with no small measure of sadness, the ‘Twinkie defense’ rests.

Resources

Hartung, Adam. Hostess’ Twinkie Defense is a Management Failure(2012). Forbes. Accessed November 18, 2012.

Klein, Karin. Death of the Twinkie, and of the ‘Twinkie defense’(2012). Los Angeles Times. Accessed November 18, 2012.

May, Patrick. Hostess’ bankruptcy could take a bit out of culinary icons. (2012). Long Beach Press-Telegram. Accessed November 18, 2012.

Weissmann, Jordan. Who’s to Blame for the Hostess Bankruptcy: Wall Street, Unions or Carbs? (2012). The Atlantic. Accessed November 18, 2012.

CBS Market Watch. Twinkie maker Hostess going out of business(2012). Accessed November 18, 2012.

Treafis Team. McDonald’s Positions Offerings for Health Conscious Customers(2012). Treafis. Accessed November 18, 2012.

Glass, Kellie. Healthy Food at McDonald’s(2012). Live Strong. Accessed November 18, 2012.

Ibis World. Gym, Health & Fitness Clubs in the U.S. Market Research Report(2012). Accessed November 18, 2012.

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