Who killed the Twinkie? -
The fall of the ubiquitous Twinkie is truly an American business tragedy. From junk food to junk finance, another iconic brand has fallen to changing times and economics. Ironically, it’s a company that’s starving to death. Not surprisingly, blame for the demise of Hostess Brands Inc. has gone around like a bad case of the stomach flu. Was the demise the fault of the Unions? Economy? Management? Obamacare? WHAT?
Too many, it seems like the blame rests with the greedy unions who struck because of the low $10-an-hour wage with benefits. After all $10 bucks an hour is only a smidgen better than food stamp money. Or, perhaps the
demise was due to Ben Bernanke and his QE3 or maybe it was the massive US $16 trillion dollar debt and fear of the fiscal cliff hangover.
Others blame a series of bad managers and their alleged 300% raises. Or perhaps it is really due to the recent recession and overseas competition?
There are those who point to the owners, Ripplewood Holdings LLC, for creating unsustainable conditions by piling on $700 million in debt when they initially bought the company. There is a lot of blame to go
around for the demise of the Twinkie! Anyway, if you are still looking for a bad guy Try the American consumer who’s changing eating habits moved to getting healthier.
Hostess just wasn’t growing; its costs were high at a time when the public has its diet. Was that the cause? Nope! There is Reality to blame. What we are dealing with here is less than black-and-white than a trumped-up labor battle or cultural health shift. It’s the story of too many interests trying to milk the dwindling profits of a brand that had it too easy for too long.
Twinkies did not survive that complete apocalypse. The company was hurting from self-inflicted economic wounds and other inflictions that had little to do with marketing or sales. Hostess, after all, still had $2.5 billion in annual revenue. The company’s woes began really where they should have ended -- at the first bankruptcy reorganization in 2004! Hostess was known back then as Interstate Bakeries who spent more than four years consolidating and rightsizing (it closed 54 bakeries and hundreds of stores),
selling assets, negotiating with its unions and battling takeover attempts. But instead of emerging cleaned up and ready-to-go in 2009, Hostess emerged as smaller and less competitive; and with the union holding a position in the Company. It was also still burdened because private equity and hedge funds owned half of Hostess. Worse, the US was plunged into a recession.
Admittedly, one of the bigger problems was a $700 million loan that couldn’t be repaid.
Result, Hostess was back in bankruptcy court earlier
this year, seeking to reorganize yet again. But that action was a bad situation made worse. The unions, including the Teamsters and bakery workers, felt they had been lied to and misled by new management. The situation got nasty. In the first bankruptcy, a court ordered 8% wage cuts and a 17% increase in health-care costs for workers. The unions pointed to huge management contracts. The CEO is paid $100,000 a month. Its
former CEO, Brian Driscoll, was making $1.5 million annually, but they were miniscule compared to the Companies losses and besides, CEO Rayburn rescinded the pay and made them take $1 for the year. The New management was led by restructuring whiz Gregory Rayburn. He’s worked with companies including WorldCom (sold to Verizon Communications), Muzak (eventually went bankrupt), and Sunterra Corp (became
Diamond Resorts Holdings). So who’s to blame for the Twinkie’s demise? All of the above but the unions were the trigger and biggest loser. Rayburn has already asked for permission to sell the pieces.