Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

How Hostess Has Adapted Even the Twinkie to a Changing World

Companies / Corporate News Jul 13, 2016 - 11:49 AM GMT

By: Rodney_Johnson

Companies In 2004, Hostess Brands declared bankruptcy. At the time, I wrote that the maker of Twinkies, Ho Hos, and Snoballs was suffering because of demographic trends.

As millennials aged past elementary and middle school, they quit munching on such snacks. With fewer kids in the younger age cohorts, slower Twinkie sales seemed inevitable


But that wasn’t the end of the not-so-good-for-you sponge cake.

The company quickly exited bankruptcy back then, only to find itself on the financial rocks again in 2011.

While the second go-round wasn’t as quick as the first, Twinkies reappeared on store shelves by 2013. Part of the reason for the snack’s troubles are demographic, but its return is almost completely due to the painful process of deflation.

In 2004, Hostess might have been bankrupt, but it wasn’t about to end operations. Instead, the company reorganized. It renegotiated contracts and demanded concessions from its unions, which included both bakery workers and delivery drivers.

The moves put Hostess back on track, at least for a little while, but the financial crisis and healthier eating habits proved insurmountable.

The company filed for bankruptcy again in 2012, after sales fell 20% in 2011. But this time, management did things a little differently. Leading up to the bankruptcy they stopped contributing to the workers’ pension fund while granting themselves pay raises and bonuses.

All the moves were legal, even if distasteful. When it came time to negotiate the reorganization, union members were irate, particularly those of the Bakery, Confectionary, Tobacco, and Grain Millers Union.

They had kept their jobs in 2004, but only after agreeing to pay cuts and bigger pension contributions. In their eyes, management had squeezed the lifeblood out of the company and the workers, and now wanted more.

Negotiations dragged on for months. The Teamsters, representing the delivery drivers, agreed to a new contract, but the baker workers refused the company’s overtures as too stingy.

The two sides never found common ground.

The company thought the employees would sacrifice again to keep their jobs, while the workers thought the company would give in to keep the bakeries humming.

In the end, the bankruptcy judge ordered the liquidation of the company to pay creditors.

The Twinkie died in 2012, taking with it more than 18,000 jobs as Hostess shut down 36 bakeries, 242 depots, 216 retail stores, and 311 other facilities. This happened across the country, from New Jersey to Alaska.

Dean Metropoulos, an American billionaire who at one time owned Pabst Blue Ribbon beer, bought some, but not all, of the Hostess assets out of bankruptcy. He intended to revive the iconic snack, but without the baggage of the previous company.

By mid-2013, Americans could get their fix of Twinkies and other Hostess snacks, but the displaced workers weren’t back at their jobs.

Instead, Metropoulos took the recipes to new, automated bakeries and delivered them through non-unionized means. The results are undeniable. Hostess is on the verge of going public again as a healthy, growing company. One company plant employs 500 people and produces more than 1 million Twinkies a day, representing 80% of total output.

Under the old regime, this took 14 plants and 9,000 employees. The company is on the verge of automating the process for cupcakes as well, which will also enhance profitability… and employ fewer people.

Hostess was forced to deal with demographic trends, financial realities, and changing consumer tastes. Management tried to do this by making changes at the margin, but basically keeping the old system of manufacturing and delivery intact.

It wasn’t possible.

The business model was based on sales and pricing from years past. To compete in today’s market required using innovative techniques and cheaper resources, which are deflationary (lower cost) by nature. The snacks couldn’t survive based on the system developed in the 1930s and ’40s, but they are thriving in their new environment.

The biggest group of losers in this story is workers – the bakers, drivers, and others who lost their jobs in 2012 or took significant pay reductions. This is the same story we’ve told many times, including companies Harley Davidson and Mott’s Juice.

Companies have to adapt to the changing business environment. When deflationary forces are at work, like now, costs must come down or companies can’t compete. With labor comprising the largest expense for many companies, workers are a natural target.

This goes a long way in explaining stagnant wages and the recent “gig economy” phenomenon, and doesn’t paint a bright future for employment over the next several years.

It’s enough to make you want to eat a Twinkie.

Rodney

Follow me on Twitter ;@RJHSDent

By Rodney Johnson, Senior Editor of Economy & Markets

http://economyandmarkets.com

Copyright © 2016 Rodney Johnson - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Rodney Johnson Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in