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Friday, November 16, 2012

R.I.P Hostess Foods

Hostess Foods, the famous maker of Wonder bread, Twinkies, Ding Dongs, Ho Hos and Drakes Cakes went out of business today. Over 18,500 people lost their jobs.

And the sad part was it was preventable.

Business wise, Hostess had been in trouble for the past decade. In the snack aisles of supermarkets and the racks of grocery stores they faced stiff competition. Products from manufacturers such as Lance, Bimbo, Little Debbie and Entemann’s all offered customers a better selection for a much higher value per dollar than Hostess.

Here at the bodegas in the Bronx, A two pack of Hostess Cup cakes cost $1.59. While a pack of Lady Linda or Mrs. Freshley’s Cupcakes cost 75 cents. A pack of Little Debbie Cup cakes cost 99 cents.

I personally watched those cheaper items move faster than the higher priced Hostess products when I’d go to the bodega or the supermarket. At the one store on 170th Street where I saw single-serve Hostess products on the rack I’ve seen their products warm the rack while the Little Debbie and Lady Linda snacks flew off the store shelves.

A 75 cent pack of cupcakes will sell to the afterschool crowds faster than a $1.59 pack of cup cakes. Especially if they taste just about the same.

And on the family Multi-pack section of the Supermarket Hostess faced even stiffer competition. A $4.29 pack of Devil Dogs couldn’t compete with Entenmann’s products at the same price.

Nor could Hostess compete with many other local fresh supermarket bakers like Two Forks at A&P’s PathMark and the fresh bakers at places like Fairway and Whole Foods. Their baked goods blew the doors off anything Hostess had to offer in terms of taste and texture.

Why buy a dry, greasy single-packed Hostess Twinkie, devil dog, or Hostess cup cake for $1.59 when you can get a better tasting fresh scone, cinnamon roll, or a Black & White cookie from a place like Fairway or Whole Foods for $1.79? Why buy a box of bland-tasting spongy gooey Twinkies for $4.29 ($2.79 on sale) when you can buy a whole Entemann’s cake for the same price or even $2.99 on sale? Or pick up a whole fresh-baked cake from a supermarket for $2.99 on sale?

Nor could Hostess compete with big-box retailers like BJ’s, Target, and Wal-Mart. Target’s Market Pantry Brand offered fresh snacks like Cinnamon rolls and chocolate chip cookies for a much lower price per unit than Hostess’s bland product. And BJ’s and Wal-Mart offered house brands for a much more competitive price-per unit than Hostess. I’ve seen cinnamon rolls at Target at $3.39 for a pack of 8 while the same Hostess Cinnamon rolls cost $3.58 for two single serve packs. And the Target rolls were fresh, fluffy and aromatic, while the Hostess rolls were heavy, gooey and coated in greasy icing.

And Hostess couldn’t even compete with box cake mixes like Duncan Hines. Why pay close to five dollars for 8 tiny Twinkies when you can buy a box of Duncan Hines brownie mix, cookie mix, or cake mix for just $1.49 on sale and a can of frosting for $1.79 to go with it? Why buy a box of Hostess cup cakes when you could make your own cup cakes with the same crème filling with a box of Betty Crocker Fun Da middles for $1.99?

And if you’re a really creative home cook why buy Hostess when you can take that same box of Duncan Hines or Betty Crocker cake mix and make cool stuff like cake pops, filled cup cakes or other super cool gourmet treats from scratch with the help of a silicone pan or one of those plug-in electric cake makers they could get mail order or at a place like Bed Bath and Beyond or Macy’s?

That stiff competition from local fresh bakers and other pre-packaged competitors, and even home cooks was the main reason Hostess went into bankruptcy in 2004. And the main reason why it was stranded in a second bankruptcy in 2012. Who needs a Hostess or a Drake’s cake when there were just so many cheaper and better options available to consumers?

In both the single-serve and the family sized sections of the snack aisle, people had more choices. And they chose to buy other products rather than Hostess’. At retail, it was just a bloodbath.

And Hostess was getting slaughtered.

The Hostess product was on the cusp of obsolescence. But the Bakers Union didn’t understand that. They still thought they were fighting the evil Management of the 1960’s and 1970’s instead of a changing snack-food industry.

Out of touch with the transpirings of today’s business world, the Bakers Union thought it was a smart idea to go on strike during the second worst economic downturn in U.S. history. Not understanding that two similar strike attempts against food service companies ended disastrously just recently.

In 2009 union restaurant workers went on strike against New York’s Tavern on the Green. The restaurant was bleeding red ink, but the union workers demanded a raise.

A few weeks later Tavern on the Green closed its doors putting over a hundred people out of work.

In 2010, Union workers went on strike against a financially struggling cookie maker Stella’ D’oro. They demanded raises even though the company was in the middle of financial dire straits. Like Hostess, Stella D’oro wasn’t doing well at retail. Like Hostess, they faced stiff competition from Voortman, Archway, Pepperidge Farm, local bakers and even pre-packaged products like Pillsbury.

By mid 2010 the owner sold the Stella D’oro brand to Lance Foods. And Lance moved the manufacturing of Stella D’oro cookies and breadsticks to Ohio. The famous Stella D’oro plant in the Bronx shut down and over 150 people lost their jobs.

Worse, two years after the Stella D’oro plant closing almost NONE of those workers found new jobs to replace their old ones. Most of the former Stella D’oro workers are struggling to make ends meet while the former Stella D’oro plant location has been demolished.
A BJ’s Wholesale club will be opening on that site soon.

Offering the people in the neighborhood lower-wage non-union jobs with no benefits and no job security. Most will barely make anywhere from $11- $13 an hour.

So much for unions protecting job security.

In all three cases Management asked employees to take pay and benefit cuts to help sustain a dying business. Pay and benefit cuts that would have sustained these struggling companies for another decade while they figured out how to compete in a changing baked goods marketplace.

In response to that request Instead Union workers went on strike not understanding that times have changed. In their old eyes it was still 1970 and they were fighting against “evil” management.

Nor did they understand that a pay cut meant they still had a job in tough economic times. 92% of a year’s salary for a year is better than 100% of unemployment for 26 weeks.

Most of the Union bakers didn’t understand how they fucked up their retirement and the retirement of their fellow Teamsters. Most of the Hostess workers had been there for over 20 years. And most of them were in their mid to late 40s to early 60s.

Older people with next to no skills and an education level of just a high school diploma. Like the Stella D’oro workers who lost their jobs two years ago, their chances of enjoying their retirement are now slim to none.

Just like their chances of re-entering the work force are now slim to none. Those 18,500 people are unemployable.

No company is going to hire a middle-aged former factory worker when they can get culinary school graduates with better skills at half the price. With their oncoming health problems and other issues, such as being old and set in the way they were used to doing things at their previous company, they come into any new workplace as a liability instead of an asset.

The sad truth is that the Bakers Union struck all the Hostess employees right out of their jobs with their selfishness and their greed. If they had just compromised with Hostess Management they could have kept the company running for another 12-15 years.

Enough time for all those older workers to retire and collect their pensions. Enough time to allow Hostess to come up with a way adapt its obsolete business model and reinvent its obsolete products for the 21st century.

The saddest part of Hostess going out of business was that it was preventable. All it took was a little compromise from both sides.
And the efforts to create new products and new markets. The world of snacking has changed so much in the last 20 years. And the 1930s products Hostess was offering like Twinkies, Ding dongs, devil dogs and crème filled cup cakes couldn’t compete in a 21st Century world of cake pops, biscotti, mini-Bundt’s, and gourmet cup cakes.

While I lament the loss of Hostess Fruit pies, Chocodiles, Wonder bread, and other products that were a staple of my childhood and adult life, I feel really bad for the 15,000 people who lost their jobs. Families who will wonder how they’ll make a living. Families that’ll wonder how they’ll pay the bills. Families that may wind up homeless. All because a union couldn’t compromise and Management couldn’t adapt to the changing world of business.

Sometimes you have to make a short-term sacrifice to make gains long-term. As my father used to tell me, a little something is better than nothing. I wish the Union workers at Hostess could have been around to take his advice.


  1. Who hasn't heard of Twinkies? If I've ever eaten one, it was long, long ago, but the name is part of the English language now, and that's saying something.

    This is a great blog, Shawn, and, as usual, you display a knowledge of the economical side of life beyond your age. Yet, the things you know, surely the leaders of this company should know.

    It sounds and probably is, cold and money driven, but in all probability, they simply gutted the company, intended to stay afloat on the bcks of workers, and i didn't pan out as they expected. I wiah you'd stay on top of this and see what happens to these "leaders." As they say on Facebook: Shaking my damned head!

  2. Amazing post, Shawn.

    It's interesting, the strikers evidently thought that Evil Management was deliberately keeping wages unnecessarily low and that Hostess could profit no matter how much more they (over)paid their bakers. In other words, the strikers figured they knew how to run the company better than management did.

    Well heck, the strikers have their chance now to prove they're right. I'm sure all the Hostess assets--industrial ovens, computers, building leases, manufacturing processes, etc.--are available at closeout prices, so the strikers can get together and buy them up and re-open a snack-cake business the way they think one should be run: with lavishly paid bakers!

    Really, if they're so damn positive that a force of highly-compensated bakers won't bankrupt a snack-cake manufacturer, what's stopping those bakers from starting their own company using the business model they believe is a formula for success?

    Don't bother answering--all those questions are rhetorical, of course, and the bakers would have every argument in the world that it's impossible to do what millions of folks have actually done.

  3. Yep grew up on Hostess, loved the fruit pies- so tasty. Guess things don't last forever do they? They just had the best tasting apple filled pies, chocolate pudding pies, and oh, the lemon! Glad to have had the experience.