How Workers And Management Both Caused The Demise Of Hostess

NEW YORK (CNNMoney) -- Hostess Brands -- the maker of such iconic baked goods as Twinkies, Drake's Devil Dogs and Wonder Bread -- announced Friday that it is asking a federal bankruptcy court for permission to close its operations, blaming a strike by bakers protesting a new contract imposed on them.

The closing will result in Hostess' nearly 18,500 workers losing their jobs as the company shuts 33 bakeries and 565 distribution centers nationwide, as well as 570 outlet stores. The Bakery, Confectionery, Tobacco Workers and Grain Millers International Union represents around 5,000 Hostess employees.

Here's how the pioneering company and its workers failed to keep up with the times:

Pension burdens: Mufson notes that the company had 372 collective bargaining agreements with a dozen unions and had roughly $2 billion in unfunded pension liabilities to its various unions' workers, but it brought in a disappointing $2.5 billion in revenue in 2011.

Labor rules: Kaplan noted how that Hostess had ludicrous work rules based on labor contracts—including the requirement of separate drivers for deliveries of such goodies as Yankee Doodles and Nature's Pride Nutty Oat—which exacerbated their huge problem of high labor costs.

Crippling debt: Kaplan detailed how over the years labor unions had successfully negotiated generous pensions and health care benefits that increasingly ignored shifts in the marketplace. So once sales began to decline in the 1980s and '90s as consumers found healthier alternatives to snack cakes and white bread, debt started piling up to the tune of about $450 million by the first bankruptcy in 2004.
In 2009, after five years of restructuring, the company's total debt load was nearly $670 million despite winning concessions from the unions and new capital from investors as it became a private entity.

And by the time the company filed bankruptcy in January, the company had lost $250 million—including being in the red in 30 of the previous 37 quarters in the less than three years.

Stale products: A source told Mufson that even the most popular food brands need reinvention every eight years or so, but the company has been riding on the success of the Twinkie since its inception in 1933. Attempts to re-energize—such as bringing back the original banana-cream Twinkies and publishing "The Twinkies Cookbook"—flopped.
The mess led to the implosion of the company, as CNN Money reports. In September the 7,500 member International Brotherhood of Teamsters accepted a new contract with reduced wages and benefits, but the 5,000 member Bakers' union rejected the deal and eventually went on strike over contract negotiations.

The Teamsters accused the Bakers of pushing Hostess to the brink of liquidation, while the Bakers blamed management and the "Wall Street vulture capitalists in control" for the company's dire condition.

In the end all sides are blaming one another while the iconic company shuts its doors.

Not to mention that sugary snacks are bad for you, and more and more people understand this.

I blame people for not buying their junk food.

This is in essence the cause of many/most company failures.

Honestly, i don't understand why union pension plans aren't turned into profit sharing plans. If the company does well, so should the employees. If the company does poorly, then the employees should only get their salary/other benefits. I'd want this calculation to be subject to a limit on executive pay (to be clear, i wouldn't limit executive pay, i'd just want the caculation of the profit to be subject to a executive pay cap). Seems like a no-brainer.

Sounds reasonable...

Profit sharing sounds like a win-win situation to me. That could have avoided the demise of hostess.

Cost cutting measures however could give the company more time to adapt and offer customers what they want.

GM was the only unionized company I'm aware of that offered profit sharing... and they weren't to keen on that if I recall.

The employees wanted pensions not profit sharing. We used to have union candy making jobs near me (Hershey).. they went to Mexico