VOL. 36 | NO. 46 | Friday, November 16, 2012
Twinkie maker Hostess reaches the end of the line
TOM MURPHY, Associated Press
NEW YORK (AP) — Twinkies may not last forever after all.
Hostess Brands Inc., the maker of the spongy snack with a mysterious cream filling, said Friday it would shutter is operations after years of struggling with management turmoil, rising labor costs, intensifying competition and America's move toward eating healthier snacks even as its pantry of sugary dessert cakes seemed suspended in time.
Some of Hostess beloved brands such as Ding Dongs and Ho Ho's likely will be snapped up by buyers and find a second life, but for now the company says its snack cakes should be on shelves for another week or so. The news stoked an outpouring of nostalgia around kitchen tables, water coolers and online people relived childhood memories of their favorite Hostess goodies.
Customer streamed into the Wonder Hostess Bakery Outlet in a strip mall on the west side of Indianapolis Friday afternoon after they heard about the company's demise. Charles Selke, 42, pulled a pack of Zingers raspberry-flavored dessert cakes out of a plastic bag stuffed with treats as he left the store.
"How do these just disappear from your life?" he asked. "That's just not right, man. I'm loyal, I love these things, and I'm diabetic."
After hearing the news on the radio Friday morning, Samantha Caldwell of Chicago took a detour on her way to work to stop at a CVS store for a package of Twinkies to have with her morning tea and got one for her 4-year-old son as well.
"This way he can say, 'I had one of those,'" Caldwell, 41, said.
It's a sober end to a storied company. Hostess, whose roster of brands dates as far back as 1888, hadn't invested heavily in marketing or innovation in recent years as it struggled with debt and management changes.
As larger competitors inundated supermarket shelves with a dizzying array of new snacks and variations on popular brands, Hostess cakes seemed caught in time. The company took small stabs at keeping up with Americans' movement toward healthier foods, such as the introduction of its 100-calorie packs of cupcakes. But the efforts did little to change its image as a purveyor of empty calories with a seemingly unlimited shelf life.
Even taking into account changing tastes and competition, Hostess' problems were ultimately rooted in its own financials. The company, based in Irving, Texas, had been saddled with high pension, wage and medical costs related to its unionized workforce. It was making its second trip through bankruptcy court in less than three years.
Before the Chapter 11 filing in January, citing growing competition from rivals that expanded their reach over the years, the company had been contributing $100 million a year in pension costs. The new contract offer would've slashed that to $25 million a year, in addition to wage cuts and a 17 percent reduction in health benefits.
Tensions between management and workers were also an ongoing problem. Hostess came under fire this year after it was revealed that nearly a dozen executives received pay hikes of up to 80 percent even as the company was struggling last year. Although some of those executives later agree to reduced salaries, others — including the former CEO Brain Driscoll — had left the company by the time the pay hikes came to light.
Hostess filed a motion to liquidate Friday with U.S. Bankruptcy Court after it said striking workers across the country crippled its ability to maintain production. The shuttering means the loss of about 18,500 jobs. Hostess said employees at its 33 factories were sent home and operations suspended Friday. Its roughly 500 bakery outlet stores will stay open for several days to sell remaining products.
CEO Gregory Rayburn, who was hired as a restructuring expert, said Friday that the company booked about $2.5 billion in revenue a year, and that sales volume was flat to slightly down in recent years. So far this year, the company said Twinkies alone accounted for $68 million in sales.
The move to liquidate comes after thousands of members of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union went on strike last week after rejecting the latest contract offer. The bakers union represents about 30 percent of the company's workforce. A representative for the bakers union did not return a call seeking comment.
Although many workers decided to cross picket lines this week, Hostess said it wasn't enough to keep operations at normal levels; three plants were closed earlier this week. Hostess CEO Gregory Rayburn said Hostess was already operating on thin margins and that the strike was a final blow.
"The strike impacted us in terms of cash flow. The plants were operating well below 50 percent capacity and customers were not getting products," he said.
The company had reached a contract agreement with its largest union, the International Brotherhood of Teamsters, which this week urged the bakery union to hold a secret ballot on whether to continue striking.
Ken Hall, general secretary-treasurer for the Teamsters, said his union members decided to make concessions after hiring consultants who found the company's financials were in a dire situation.
"We believed there was a pathway for this company to return to profitability," Hall said
Although Hall agreed that it was unlikely anyone would buy the entire company, he said "people are going to look for some fire sale prices" for some of the brands.
"Frankly it's tragic, particularly at this this time of year with the holidays around the corner," Hall said, noting that his 6,700 members at Hostess were now out of a job.
Kenneth McGregor, a shipper for Hostess in East Windsor, Conn., arrived at the plant Friday morning and said he was told he was laid off immediately. He blamed the bakery workers union for rejecting a proposed contract.
In a statement on the company website, CEO Rayburn said there would be "severe limits" on the assistance the company could offer workers because of the bankruptcy. The liquidation hearing will go before a bankruptcy judge Monday afternoon; Rayburn said he's confident the judge will approve the motion.
"There's no other alternative," Rayburn said.