We’d be
lying if we said we’re not going to miss Hostess products. Who never enjoyed
taking a bite out of a Twinkie, a classic snack that almost embodied Americana?
But I think what we can all agree on is we won’t miss the mismanagement and
overcompensation of Hostess management. Hostess is in complete liquidation and
is ceasing its operations; no longer manufacturing American classics such as
Twinkie’s, Cupcakes, Ho-Ho’s, Zingers, Wonder Bread, and a myriad of other
products (can you tell I love my junk food?) But what really happened?
Management
is claiming the shutdown is due to a massive labor strike. To quote CEO Greg
Rayburn on Friday, “We deeply regret the necessity of today’s
decision, but we do not have the financial resources to weather an extended
nationwide strike. Hostess Brands will move promptly to lay off most of its
18,500-member workforce and focus on selling its assets to the highest bidders.”
But who caused this massive strike? In January of this year the company filed
for bankruptcy, the second time in over two years while top management received
over an 80% raise! The tensions came to
a boil when the Baker’s Union became infuriated at managements request for a
300% raise to the ineffective CEO at the time. This caused the Baker’s Union to
strike at 24 of Hostess’ 33 plants, and management caved. Instead of giving
into the concessions, they took the money and ran, shutting down Hostess
So
what really caused Hostess to shut down? First off, their products were getting
old. People were still buying Twinkie’s but not for a price that gave the
company good margins and raising the price would cut demand. Forbes argues that
management should have been creating new products with higher margins instead
of proverbially trying to motorize a horse and buggy. Another reason was the
ridiculous slashes in wages and benefits management was proposing. If it’s been
a while since you’ve taken economics, remember that everything has a market
price, even labor. To cut the cost of labor to well below market price is just
asking for a labor strike, which is exactly what happened.
To
sum it up, it wasn’t the fault of the employees, or the fault of the unions for
the demise of Hostess. It was the incompetence of upper management to adapt to
an ever changing market, the greed of the top executives to give themselves
outrageous raises and bonuses that no one in their right mind would believe
they earned. Corporate greed and incompetence is what killed Hostess. Top executives of similar companies should take
notice. I wouldn’t be surprised to see new innovations in the snack food
industry in response to the sudden demise of a snack food giant.
Sources:
http://www.examiner.com/article/what-happened-to-ho-hos-should-we-mourn-the-demise-of-hostess-brands
http://www.forbes.com/sites/adamhartung/2012/11/18/hostess-twinkie-defense-is-a-management-failure/
Hostess is just another example of ineffective corporate governance and an ineffective board. Too often the foxes are guarding the chicken coop. Management does its own performance evaluation and (surprisingly?) gives itself a big raise.
ReplyDeleteGotta love that the results of the performance evaluation were they deserved generous raises, but the factory workers who do the real grunt work get wage cuts.
ReplyDeleteHostess still has valuable assets and I am sure that another company is already in line to take over the brand products. I recently read an article that said BIMBO a Mexican company is already in the works to produce the products that Hostess was producing.
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