Saturday, November 17, 2012

Twinkies Are Extincties, Ho Hos Are No Nos as Hostess Closes Down Forever

'Tis nearly the season of Ho Ho Hos, but there will be no Ho Hos this year. And no matter how white your Christmas may be, there will be no Sno Balls.

That's because Hostess, the maker of Ho Hos, Sno Balls, Twinkies, Wonder Bread, and many more brands, is in a crisis that may spell death for the 82-year-old junk-food maker. Mayor Bloomberg may be dancing in his New York streets, delighted to remove more empty calories from his thirsty constituents' diets. But 18,500 employees across the country are singing the blues, some while striking and picketing against their employer.
A combination of debt and labor costs has hurt profits. Hostess reported revenue of $2.5 billion in fiscal year 2011, but suffered a net loss of $341 million. The company filed for Chapter 11 in January for the second time since 2004. Its strategy was to reorganize its finances while seeking lower labor costs, including an immediate 8 percent pay cut.

The International Brotherhood of Teamsters, after contentious negotiations, agreed in the name of job preservation to major concessions, including cuts in wages and company contributions to health care. In return, the union was to receive a 25 percent share of stock and a $100 million claim in bankruptcy. Teamsters represent 6,700 Hostess employees.

Negotiations didn't go so well with the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union. President Frank Hurt lost patience with Hostess’ management and resisted giving in after surrendering $100 million in labor concessions in the first bankruptcy. He saw little promise that management could turn things around.

“'Our members decided they were not going to take any more abuse from a company they have given so much to for so many years,' said Mr. Hurt. 'They decided that they were not going to agree to another round of outrageous wage and benefit cuts and give up their pension only to see yet another management team fail and Wall Street vulture capitalists and ‘restructuring specialists’ walk away with untold millions of dollars.'”  (http://dealbook.nytimes.com/2012/11/16/hostess-brands-says-it-will-liquidate/?smid=fb-share)

So he threw out the proverbial baby with the proverbial bathwater.

About a month ago, the bakers union stopped returning the company’s phone calls altogether. Last week, the union went on strike, affecting two-thirds of Hostess' operations. The teamsters honored the picket lines, tightening the screws even more on Hostess, which gave union members until 5 p.m. on Thursday to return to work. That deadline came and went.

That was the last crumb. The financial strain of the strike was too much to bear. Over the last week, Hostess lost tens of millions of dollars as customers’ orders went unfilled. Its lenders apparently don't eat Twinkies because they refused to sink any more money into the company.

Hostess' website is now a white surrender flag. The heading blares, "Hostess Brands is Closed." A November 16 statement announced, "Hostess Brands Inc. today announced that it is winding down operations and has filed a motion with the U.S. Bankruptcy Court seeking permission to close its business and sell its assets, including its iconic brands and facilities. Bakery operations have been suspended at all plants. Delivery of products will continue and Hostess Brands retail stores will remain open for several days in order to sell already-baked products.

The statement blamed the bakers union, which "initiated a nationwide strike that crippled the Company’s ability to produce and deliver products at multiple facilities." (http://hostessbrands.com/Closed.aspx)

Since that announcement yesterday, fans of the sugary snacks have been grabbing up all the Twinkies and Ho Hos they can get their hands around. Supermarkets are running out and prices on EBay are rising sharply. A 10-pack of Twinkies was available on EBay Friday for $24.99 and four 10-packs were listed for $99.99 That price is probably higher as you read this. If you're a fan of Seinfeld as I am, you may remember an episode in which the characters salivated for Drakes Coffee Cakes, another Hostess product.

But Kramer, Newman, and the others might be relieved to know that although the king is dead, long live the king. Maybe.

"In an interview Friday with Betty Liu on 'In the Loop' on Bloomberg Television, Chief Executive Officer Gregory F. Rayburn said the company’s brands may survive under a new owner. 'Hopefully, someone will buy the brands, and some of the brands can live on, but that’s a pretty small consolation for people who are out of work.'"   (http://newyork.newsday.com/business/hostess-strike-twinkie-cravers-raid-stores-1.4232782)

Analysts expect Flowers Foods, Inc., and private equity firm C. Dean Metropoulos & Co. to bid on parts of Hostess. Flowers shares jumped 10 percent yesterday.

"Daren Metropoulos, a principal of the Greenwich, Connecticut-based private equity firm, said of Hostess in an e-mail yesterday that 'shedding the complications of the unions and old plants makes it even more attractive.'"  (http://www.washingtonpost.com/business/hostess-seen-attracting-asset-bids-from-rivals-including-flowers/2012/11/17/072f0aca-3077-11e2-af17-67abba0676e2_story.html)

My question to you readers is, did the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union serve its members by playing chicken with their employer? Your crisis communications plan should have a section for labor disputes. According to the Institute for Crisis Management's annual crisis report, 8% of all crises in 2011 were a result of labor disputes.  (http://crisisconsultant.com/download-the-annual-report/; Don't be afraid to sign up for the free report.)

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