Junk food addicts across America held their breath, because it looks like one of the oldest, time-honored snack foods is about to go bye-bye forever. Four days ago Hostess Brands, 82-year old maker of Twinkies and Ho-Ho’s, filed motions to enter bankruptcy, requesting payouts for key managers and closure of most of the bakery’s operations. The move comes after a week of labor strikes led by the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM) whose claims over excessive demands from the company’s management prompted workers to strike in 24 production facilities across the country. Under orders from bankruptcy court Judge Robert Drain, executives from Hostess and officials from BCTGM entered into private mediation, but in a last attempt to settle the labor dispute, negotiations have failed and 18,500 jobs hang in the balance. Adding headcount to the unemployment pool is troubling, but how in the world we got here is even more worrisome. Workers strike to keep pay and benefits where they are and the company threatens to cost them all their jobs by filing to liquidate? Are the books at Hostess really that bad, or is this how corporate America plans to act when workers resist cuts for cutting sake?
A Not So Golden Sponge Cake
The battle between Hostess and its unionized work force has centered around the BCTGM’s claims that company management planned to cut pay and benefits by 30 percent while key managers received increases of anywhere from 35 to 85 percent. BCTGM reported that during the downsizing that occured in Hostess’s first bankruptcy, it made concessions that allowed Hostess to save $110 million, which the company committed to invest in improvements to the business. The agreement between the two parties resulted in workers taking an eight percent reduction in pay, a 17 percent cut in health plan contributions and a freeze on pension contributions until 2015.
Statements from the CEO, Gregory F. Rayburn, confirm the company’s position that increased labor costs, along with higher ingredient costs and slowing sales growth, are negatively impacting Hostess’s profitability . However Hostess has told this story before. In 2004 the company filed for Chapter 11 bankruptcy citing managerial failures, electronic accounting issues, increased ingredient costs, waning brand presence, and a lack of new products. At the time, Hostess was $1.43 billion in debt and over five years laid off over 10,000 workers, reduced benefit payouts and cut wages to align labor costs with sluggish revenues. Based on its current financial position, many of these concerns went unresolved as the company continued to struggle with marketing and profiting from even its best known brands.
On November 9th the BCTGM organized a company-wide workers strike, taking 24 Hostess production facilities offline until management proposed a new arrangement. One week later, talks having made little progress, Hostess filed for bankruptcy protection, and is planning to close 36 bakeries, 242 depots, 216 retail stores, and 311 hybrid depot-store facilities. The move would leave nearly all of it 18,500 employees unemployed, while 19 senior managers would recieve a total of $1.75 million in compensation after the dissolution of the company. The judge presiding over the case, Robert Drain, denied Hostess’ bankruptcy motion, instead urging mediation with BCTGM in the interest of, “giving the union as well as the debtors and their lenders a last chance to try and work those issues out in private”. As of yesterday, no agreement has been reached, and Hostess plans to continue with its move to liquidation.
The Cream Filling
But the greater issue at hand, is why Hostess is liquidating instead of making a deal? And what sort of response is closing up shop when employees ask to maintain their lowered wages, health and pension benefits? The company’s decision makes even less sense considering the costs of closing amount to $70.4 million between closing its various corporate offices, retail stores, and production facilities. Instead of coming to an agreement with people who have already shown a willingness to compromise, Hostess would rather spend millions to eliminate tens of thousands of jobs and sell itself to the highest bidder.
This whole thing makes you want to ask, “is that how you really feel?”, because a company willing to go bankrupt rather than improve its business and pay its workers speaks volumes. Sure, Hostess has a host of financial difficulties with mounting debts and brands that are the enemies of a culture cutting out carb-laden snack foods, but it’s also been poorly managed. Prior to its first bankruptcy filing in 2004 Hostess, then a blending of Interstate Bakeries and Continental Baking, acquired four different bread companies and attempted to merge the operating paradigms under one umbrella. They failed dismally, because the success of snack cakes couldn’t be translated into bread making, and the revival of dieting plans like the Atkins Diet only complicated the company’s existing concerns.
While somewhat overstated in its press release, the BCTGM makes a good point with,”The crisis facing Hostess Brands is the result of nearly a decade of financial and operational mismanagement that resulted in two bankruptcies, mountains of debt, declining sales and lost market share”. Arguable, but only over the degree mismanagement contributed to the company’s decline, not whether it was a factor. It’s grossly inappropriate that executives who made a series of poor decisions, are shutting down because the workers refuse to accept deeper cuts designed to pay for bad financial judgement.
Some might argue that this is the fault of the union; after all it was the union that organized the strikes that Hostess cites as reasons for filing in the first place. But just because it has filed and plans to press on with a bankruptcy filing, does not mean it didn’t have another option that would have saved jobs. The union has come to the table twice, and made a deal twice but this time it’s Hostess with an unreasonable disinclination for compromise. Anti-union critics claim that we are long past the time for workers unions, but if this knee jerk reaction is a barometer for more to come, it’s not time for America to wash her hands of unions just yet.