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.