Friday, November 16, 2012

Creme-Filled Skulls

Hostess Brands today ceased baking operations and blamed a union strike for the decision.  The keyword in that sentence is “decision”.  Management chose this seemingly drastic choice after declaring bankruptcy not once, but twice in the last 3 years.  Two reorganizations failed to right the ship so management decided to scuttle it.  When they went Chapter 11 the first time, they threated a complete shutdown but never did it.  This time they’re serious.

Before wholesale panic sets in, rest assured that there will be no shortage of bidders for the intellectual property (big word for recipes) and the coveted brand names that Hostess owns.  How much would you pay to sell under the names “Wonder Bread”, “Twinkies”, “Ding Dongs” (he said dongs, hehe) and “Ho Hos” (he said… nevermind).  If you think for a moment that somebody hasn’t already considered that huge additional potential created by the recent votes in Colorado and Washington (and the trend they likely have started), you’ve missed the boat more than Hostess management.

A strike by one of the unions representing Hostess workers is being blamed unfairly in my opinion.  They do share a small part of the responsibility for refusing to accept further wage and benefit reductions.  This union represents some or all of the bakers (as well as tobacco workers, for some reason) who have no doubt agreed to serious cuts in pay while Hostess pissed away any hope of profitability by maintaining an ineffective distribution and sales strategy.  Hostess’ website has been all but shut down.  The only page I could find was the “Careers” page, which lists over 600 open positions.  More than half are for sales jobs, another third for operations (line management) and exactly none for bakers.  These open admin jobs are in over 300 locations across 45 states (no Delaware, Hawaii, New Mexico, Oregon and Vermont facilities have openings, but that doesn’t mean Hostess doesn’t maintain plants or offices in those states).

Many years ago while working at Texaco’s headquarters in White Plains which is actually not in White Plains but in Harrison, NY, which you can tell because when you enter the driveway, you’re in Purchase, NY – they’d prefer you not know where you are, but I digress.  Anyway, one day I bought a Drake’s Coffee Cake from a vending machine in the building and to my great delight, two Coffee Cakes came out of the machine.  Owing to the nutritional value of Drake’s in general, I put one of them into a desk drawer intending to save it for another day.  It got lost under some hanging folders and I didn’t find it again until at least 18 months later.  The cellophane package had swelled as though it had been inflated, but there was no mold, no decay and on opening it, it smelled just like a brand new one.  We laughed and joked about for hours (which contributed to higher gasoline prices, I’m sure).  One of guys observed that you could put a Twinkie on the railing of the Staten Island Ferry and it would last 5 years.  Long, dumb story for what purpose, you ask?  If the stuff doesn’t go bad, why would you need to make them everywhere?  If seems to me that transportation costs would be offset by not maintaining so many bakeries, and most of the jobs would be shifted to the ones that remain.  Sure some jobs wouldn’t be needed as a result of economies of scale, but that’s what management is supposed to do.

Next on the hit list is the sales force.  Does anybody really need to sell Twinkies?  Shouldn’t they just be able to deliver them.  Excellent observation and yes, they should.  But a lot of what they pay sales people to do relates to product placement.  This is another example of horrible management at Hostess.  The people who buy their products would find them if they were between the mops and the SOS pads.  Product placement doesn’t come into it.  Close two thirds of those office they have et voila.  I know what you’re thinking, “What about the economy and unemployment?”  Better to fire 2,000 sales people than put 18,000 out of work.

But the American entrepreneurial spirit will prevail and Twinkies won’t go away.  So party on, Garth.


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