The real reasons Hostess went bankrupt
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  1. #1
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    The real reasons Hostess went bankrupt

    The real reasons Hostess went bankrupt


    hostess
    November 17, 2012
    By: Ryan Witt

    Yesterday Hostess announced its intention to declare bankruptcy, close down all of its operations, and lay off approximately 18,500 workers. The news stunned many Americans, and sent shoppers to the local grocery store in an attempt to buy their last Twinkies and Ding Dongs. The commonly sold story by many media outlets (i.e. Fox News) is that Hostess went bankrupt because of a greedy and stubborn union which increased the company's labor costs beyond all reason. However, a deeper investigation of the facts shows that Hostess failed for a variety of reasons, many of them unrelated to unions.

    Decreasing Demand

    The number one culprit behind Hostess’ demise was a decrease in demand for many of their products. Hostess has blamed a union strike over the past week, but in reality Hostess has been struggling to make a profit for quite some time, and had already filed for bankruptcy once in 2004.

    Hostess itself admitted to decreased demand in a recent statement it released to debtors. Here is a quote from that statement via Fortune,

    "The Debtors have experienced a significant decline in the demand for their branded sweet goods and bread products. According to data from Information Resources Incorporated (the "IRI"), an independent market research concern that reports sales trends in most supermarkets (excluding mass merchandisers, club stores and discount stores), the Debtors' total unit volume of branded sweet goods declined by 4.3% during the latest 52 weeks ending September 5, 2012, and revenues from the Debtors' branded sweet good products declined 1.5% during the same period. The Debtors' total unit volume of branded bread products declined by 9.6% during the latest 52 weeks ending September 5, 2012. Revenues related to the Debtors' bread products declined 5.3% from the comparable period one year ago."

    Furthermore, Hostess believed this trend would continue,

    "The Debtors believe that they will continue to experience reduced demand for their products based on various factors, including some of the factors discussed in greater detail below."

    Hostess primary products are Wonder Bread and “junk food” like Twinkies. Over the past decade carbohydrates and fatty foods have become less popular. Many supermarket chains sell their own brand of bread at cheaper costs, and also feature a bakery to sell freshly baked bread. Parents who used to put a Ding Dong in their child's lunch bag everyday now put an apple or orange in there instead. Many of the consumers rushing to buy Twinkies now have not bought Hostess products in many years, which tells you all you need to know about the company’s struggles.

    A Mountain of Debt

    In addition to decreasing demand, Hostess has also struggled because it was burdened with over $860 million in debt with just $1 billion in assets. The company has over 100,000 creditors, including the labor unions and pension funds which represent the employees, and will now undoubtedly lose out on some of their claims because of Hostess newest bankruptcy.

    A debt-to-assets ratio like that ultimately limits how a company can operate. While Hostess' competitors spend money on advertising or technological improvements to increase sales or make their operations more efficient, Hostess was paying off interest on their debt. According to Outside the Beltway, Hostess was using an antiquated distribution which undoubtedly affected the bottom line of a company that relies on distribution so heavily (imagine all the places one can get a Twinkie). Eventually, the company finds itself in a position where it can no longer even pay the debt itself, hence the bankruptcy.

    Poor Management

    Finally, as noted by Think Progress, Hostess mysteriously tripled the pay of their CEO just months before asking union members to take a pay cut to “save the company.” One could understand how union members found it hard to believe the company was strapped for cash after raising the CEO’s salary from approximately $750,000 to $2,555,000. Nine other executives at the company also received massive pay raises earlier this year, which now appear to be part of a “golden parachute” package. Other CEO's, like the head of American Airlines, freezed or reduced their pay over the past four years when they asked unions to make similar sacrifices.

    It is also worth remembering that Hostess executive agreed to pay the labor unions their high wages and generous pensions in an earlier contract. Much like NHL owners, the Hostess executives were trying to take back an earlier contractual promise made to the union.

    Conclusion

    It is easy to blame the death of Hostess on labor unions, but the reality is that the company was probably going down regardless. But take heart America, Hostess' popular brands like Twinkie surely will be sold off as part of the bankruptcy. The Twinkie will still be on American store shelves in the future, just made by a better run company.

  2. #2
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    Hi Red!!!
    Are you really quoting "Think Progress" as a believable source? I am astounded, and I can't wait to hear!

  3. #3
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    Actually this article came from here,I posted this one after reading quite a few very similar articles that basically said the same thing The real reasons Hostess went bankrupt - National Political Buzz | Examiner.com

  4. #4
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    Its obvious to everyone they are going under because they stopped selling blueberry pies long ago. Ever since then they have had trouble. They could have doubled the price, and they still would have sold well.

  5. #5
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    I don't think the article states anything that isn't true to some degree. I have seen both the bad and good of union representation from both sides. I have also witnessed the good and bad of company management from both sides. It's with all of this experience that I feel comfortable telling you the following opinion; Companies like Ford and GM are not out of trouble and only a fool would believe otherwise. At best they were handed a very costly temporary fix to an inevitable problem, which is a rapidly dwindling customer base in a depressed economy that is likely to continue for many more years. At some point in the future they will have to go back and ask for more concessions. If they don't get them disaster will loom. If they do get them then they just further reduced their own customer base. Write this down...."Sooner or later it will happen."
    Dave44 and lost like this.
    "Treasure is wherever it can be found."

  6. #6
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    If you want to blame unions for this, you probably don't have all the facts:

    Click image for larger version. 

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    Its easy to blame the workers when CEO's and executives are there doing the real damage behind the scenes...

  7. #7
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    Quote Originally Posted by UncleMatt View Post
    If you want to blame unions for this, you probably don't have all the facts:

    Click image for larger version. 

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    Its easy to blame the workers when CEO's and executives are there doing the real damage behind the scenes...
    This is what I think is going to have to become a focus in the immediate future. Regardless of our various opinions about unions, which isn't really even part of the point, a company, any company, should be required to meet their contractual obligations before all the perks and bonuses. This, however, is seldom the case.
    "Treasure is wherever it can be found."

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    Quote Originally Posted by UncleMatt View Post
    If you want to blame unions for this, you probably don't have all the facts:

    Click image for larger version. 

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    Its easy to blame the workers when CEO's and executives are there doing the real damage behind the scenes...
    I see that you have a nice article that looks as if you typed it, scanned it and now offer it up as facts. Looks nice, I don't, however see the point?
    Rising fuel, rising ingredients, rising labor costs. It matters not what your perceived evil is, the fact that they would not take an 8% cut in pay to stay employed tells us something else.
    Is that a Saul Alinsky Article?

  9. #9
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    Quote Originally Posted by Dave44 View Post
    I see that you have a nice article that looks as if you typed it, scanned it and now offer it up as facts. Looks nice, I don't, however see the point?
    Rising fuel, rising ingredients, rising labor costs. It matters not what your perceived evil is, the fact that they would not take an 8% cut in pay to stay employed tells us something else.
    Is that a Saul Alinsky Article?
    I think you'll find that the presented information is fairly accurate, so they were going to lose far more then just an 8% cut. From an employee's point of view, the company was already millions in the red in the contractual pension agreement as well. If you side with the company then you are saying there is nothing wrong in ignoring your contractual obligations and bills while still increasing your own income, personal and company perks, and general lifestyle. The real issue is that these decisions had already adversely effected the lives of 18,000 people who, I might add, were not only counting on those contractual obligations to be honored, but had also already earned a portion of those contractual obligations. This bankruptcy threat didn't just come around and happen one day, it took a long time to create that much debt, and yet in light of this the company continued to make promises it wasn't and hadn't been upholding, all the while still increasing their own personal gain. In light of all this I can fully appreciate why the employees turned the offer down and I also respect their reasons for doing it. The point was never how much money or benefits they were making, or stood to lose, the point is that the company hadn't been living up to their contractual obligations for a long time and yet their own personal gain continued to increase. This is why I say it presents a great case study because, unfortunately, most large companies operate in this same fashion regardless of the obligations undertaken.
    "Treasure is wherever it can be found."

  10. #10
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    Quote Originally Posted by bigscoop View Post
    I think you'll find that the presented information is fairly accurate, so they were going to lose far more then just an 8% cut. From an employee's point of view, the company was already millions in the red in the contractual pension agreement as well. If you side with the company then you are saying there is nothing wrong in ignoring your contractual obligations and bills while still increasing your own income, personal and company perks, and general lifestyle. The real issue is that these decisions had already adversely effected the lives of 18,000 people who, I might add, were not only counting on those contractual obligations to be honored, but had also already earned a portion of those contractual obligations. This bankruptcy threat didn't just come around and happen one day, it took a long time to create that much debt, and yet in light of this the company continued to make promises it wasn't and hadn't been upholding, all the while still increasing their own personal gain. In light of all this I can fully appreciate why the employees turned the offer down and I also respect their reasons for doing it. The point was never how much money or benefits they were making, or stood to lose, the point is that the company hadn't been living up to their contractual obligations for a long time and yet their own personal gain continued to increase. This is why I say it presents a great case study because, unfortunately, most large companies operate in this same fashion regardless of the obligations undertaken.
    Yup...and the government operates the same way...increasing pay and bennies while the country goes broke. The reason I'll take the company, though, is that I can boycott the company...the government doesn't allow me to.
    Jim

  11. #11
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    It presents quite the economic dilemma. How do you fairly regulate, or address these practices these loop holes, and still keep these vital, middle class supporting businesses here? The wealthy don't want to see their tax rates increase, but if you keep making decisions that sacrifices the middle class who's going to make up the loss? The poor certainly can't do it.
    "Treasure is wherever it can be found."

  12. #12
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    Here's the situation of progression. The big boys, the Morgans, Rockefellers, Carniges Built this country, but got greedy. The unions formed and balanced the act. But the unions got greedy. They had to keep going for more to justify there existence after things were balanced. To pacify the unions, the businesses just raised there prices thus creating an endless spiral of inflation. It reaches a point where the customers stop buying the product and the company failed. Frank
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  13. #13
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    Quote Originally Posted by Frankn View Post
    Here's the situation of progression. The big boys, the Morgans, Rockefellers, Carniges Built this country, but got greedy. The unions formed and balanced the act. But the unions got greedy. They had to keep going for more to justify there existence after things were balanced. To pacify the unions, the businesses just raised there prices thus creating an endless spiral of inflation. It reaches a point where the customers stop buying the product and the company failed. Frank
    I really like it when the union employees are faced with the way the market actually works...get too expensive, and people don't buy your product. Too many union people thing they are ENTITLED (man, I hate that word) to their job, and at the payrate they desire. Good post, Frank!
    Jim
    Frankn and truckinbutch like this.

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    Quote Originally Posted by Jim in Idaho View Post
    I really like it when the union employees are faced with the way the market actually works...get too expensive, and people don't buy your product. Too many union people thing they are ENTITLED (man, I hate that word) to their job, and at the payrate they desire. Good post, Frank!
    Jim
    I work for a union and i can say that for the job i do i am grossly overpaid and under worked. the funny thing is it seems that most people at my company seem blissfully unaware of this fact while i am constantly walking around waiting for the anvil to drop. Our contract with the employer focuses on constantly getting higher wages when everyone i know could give a hoot about that we want things like paid days off or more affordable benefits but the bottom line is the union wants more money from your dues and they will keep getting you higher wages so they can keep skimming more money from your check and that is the be all end all with unions.

  15. #15
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    I think the worst unions are the unions for the DPW in towns.Grossly over paid and under worked.Like i said in another thread 3 men to change a street sign not including the pole.Plus using a backhoe with a guy sitting in the bucket to reach the sign,and a guy to drive the backhoe and another guy to supervise.Plus a cop there to watch.Ridiculous.

 

 
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