Hostess Brands, the makers of Twinkies, Ho-Hos, Wonder Bread, and Drake’s Cakes, announced this morning that it will be shutting down its operations. The company explained that will close 33 bakeries and 565 distribution centers, laying off most of its 18,500 employees.
The impetus for the death of these jobs? According to the company (and the media covering the story based on corporate press releases) it’s organized labor of course! Hostess Brands blames its demise on a strike by the Bakery, Confectionery, Tobacco Workers and Grain Millers Union, which represents workers at nearly two-thirds of Hostess’s factories. With those workers on strike, Hostess Brands told the world it simply could not survive and will be forced to close its doors.
The corporate bias against labor is buried in the rhetorical DNA of the company’s announcement. Note the New York Times article announcing the closure:
Hostess Brands, the bankrupt maker of cream-filled pastries like Twinkies and Ho Hos, said on Friday that it planned to wind down its operations and sell off its portfolio of well-known brands. The decision comes a week after one of the company’s biggest unions went on strike to protest a labor contract.
The paragraph flows from announcing the liquidation to the union strike and the decision to close one week later. This draws a chain of causation between the strike and the closure that sits in the mind of the audience. The important term glazed over by the structure of the paragraph?
Yes, Hostess Brands was bankrupt before this strike happened. Indeed, it’s been bankrupt twice in the last 8 years, having only emerged from its last bankruptcy 3 years ago. Think about that a second. That means Hostess managed to go bankrupt, restructure, and run itself back into bankruptcy in 3 years. Perhaps this should get more play than “labor strike” when we discuss the demise of the company.
What prompted the company to run itself into the ground again? While the company has publicly placed all its business woes since 2009 on the difficult task of cutting labor costs, the reality is that the company remained behind the times. When America began to seek healthy alternatives to Wonder’s delicious but frightening 1950s deadly chemical feel, Hostess trudged onward losing market share to others. When childhood obesity became a national epidemic, Hostess kept churning out fat-filled cakes that sat uneaten on shelves. As the business faltered, Hostess turned blame on the workers.
But a losing business model with cheap labor can generate higher margins for only so long, and while this strike will provide the basis for closing the doors of the company, it will trigger the event that the company itself has planned for some time — liquidation. Hostess will now sell its famous brand names to other companies who can profit off them with smaller-scale production or by tweaking the product itself to better compete. For those at the top of Hostess, this — and not cutting labor costs while chasing diminishing markets — was the brass ring all along, with the owners of the company likely to become rich on these sales. By the way, who owns Hostess? If you guessed, “Private Equity firms seeking to slowly kill the company while milking its resources” you’d be right!
The Private Equity firms running Hostess may have a slightly different business model than Mitt Romney’s Bain Capital, but remember the standard model of private equity and thoroughly read about Hostess and marvel at the pattern:
In blaming workers for management woes, Hostess has an unlikely ally in the Teamsters Union. Unfortunately, the Teamsters are blasting the Bakery Union for going on strike and putting the Teamsters employees of Hostess out of a job. It’s an understandable response, given the Teamsters members are going to lose their jobs over a decision made by others, but it also reflects the long-term strategy of businesses to pit unions against each other to shield themselves by rhetorically framing the dispute not just as “union kills company” but as “rogue union kills company.” By keeping in the good graces of one union, Hostess is leading journalists by the nose to writing stories that show Hostess flanked by friendly workers outraged by the other union run amok.
But the Bakery Union knows the score. Their strike did not kill their jobs…their strike ended the farce that was going to kill their jobs:
“The plan has little or no chance of succeeding in saving the business,” said Frank Hurt, president of the Bakery Workers union, in a statement last month.
“This is a company that is controlled by Wall Street private equity and hedge fund firms, whose sole objective is to maximize their own returns, not rebuild a company for the long haul,” he said.
This story, unlike Twinkies, is very fresh, but as the news runs over the next few days and weeks, expect to see “Union Strike” appear in coverage at least 10 to 1 more often than “Private Equity.” And that’s a lesson in controlling communication.