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19 November 2012

Comments

What percentage of the Admin & Other is compliance with government regulations? No doubt the place could have been better managed but I believe a good chunk of the admin cost was somehting they really could not control. Labor costs are something they could cut so cut they tried...

Jeff, no dobt government regulations hurt, but I can't be too sympathetic when I know of a few lean food companies who are able to have 60-65% of their total spend go to the product, compared to the paltry 43% at Hostess.

Well said. And that's apart from the substantial raises senior managers gave themselves just as the ship was going down.

This seems to be pretty standard these days with the adherents to the Bain Capital free enterprise model:
1. Load a company up with debt,
2. Take big pay and bonuses for top execs,
3. Blame the workers when the whole enterprise goes under.

Hi Bill

You got this one dead on no food industry compoany can survive their cost structure. It is far to easy for any competitor to knock off any product you make if you do not hold a tight line on costs. The same union represents workers at most of their competitions facilities without any of them currently demanding pay cuts. Unfortunately the Hostess company was never well managed and sold of many of its opportunities to turn extra profits else where. They also totally ignored the shift toward healthier eating habits, something many of their competitors didn't miss.

But in the food and for that matter most agricultural product processing whenever your non product costs start representing more than 45% of total costs you should know you're in big trouble.

Surprise the companies that Hostess sold their brands to in Canada are actually doing really well, but than they aren't blowing 50% of the money in useless overhead.

As to blaming government regulation for their problems, it doesn't work. One thing the various North American government agencies have been really good at is helping businesses streamline and improve safety compliance. And those costs are pretty much identical for all players and thus aren't a disadvantage to anyone. Anyway they all endup in production costs or R&D not in overhead.

Apparently they grew through a lot of acquisitions, resulting in some huge number of separate union contracts, healthcare plans, etc.

It's always easy to justify one more step into the complexifying of things, but add enough of them together and you've got an unmanageable mess.

“With such powerful forces aligned against me in my campaign to defend the American tradition of obesity I need all the Hostess products I can get…” I am still laughing. This has made my day. Thanks for the entertaining article.

I read an article today about the union work rules... one union guy to load bread and another separate union guy to load pastries... crazy stuff. But, great analysis to show labor was only 15% of total cost...

http://online.wsj.com/article/SB10001424127887324735104578123312646698662.html

There were more than just "labor troubles" there.

There seems to be a natural human tendency to externalize the root cause of problems. Many managers are Insecure that any real analysis of root cause might create a negative perception of their competence. Why not pick something that I can claim is "outside my control," like unions, or regulations, or IT, or the labor market, or the economy. Lean Managers practice "hansei", relentless reflection, so that kaizen can effectively be applied to the real problems within the organization. They actually enjoy being wrong at least 50% of the time. If your goal is to truly turnaround an organization, then you will need Lean Managers. If your goal is to extract as much capital from it for top management, before it is completely liquidated then hire somebody like Rayburn.

Bill, if you keep the weight on, dump the cheap Twinkies and go for the real stuff: Tastykakes, one of the best things about Philly (along with Nifty Fifties, cheese steaks, and hoagies).

Tony,

I heartily agree. I'm from near Chicago and I have always thought Chicago and Philly are two places driven by a common culture. Whether it is Chicago's deep dish pizza or Philly's cheesesteaks the people in those cities are hard working folks who know that getting the job done through a tough northern winter is no task for skinny people.

Thank you for a broader perspective on Hostess and its operations. Their business model was as flawed as the content of their Twinkies had become. In the push to remain profitable against rising costs, Hostess turned their products into nonfood.

That said, Hostess' demise creates opportunities. My weblog http://bcbakes.blogspot.com/ carries Essays on the Natural Philosophy of Postmodern Twinkies, including my increasingly successful reformulations of a NOT-winkie that is actually food, not 70% additives as in the originals.

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