Hostess to go out of business, lay off 18,500 nationwide

Alana Semuels,Tiffany HsuAndrew Khouri and Ronald D. White

Twinkies may last forever, but the same can't be said for Hostess Brands Inc., the company that makes the popular cream-filled sponge cake.

Hostess has asked a bankruptcy judge for permission to go out of business and lay off 18,500 workers, blaming a strike by members of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union.

"We deeply regret the necessity of today's decision, but we do not have the financial resources to weather an extended nationwide strike," Hostess Chief Executive Gregory F. Rayburn said in a statement Friday.

The Irving, Texas, company, founded in 1930, runs 565 distribution centers around the country, as well as 33 bakeries and 570 bakery outlets.

The union says 24 production facilities are on strike nationwide.

Hostess said it filed a motion with Bankruptcy Court Judge Robert Drain in White Plains, N.Y., to allow the company to shut down and sell its assets. The company, which also owns brands such as Drake's, Nature's Pride and Wonder Bread, is seeking a court hearing Monday.

The union accused Hostess in a statement of making unreasonable demands, including wage and benefit cuts of about 30 percent for workers, while top executives of the company received large pay raises. Hostess has filed for bankruptcy protection twice this decade, the last time in January.

"The crisis facing Hostess Brands is the result of nearly a decade of financial and operational mismanagement that resulted in two bankruptcies, mountains of debt, declining sales and lost market share," said Frank Hurt, the union's president. "The Wall Street investors who took over the company after the last bankruptcy attempted to resolve the mess by attacking the company's most valuable asset -- its workers."

Many businesses have faced labor unrest in recession and subsequent recovery as unions resisted efforts to dial back benefits and wages. In 2011, for example, there were 19 major strikes and lockouts that each involved more than 1,000 workers, according to the Bureau of Labor Statistics. That's up from 11 in 2010. The 2011 strikes accounted for 1.02 million lost workdays, three times the number of lost workdays the year before.

The Teamsters Union, which represents 6,700 workers at Hostess Brands plants, had settled an earlier labor dispute with the company.

"The Teamsters Union tried everything in its power during the company's most recent financial difficulties to shape an outcome that would put Hostess on strong footing to be viable and preserve jobs," Teamsters General Secretary-Treasurer Ken Hall said in a statement. "Unfortunately, the company's operating and financial problems were so severe that it required steep concessions from a variety of stakeholders, but not all stakeholders were willing to be constructive."

The Hostess shutdown announcement sent shock waves through the country Friday, causing Americans to begin hoarding Ding Dongs and bemoaning their fading childhoods.

Jon Auspitz, president of Wham Closeout Foods, a food liquidator, said he expected that Hostess would sell its brands to another company and then unload equipment and leftover inventory in a "fire sale." The brand is "very popular" among customers, he said.

Recently, however, Hostess lost ground with customers. Sales of Twinkies slipped 0.8 percent, Ding Dongs fell 8.7 percent and Ho Hos tumbled 6.3 percent from May 2011 to May 2012, according to analysis from research group Mintel.

The company ceded its top position in the prepared cupcakes and brownies segment to McKee Foods, whose sales increased 1.8 percent, largely on the strength of its Little Debbie brand. Smaller rivals such as Bimbo Bakeries and Give and Go also poached customers from Hostess, as have private label offerings from grocery stores, according to Mintel.

And Americans' appetite for junk food has been waning, as they increasingly look for healthful options with reduced fat, lower calorie counts and no sugar. Baby boomers and seniors, the demographics least likely to eat Hostess-style products, are growing in number, according to Mintel.

But that hasn't stopped consumers from raiding store shelves to stock up on Twinkies and Ho Hos. A box of 10 Twinkies was for sale Friday on eBay for $50.

Supervalu Inc., which owns the Albertsons brand, reported a nationwide surge in customers purchasing Hostess products. Hostess delivers its goods directly to Supervalu stores, so the grocery chain doesn't keep any extra inventory of the snacks in its warehouses.

"There has been an extremely noticeable gain compared to last year at this time," spokesman Mike Siemienas said. "We are preparing for the fact that these Hostess products will not be in our stores in the future. They are available while supplies last."




Los Angeles Times