Monday, January 16, 2012

Goodbye Twinkies?: Hostess Files for Chapter 11 Bankruptcy Protection

Could those famous Twinkies snacks disappear forever? Well, it seems that the parent company that makes these favorite snacks for the last 87 years is in deep financial trouble. The Texas based Interstate Brands Corporation has perhaps close to $1 billion in debts, with only as little as $500 million in assets. The Irving, Texas based company is battling several vexing demons right now. A health conscious public is bucking traditional snacks like Twinkies, Ho Hos, Donettes and cup cakes, and turning to yogurt and fruits and vegetables and turning against these traditional snacks that used to be a part of many packed lunches for generations.

Old labor agreements are haunting the company as well. The companies biggest cost liability appears to be an old labor agreement with the Teamsters Union to pay into a retirement fund for the company's retired drivers. The Teamsters Union wants Hostess to survive, and is attempting to find ways to work with the union in a common effort to save jobs.

Hostess is also a smaller player in the snack industry compared to bigger companies such as Sara Lee and Kraft. These larger companies are better able to adapt to new market changes by acquiring other companies or by developing new product lines unlike Hostess which chooses to market their same old traditional line of products year after year.

Hostess also is the maker of Wonder Bread, another troubled product line. White bread sales continue to tumble as wheat and whole grain breads gain in popularity, making Wonder only another troubled brand name for the company. With so many product lines shrinking in sales, you only have to wonder why the company doesn't develop some new products that have a growth pattern instead of trying to battle to be the last man out with a line of products that lose more and more sales each year.

Hostess might have to take a clue from how some other companies became defunct. During the 1950's, the merger of Nash and Hudson automobiles became the world's largest corporate merger when they formed American Motors Corporation, snubbing Studebaker and Packard, who also wanted to join as well. For many years the company ran successfully under the leadership of George Romney and others. But, but by 1970, a new car, the Hornet, was to become the basis for most of the companies cars until the end of the company in 1987, when Chrysler bought out the assets of the finally troubled company in order to acquire the Jeep line of vehicles. Many years before 1987, AMC really needed some new car models, but really lacked the money to develop a new small car line that heavily borrowed from both the Ramblers of the 1960's as well as a 1967 Cavalier show car the company developed. AMC attempted to do face-lifts on the old Hornet line of cars year after year, as sales slowly ebbed downward because enough wise buyers realized that a 1987 car was still just a face-lifted variation of the 1970 and early cars. If Hostess can't develop new products to keep up with current market demands for more healthy snacks, then the company is probably not going to stay around much longer.

Hostess claims that they have secured $75 million in financing to continue to operate for now. But, unless the company develops some new products to go with their traditional line of products, the company's future remains very bleak. Someone must really like Twinkies an awful lot to make a loan to a company with these sort of financial problems.


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