Document Type

Article

Publication Date

Spring 2013

Abstract

In 1930, the Hostess Corporation[1] began as the Interstate Baking Corporation (IBC). In Kansas City Missouri, flour, wheat, and grain marched from machines as workers placed sliced white squares into Wonder Bread’s iconic yellow, red, and blue packaging.[2]

Hostess grew from its small town beginnings into a large corporation thanks in large part to its innovation in its product lines as well as growth through the acquisition of its competitors. By the end of 2012, “Hostess [was] one of the largest wholesale bakers and distributors of bread and snack cakes in the United States [and] operate[d] 36 bakeries, 565 distribution centers, approximately 5,500 delivery routes and 570 bakery outlet stores throughout the United States.”[3] In more recent years, however, the now gigantic company had lost its innovative edge and failed to effectively transition with the changing tastes of its consumers. Likewise, with the acquisition of constituent companies, Hostess had acquired a multitude of diverse workers and ad hoc union agreements that rendered the already large company increasingly more unwieldy.[4]

The importance of Hostess’s unionized labor force to its operations cannot be overstated. Indeed, Hostess’s operations relied on labor-intensive processes “involving, among other things, complicated and extensive local route delivery systems” throughout the United States.[5] According to Brian Driscoll, Hostess’s CEO at the time of its 2012 bankruptcy filing, in order “to staff this labor-intensive network, [Hostess] employ[ed] approximately 19,000 people, of which 83% [were] members of unions who [were] subject to 372 collective bargaining agreements.”[6] (Emphasis added). “[Hostess’s] unionized employees belong[ed] to 12 separate unions, but the overwhelming majority (nearly 92%) of [Hostess’s] unionized workforce [were] members of the International Brotherhood of Teamsters (the “IBT”) or the Bakery, Confectionery, Tobacco Workers & Grain Millers International Union (the “BCT”).”[7] By sheer number, these two unions dominated representation of Hostess’s entire labor force, and Hostess’s eventual demise was the almost immediate consequence of its failure to reach an “agreement with striking workers [from one of these unions] on concessions to help the company emerge from its second bankruptcy.”[8]

At the time of the writing of this work, some of Hostess’s biggest competitors and certain private equity firms are seeking to purchase the iconic brand in the same manner that Hostess built its empire.[9] In some of the most recent bankruptcy developments, Hostess has closed its doors to customers and opened itself for bidding.[10] As of April 15, 2013, the majority of Hostess’s brands and assets had been sold to several different purchasers for a total price of over $860.3 million.[11] The aggressive and numerous bids and final purchases for its constituent brands prove that the Hostess brand is valuable, but that management issues and unyielding labor issues that arose before Hostess’s first filed for bankruptcy in 2004, and were still present when Hostess again filed for bankruptcy in 2011, exemplify that the corporation never quite fixed what was broken in order to operate successfully.

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