What is this thing called 9Stucks?
9Stucks is a dynamic business diagnostic tool. It identifies nine distinct yet interrelated business challenges that cause a company to underperform.

Hostess Brands: Stuck in Their Own Twinkies

“Serving up family time, one smile at a time.”

- Tag line from the home page of the Hostess Brands website

Today I’m announcing that …

Hostess Brands Joins the Top 20 Stuck List

The creator of Twinkies becomes the latest iconic corporate brand to ‘get listed’. Here is my Top 20 Stuck List ranking so far:

  1. Hewlett Packard - Call the Handyman: These Garage Doors are Broken
  2. Yahoo – What Marissa Mayer Should Do To Unstick Yahoo
  3. Hostess Brands
  4. TBA (Hint: baseball team from Boston)
  5. Numbers 5-20…More to Come (any suggestions?)

Hostess filed Chapter 11 (again) this year. Do you Wonder (sorry, bad pun) what happened to drive them back into court a second time? How is it possible that a well known, ubiquitous US corporation that sells millions and millions of sweet, spongy, crumbly, powdery, chocolate and squishy things each year can’t pay its bills?

Find out why Hostess is Stuck and my Top 10 recommendations to fix the company once and for all.

Hostess is mired in 4 of the 9Stucks: Ditch, Another World, Maze and Rough.

Ditch

Ditch means: “There is a significant, persistent problem within the organization’s leadership ranks.” Hostess has:

  • conflict among all key stakeholders: investors, hedge funds, unions, lenders, management
  • conflict among unions
  • turnover at the top – 6 CEOs in last decade

Another World

Another World means: “Insufficient reactions to shifting external forces.” Hostess has:

  • union attitudes stuck in the past – not in reality
  • consistently declining sales –> End of 2011: $2.5 billion in sales…but drop of 28% from 2004 and 11% from 2008
  • a need to call home…Hello…! Earth calling Hostess…consumer tastes have shifted
  • tired product lines
  • heavy competition from similar products – snack foods everywhere of every type

Maze

Maze means: “Our financials don’t tell a very good story.”  Hostess has:

  • a horrible capital structure
  • a high fixed cost structure
  • high labor costs
  • pricing pressure
  • increasing commodity costs
  • burdensome obligations – at End of 2011:
    • 40 pension plans
    • $2 billion unfunded pension liability
    • $860 billion of debt
  • increasing losses – $341 million in 2011

Rough

Rough means: “The organization has high blood pressure.” Hostess has:

  • pervasive unions:
    • 12 unions
    • 372 collective bargaining units
    • stifling, restrictive work rules
  • complexity:
    • 36 bakeries
    • 565 distribution centers
    • 5,500 delivery routes
    • 50,000 customers
  • aging equipment (e.g. plant, delivery trucks)

My Top 10 (not good at counting) Restructuring Recommendations

  1. New Products: Introduce a bright red dye Twinkie variate (consider other eye catching colors – see #2)
  2. New Products: Flood the distribution channels with special holiday and ethnic packaging promotions
  3. Cut Costs: Re-engineer all the bakery molds to make the individual product sizes 25% smaller
  4. Cut Costs: Reduce reliance on key commodities. Insert more filling and use less cake in each product
  5. Expand Distribution: Open a company retail store in Nantucket Center, preferably next to Ralph Lauren Polo shop
  6. Generate Cash (and even more cash): Implement a 50% across the board suggested retail price increase, effective immediately; increase unit price charged to retailers by 75%
  7. Social Media: Start online campaigns – “Twinkie Tweets”?
  8. Go To Market: Hire Michael Phelps as company spokesperson; introduce special edition RingDings shaped like Olympic medal
  9. Go To Market: Use union connections to have Hostess products become the Official Snack Food of the White House
  10. Go To Market: Capitalize on popularity of Major League Baseball by introducing a new Wonder Bread slogan. Instead of “Wonder Bread helps build strong bodies 12 ways”, MLB could adopt: “Wonder Bread, The Clubhouse Replacement to Steriods”
  11. Restructure Debt: Hedge fund managers, senior lenders and union reps go offsite to wilderness teambuilding exercise
  12. One more thing: For #’1-11 above, These are not intended to be serious – some people don’t get my sense of humor!

Your recommendations would be…?

Comments

  1. PeterA says:

    Continental Baking Co’s (Twinkies & Wonder Bread producer) problems go back to the early 1970′s. In collective bargaining they used their then clout (being a division of ITT) and their ability to absorb large wage increases to hurt smaller family owned competitors by forcing large union wage increases on the industry. Then they worked with Earl Butz, Nixon’s Secretary of Agriculture, to increase the prices of commodities (think wheat) to keep farmers happy to vote for Nixon. As a result of these initiatives, by mid-1970 many small family owned bakers went out of business. Continental Baking Co was riding high. The only problem was the law of unintended consequences—they created a monster culture in the company that haunts them to this day. Your restructuring suggestions may be in jest but there is a lot of truth to them. Unfortunately hedge fund guys and buy out executives are clueless on how to fix the kind of problems Continental now faces.

    • Jim McHugh Jim McHugh says:

      Peter,
      Thanks for reading and for your comment. Good historical color on the corporate history.

      “The only problem was the law of unintended consequences—they created a monster culture in the company that haunts them to this day.” Great point

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