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January 23 2012

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Hostess and Chapter 11

posted by Mac

Say it aint so. Hostess Brands cutting the fat (its high costs) by heading back into bankruptcy protection for the second time in less than a decade.

The company has been battling rising labor costs and increased competition. More importantly, however, the 87-year-old company has to deal with the health-conscious Americans that favor yogurt and energy bars over the dessert cakes and white bread they consumed 30 years ago. In fact, according to reports, last year 36 percent of Americans ate white bread in their homes, down from 54 percent in 2000. Meanwhile, about 54 percent ate wheat bread, up from 43 percent in 2000. And consumption of healthy snacks is growing too. There just isn’t a whole lot of healthy benefits from Twinkies and Ding Dongs….who knew?

In Hostess' Chapter 11 filing on Wednesday, the company said its rivals have combined and expanded their reach, heightening competition in the snack space. Hostess' competitors range from Bimbo Bakeries, which makes Entenmann's baked goods, and McKee Foods, which make Little Debbie snack cakes. It also faces competition from larger food makers like Sara Lee and Kraft Inc. To make matters more difficult for the company, Hostess employees are unionized while most of its competitors aren't. As a result, Hostess has high pension and medical benefit costs.

Who knows if they will emerge from Chapter 11. The move to healthier foods may be too much to overcome. Sad day.

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Mac

About the Author: Mac
mac@thelawstreetjournal.com

Mac is in his third year of a JD/MBA joint degree program and is interested in pursuing a career in transactional law. He enjoys drinking fresh coffee on his porch during a crisp morning, the weeping of a pedal steel, and the company and laughter of friends.

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