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Hostess Cupcakes: Corporate Destruction of a Food Legend

There was once a time, in my youth, as a new geographer, that I followed a Hostess Cupcake delivery truck to its next destination, just so I could buy the freshest Hostess products on the store racks. These were the years of the 1970’s. From that point on till this last year, Hostess Cupcakes and Ding Dongs were my first choice of snacks before any other brands.

All was well in the snack food industry till the first few years of the 21st Century. 

Maybe it was the constant wars America fought. Maybe it was the destruction of the Middle Class. Maybe it was the Hostess workers demanding a livable wage. 

Whatever the reason or reasons, Hostess was soon in the grasp of corporate raiders.

Legacy Debt

During the first part of the 21st Century, the Hostess Brand ran up a debt of over 1 billion dollars. Three major factors structured the continuing debt issue for the Hostess Brand.

(1) From 2003 up through 2011, Hostess ran 9 straight years of declining sales. Revenues in 2003 were $3.5 billion, while revenues in 2011 were down to just over $2.4 billon dollars.

(2) Over 340 union contacts framed another $ 2 billion in unfunded union pension agreements. With a workforce of 18,000, worker debt was becoming a major flash point between workers and management.

(3) By November of 2012, Hostess Brand LLC had only 45 million in cash reserve to meet a possible new 1 billion dollars in total liabilities.

Bankruptcy

The corporate masters of Hostess Brand decided in December 2012 to file yet a second time in 10 years for Chapter 11, Bankruptcy. It was during this timeframe that the bankruptcy judge issued a ruling allowing Hostess Brand LLC to began liquidation of corporate assets. The judge approved an order for the immediate firing of 15,000 union employees. With the same order, the judge allowed for 3,200 management employees to keep their jobs.

The CEO of Hostess "earned" a nine million dollar bonus for taking the company into bankruptcy.

The holding company, Hostess Brands LLC, decided that in order to (1) deal with decreasing sales, (2) worker union, and (3) large pension debt, it would explore a corporate strategy of selling out to the highest bidder. Within the surreal world of corporate bankruptcy, many common sense rules are suspended. 

That new cupcake player was Apollo Global Management LLC. They invested $410 million to secure the Hostess name and what assets’ left over from the bankruptcy sale.

This new money allowed the Hostess ‘’brand to increase its production by adding a plan a fifth factory and expanded distribution.  Before the bankruptcy, Hostess Brand products were distributed through a network of 50,000 convenience stores. Now, the plan is to increase this number to over 100,000 points of sales. 

Rebirth of a Legend

In late summer 2013, the Hostess Brand came back to life. Except this time there was a new work force without the union. Another major change with the new improved Hostess Brand foods was the fact that the cup cake had been changed for the worst.

The Hostess cupcake was now smaller, with less chocolate and cream, and no magic taste. This new and revised cupcake tasted like the Little Debbie brand.

Hostess Brands will no longer be number one on the convenient store racks.

That story I will save for another day and chapter in the on- going battle over the snack food marketplace’s billions of sales.


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