In mourning there is a learning in demise

by Morton Sosland
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Yes, it was only coincidence, but the temptation is great to note the similar timing of Hurricane Sandy and the shutdown and pending liquidation of Hostess Brands. In the case of the natural disaster, destruction exceeded anything that has occurred before from similar storms hitting the Northeast. When it comes to Hostess Brands, the point may easily be made that the food manufacturing industry has experienced shutdowns and disappearances of many large and small companies. Like Sandy, though, the Hostess collapse writes finis in a history-making way for a company that carried many of the roots of modern-day food manufacturing. This event not only merits attention as a hugely important development but is worthy of study to help other food makers avoid a similar fate.

In the general media, the shutdown of Hostess Brands has been accorded front and full-page attention largely because of the “romance” associated with products like Wonder and Butter-Nut for bread, Hostess for cakes and Twinkies among specific products. Hardly a major newspaper or broadcast news failed to mention these products as popular in the youths of readers and listeners across all American consumers. It also should be noted that many of these reports included wry comments about the lack of nutrition, the excess of calories and supposedly useless content of more than a few products. The statement was made with some frequency that the popularity of what Hostess made defined the attitudes of consumers toward nutrition advocates, a few of whom celebrated this event.

Particularly telling in these stories is the widespread expectation that regardless of what may happen to the company that originated and made these products, it is likely, if not certain, they will not disappear at retail. Many rumors were heard of other food companies and of investor groups expressing interest in acquiring the product names. These assurances are not totally convincing as evidenced by consumers rushing to stores to gather products that bore these brands. Hoarding surfaced because people apparently doubted that such august brand names had lives beyond the company itself.

For food manufacturing, the demise of Hostess Brands is not itself of great import. Looking behind this name, which has been used only a short time, to its founding companies — Interstate Bakeries Corp. and Continental Baking Co. and the many independents that once stood proud — is where this event prompts sorrow as well as alarm. For those who recall names from the past of the individuals who are credited with shaping the modern food industry this collapse rings a solemn funeral bell. One can only imagine what Roy Nafziger and Lee Marshall, just to name two behind these businesses, would say about the chain of events leading to Hostess’ demise.

These are the men who managed to foster the concept of national food manufacturing by bringing together independent family-owned enterprises. In creating these businesses, they cultivated the market among public investors in wanting to own shares. This revolutionized food making into largely shareholder-owned companies. At the same time, this style of ownership has encouraged foreign investing in American food companies.

As is all too often the case in a corporate collapse, the fall of Hostess Brands is easy to understand. Indeed, the point could be made that the reasons are so evident that it’s hard to understand how this could have been avoided. Happily for the food industry, there’s nothing in the Hostess story unique to this industry. Instead, the faults were unwise business strategies, haphazard day-to-day management, mistakes in decision-making, and union contracts negotiated in good times that led to disaster when the inevitable tightening occurred. Old-line products are also accountable.

Mourning the demise of this once grand business should not divert attention from the issues at hand. What happened is a shocking example of how accumulated mistakes finally destroy a business, any business, even one with the best known brands in its industry.
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