Demise of Hostess is a lesson for small businesses
It’s important to remember that expectations change, competitors change and customers’ needs change
Real dinosaurs were undoubtedly oblivious to their pending demise, but they had an excuse. They lacked thumbs and were as dumb as a box of rocks. But as the liquidation of Hostess Brands Inc. illustrates, today's figurative business dinosaurs don't seem to be much brighter.
Hostess, the maker of iconic products such as Twinkies and Wonder Bread, apparently won't see its 86th year in business. That means that those products will have a longer shelf life than the company itself. And who is to blame? Everyone.
Unions are a favorite target of mine partly because they have to some degree outlived their usefulness, but mostly because they refuse to accept the realities of a global economy. Traditional retirement benefits and protection of unnecessary jobs just doesn't cut it anymore.
In the case of Hostess, it's even worse. Competing unions created a rat's nest of rules that made it virtually impossible for the company to operate efficiently. Some of the conflicting union rules forced the company to use separate trucks to deliver bread and cake products. And some required different workers to load trucks. Now there's a formula for success.
This silliness is brought to you by the Teamsters Union and the Bakery, Confectionary, Tobacco Workers and Grain Millers International Union. No, that isn't a misprint. That is one of Hostess' two main unions. Compounding Hostess' woes, its main rivals are non-union shops.
But mostly — as with Kodak — this is a case of very poor management. The company's troubles were baked into the basic strategy it deployed over decades. As if in a perennial sugar rush, management pursued its stated goal of becoming the dominant provider of snacks and baked goods in the U.S. through acquisition.
Although growth by acquisition is sometimes necessary and appropriate, too often it is the byproduct of dull minds. If you make a good product and execute well, why not grow organically? It may take longer, but an organic growth strategy maintains both product and cultural continuities. Of course, management must possess a brain to execute this — which is why there are so many acquisitions.
Throughout the 1960s and 1970s, Hostess went on a buying spree. With every acquisition came a different set of labor contracts and pension obligations. The end result were obligations to some 40 multiemployer pension plans, 565 distributions centers, 570 bakery stores and 5,500 delivery routes. I think Hostess management should send their resumes to the Postal Service. They seem to have the requisite experience.
But it was an egregious mistake to think that just because you market iconic products you don't have to react to shifting market dynamics. Twinkies may be a snack food icon, but it is one that stands for the antithesis of health. And is Wonder Bread actually bread or a reasonable facsimile?
Small business owners take note. It's not uncommon for successful small businesses to think that all they need to do is keep doing what they are doing. Some fall into the "we've done it this way for years" trap and others believe that maintaining the status quo is a solid conservative strategy that offers the highest probability of future success.
But the success of these philosophies is predicated upon competing in a stable, or even stagnant, market. Although rare, there are some niche markets that probably fit that description. But mostly things change. Expectations change, competitors change and customers' needs change. Faced with an evolving market, maintaining the status quo can provide a false sense of security, even if what you're marketing is an icon.
Tony Paradiso of Wilton is an author, professor, entrepreneur, radio and TV commentator. His website is tonyparadiso.com.