Jenkins: The Media Choke on a Twinkie
Hardly any business in America is less consequential than Hostess, and yet Twinkies have garnered a disproportionate share of media focus and we are about to recommit the sin of over-attention here.
Our most fervent wish for the journalism profession for a long while has been that a new generation would come along trained to think. The world is adequately stocked with journalists who can write, who are careful and accurate reporters, and yet are helpless as babies when asked to punch their way through an obvious fallacy...
...Hostess’s problem, as the bakers point out in bankruptcy filings printed in legible English, and as Hostess management has pointed out in its own equally readable filings, is that Hostess’s valuable parts are held back by Hostess’s high-cost, Teamster-staffed system for moving Twinkies and other delights from production facility to store shelf.
This high-cost distribution system means the company doesn’t make money on many of its existing sales. It means it can’t profitably extend sales to new customers and new geographical markets that might keep Hostess factories busier than ever.
Now, as we said, a good bet is that people act rationally where their material interests are concerned. The bakers make a perfectly rational judgment, in rejecting further concessions and triggering the liquidation of Hostess, that their members would be better off if no longer wedded to Hostess’s Teamster-dominated delivery network.
The Teamsters, who swallowed hard and agreed to concessions in hopes of avoiding liquidation, are telling you something too. The Teamsters are telling you, quite rationally, that nothing of value would likely remain in the Hostess distribution system in a liquidation. Look at the buyers lining up for the Hostess brands, such as Tastykake owner Flower Foods and the investment fund that owns Pabst Blue Ribbon, who slaver after an opportunity to roll Twinkies and related indulgences into their own existing delivery networks. They slaver after Hostess’s distribution operations not at all.
Or turn on any business channel or any football game. Bombarding you will be ads from UPS, FedEx FDX +0.27% and the U.S. Postal Service aimed not at consumers but at business managers. These ads sing jingles about “logistics.” They show how over-caffeinated coffee warehouse managers can improve profits by outsourcing shipping to the professionals.
These commercials exist for a reason. Both the bakers and Teamsters judge their interests rightly. The Teamsters see little hope of survival if Hostess liquidates and the bakers see little hope of survival if it doesn’t. Sadly, Hostess’s outdated distribution business has all the entrepreneurial appeal these days of a tube-TV factory.
It’s even possible that management is right too, though some executives may wear suits, which makes them baddies: To invest more money in Hostess as currently structured would be to throw good money after bad...
Last month I posted on how Harley-Davidson had to "go nuclear" on its union to upgrade it's factory to the 21st Century. One thousand union workers lost their job through attrition but the factory was saved and more kept their jobs. Unfortunately the Teamsters haven't figured out this is no the 1950s and we can't keep our business models in that mindset.
An open secret is that much of the mail the USPS ships flys via UPS planes. The private sector does it much more efficiently. Hopefully someone picks up the pieces of Hostess, sets up a new factory in a right to work state and lets UPS, FEDEZ or DHL handle distribution.
But union guys, don't worry, you can have faith. For all the money you have sent the Teamsters, in the lyrics of Billy Joel's Allentown, "...And the union people crawled awaaaaaaaaaaaaaaaaaaayaaaaaaaaaaaaaaaaaaaah aaaaaaaaaaah aaaaaah."
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