Published on: November 19, 2012
On Friday, in a breaking news story, I wrote that bankrupt Hostess Brand, the manufacturer of Twinkies, was seeking court permission to go out of business and sell its brands and infrastructure, saying that "a strike by members of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union that began last week had crippled its ability to produce and deliver products at several facilities, and it had no choice but to give up its effort to emerge intact from bankruptcy court."
I commented:
Twinkies will survive. No worries there. Hell, they'd survive a nuclear holocaust.To be honest, I wrote that comment very quickly, because the story was just moving across the wires and I wanted to get the story into MNB and still get the morning Wake Up Call out in a timely fashion. But a lot of people thought that my speed also led to a certain thoughtlessness.
Some examples...
One MNB user wrote:
Over 18,000 people are losing their jobs and you make a comment about Twinkies. A little insensitive in my opinion.MNB user David Anderson wrote:
Due to yet another situation where Labor and Business can't seem to come to grips with the ever tightening noose around each other's necks. (due to ever increasing governmental regulation. )I.E. healthcare, make no mistake........
And you make a crack about Twinkies shelf life?
You are way better than that......come on Kevin. Give us some insight, consider the back story, reasoning, and implications so we can all consider.MNB user John F. Welsh Jr. wrote:
Another flippant remark, Kevin. Your comments would be better served if they pertained to the 18,500 employees and their families. A few comments about the union might also be appropriate. And MNB user Peter Stamos wrote:
That was a pretty insensitive but glib comment given 18,000 people will be losing their jobs. That said, I enjoy reading your work every day.All fair criticisms. I was a little cavalier in my comments. I'll try to do better, below. But first, some more comments - running the gamut - about the Hostess situation.
MNB user Mark Delaney wrote:
I’ve been following the Hostess story as I know someone personally involved and couldn’t help but see a similarity between what’s happening there and in our political world right now. In the Hostess case, the union seems hell bent on putting Hostess out of business and if they’re successful what exactly will that prove? I get it – they stuck to their guns but now the employer is gone.
On Long Island just after Sandy it’s been reported that LIPA may have initially turned away workers bringing help from out of state as the electrical union wanted to force them to join their union in order to help – really?? Now change the focus to the countless politicians on both sides of the aisle who couldn’t wait to get in front of the cameras to shout that they would not back down. Really makes one wonder if anyone is listening – fiscal cliff or not – Americans I know want this posturing to stop and It’s especially insulting to those folks on the East Coast who are trying to rebuild their lives and really don’t need to hear that January 1 may bring more taxes and more of a deficit. Note to politicians: union leaders and anyone with access to a soapbox – spend less time posturing and more time compromising before we become the mockery of the rest of the world!!One MNB user wrote:
Hostess sent a letter to the Unions asking them to come back or they would have to close plants and so far nothing.... They are trying to come out of their second bankruptcy which is all transparent to the unions. How do unions help the economy grow again?Another MNB user wrote:
Too bad!
The workers supported their union. Refused to yield to a pay concession of 2%. They lose their jobs, no pay vs. 2% less pay and their union reps keep their jobs. Who wins??And from another MNB reader:
Great example of the union cutting off their nose to spite their face.Love this email:
Oh, crap. Now I’m going to have to cut back on the space I’ve allotted for stockpiling incandescent light bulbs to make room for a supply of Hostess products.However, not everybody blamed the unions.
One MNB user wrote:
This is just another example of a company that has many to blame for this final day. The management was poor, leading to a buyout firm buying them and now losing 30 millions, and a union not will to work with other unions to save jobs and all that was given away to employees in the past knowing full well that they could not be sustained. Add to the past management lack of vision and innovation, over capacity has led just one more company to close its doors.MNB user Michael Phelan wrote:
While not every private equity group falls under this umbrella, Hostess is another example of what we heard during the political campaign – Investors buy well-known American brand and devour it from inside out, paying themselves bonuses and selling it for parts. The workers are the least important part of the company to these investors because they cannot be inventoried like the fixtures and the real estate, but they’ll be blamed for the entire bankruptcy for demanding fair wages and benefits while the management team bears no accountability.To be honest, I have no idea whether the bakers union should have agreed to the same contract concessions that the Teamsters did, which Hostess management says would have helped save the company. The easy answer is yes ... that a "no" vote led to the company being liquidated and 18,500 people losing their jobs.
But it also sounds a little more complicated than that. I've been doing some reading at
Forbes.com, not exactly a bastion of liberal, pro-union rhetoric, and the point being made there is that while the unions may not have been as flexible as one would hope, the ultimate blame for the company's demise falls to management.
Some excerpts:
• "Hostess lost a combined $250M over the last 3 years ... The obvious problem is leadership kept trying to sell the same products, using roughly the same business model, long, long, long after the products had become irrelevant."
• "In a last, desperate effort to keep the outdated model alive management decided the answer was (a second) bankruptcy filing, and to take draconian cuts to wages and benefits. This is tantamount to management saying to those who sell wheat they expect to buy flour at 2/3 the market price – or to petroleum companies they expect to buy gasoline for $2.25/gallon. Labor, like other suppliers, has a 'market rate.' That management was unable to run a company which could pay the market rate for its labor is not the fault of the union."
• "By constantly trying to defend and extend its old business, leadership at Hostess killed the company. But not realizing changing trends in foods made their products irrelevant – if not obsolete – and not changing Hostess leaders allowed margins to disintegrate. Rather than developing new products which would be more marketable, priced for higher margin and provide growth that covered all costs Hostess leadership kept trying to financial engineer a solution to make their horse and buggy competitive with automobiles.
"And when they failed, management decided to scapegoat someone else ... Blaming the unions is simply an inability of management to take responsibility for a complete failure to understand the marketplace, trends and the absolute requirement for new products."
So maybe the unions should have made concessions, but it sounds like a legitimate argument can be made that a sale of the company and its brands was inevitable.
Twinkie lovers should not panic. Long-term, the brand will be rescued and be sustained.
Funny story. On Friday, I got a panicked phone call from my daughter, who is a freshman in college.
"Dad, is is true that the company that makes Twinkies is going out of business?" she asked.
Yes, I said, but then I reassured her that Twinkies would survive. I thought for a moment, and then said, "I didn't know you liked Twinkies. In fact, I have no memories of ever seeing you eat a Twinkie. Am I wrong about that?"
She laughed. "No. I don;'t eat Twinkies. But it is nice to know that they're there."
Which may explain the real problem that Hostess had.
Had a story in Friday referring to a piece in
Politico about how John Metz, who operates close to a 100 different franchise restaurants, plans to compensate for the increased health care costs required by the Affordable Care Act - better known as Obamacare - by charging customers for it, labeling receipts with the surcharge so that customers know about it.
"Although other restaurants have mused about the prospect of cutting hours for employees or passing a few pennies in costs onto customers, Metz’s surcharge proposal goes furthest in linking the customer experience with the Affordable Care Act,"
Politico wrote, adding that "earlier this year, John Schnatter, CEO of Papa John’s, estimated that the ACA could cause him to tack a few cents onto the price of his pizzas. And Darden Restaurants - which oversees Red Lobster and Olive Garden - described plans to reduce its fulltime workforce to avoid paying health benefits."
I commented, in part:
I am absolutely sympathetic about the costs of Obamacare. I've never been sure that this is the best solution to the nation's health care problems, but it is the law of the land, so we'd better get used to it. (I was amused the other day when I heard a retailer who was anti-Obamacare say that he would prefer a single-payer system ... because he would have assiduously opposed such a system before Obamacare was passed.)
I will say this. If I order a pizza from Papa John's, and they want to indicate on the receipt that the pizza costs 15 or 20 cents more because they want to provide health care to their employees, I am happy to pay the extra money. I might even choose to patronize restaurants that say they are providing health care to employees and are up front about how much it costs, and what the customer has to pay for it.MNB user Bob Norman wrote:
I’m completely in agreement with you that transparency here is paramount and it should be seen as a positive thing. Having consumers pay a little bit more, knowing that they are supporting health care for the workers in the company whose products they are buying, should feel good and appropriate.From another reader:
If they’re going to add a label on my receipt showing how much healthcare costs, then I’d also like to see one for how much their executive pay packages cost. How much for the jets, how much for the “retention bonuses”, how much for the salaries. Why single out an expense that benefits the ordinary employees? Might as well put in fuel and cost of goods while you’re at it. Or how much Social Security tax they paid for the service you received.
Strikes me as a way of highlighting how much of an expense workers are. I’m not big on Obama’s healthcare plan but, like you inferred, it’s the law and we have to start addressing the issue somewhere. Even a bad start is still a start. Healthcare is ridiculously expensive but providing workers with coverage not only helps keep them on the job but attracts them to the job in the first place.
I’ve heard similar kinds of doom-and-gloom predictions from business when minimum wage increases are being considered. Yet there are companies that pay more than minimum wage, provide decent health coverage, have 401k accounts and paid time off and still manage to turn a profit.It is worth pointing out, I think, that John Schnatter, CEO of Papa John’s and one of the loudest anti-Obamacare voices, makes $2.7 million a year. I'm not suggesting that he isn't worth it ... but the optics of someone making that much money complaining that he'll have to either lay people off or charge 11-15 cents more per pizza to cover health care costs just strike me as a little odd.
From another MNB user:
I too have owned & run a number of businesses and realize the cost associated with it (workers comp, disability, unemployment, etc) and yes they all add up.... But as employers we're supposed to be the adults in the room, you know, figure out how to be more productive, etc and not spend millions whining about something that is both the law & the right thing to do.
I don't suppose they would stop selling beef when the droughts cause prices to go up or switch to poultry at Red Lobster because of the damage caused by Sandy.... So why this bullying technique on taking care of our most vulnerable?
I'm hoping that we as employers, & tax payers, can see the long term benefit of having a healthy nation while reducing the lines at the emergency rooms and not stand around lamenting the 15 cents extra that a pizza will cost to achieve it.
Thanks for standing up for common sense!!And another reader chimes in:
I wonder if any of these chains in question has publicized price increases due to increased costs of fuel, electricity, minimum wage requirements or raw materials? We all know there are costs associated with doing business. Forbes estimated that Papa John's impact from Obamacare would be between 3-6 cents per pizza, so announcing an increase like this smacks more of politics than business concerns.
The law may have unintended consequences, however - more part-time jobs - and should continue to be part of the conversation.MNB user Chris O'Brien wrote:
I really appreciated your response this morning regarding the claim that businesses may have to increase prices on consumers and/or cut staff as a result of the Affordable Care Act. I, too, would gladly pay a more for a company’s products if I knew that money was going to ensure their employees have health care. If we as a country don’t want a single payer health care system, then companies will have to step up to the plate and cover those costs. If a business can’t turn a profit while providing basic health care for its employees, then perhaps that business should not survive. The irony is that many of the business owners who complain about Obamacare are the same ones who vehemently opposed a single payer system, and that very opposition is what led to the passage of a bi-partisan compromise--aka Obamacare.From still another reader:
It’s about time everyone accepts the fact that Obamacare is here to stay and, instead of fighting a futile battle, look for ways it can help improve your business. Why not use it as an opportunity to demonstrate your company’s commitment to your front line people, build morale and recruit the best and the brightest for your stores? I sympathize with the increased costs for small business and agree with you that many customers (myself included) will appreciate the efforts of retailers to provide healthcare for their employees. A better strategy might be to approach the Obama administration about developing creative ways to ease the financial burden of complying with the new law. They have proven to be very flexible, for example, with states as they transition to state insurance exchanges, so why wouldn’t they be flexible with small businesses?
That being said, I will never truly understand the opposition of business (other than insurance companies) to a single payer health insurance system, which would take the burden of administering health insurance off the backs of business where it really doesn’t belong. Our system of employer provided healthcare is a throwback to the World war II era where employers, desperate for skilled employees, offered health insurance to gain a competitive edge in recruiting employees. We are nearly the only advanced economy in the world that burdens employers with health benefits administration that is simply not cost effective and puts the US economy at a competitive disadvantage in the global marketplace.
Maybe this is the conversation we should be having going forward.Another MNB user chimed in:
I have chosen to discontinue ordering Papa John’s pizza (6 points shy of a free one through my Papa John’s rewards account). Does he realize how stupid it sounds to say “I’ll have to add $.11 per pizza in order to give my employees healthcare”???? He’d rather cut their hours so they are not benefits eligible and force them into government healthcare options. I can guarantee you it’ll cost us (the taxpayers) a helluva lot more than ELEVEN CENTS, which I would’ve gladly paid! P.S. the pizza’s not even that good, just better than average when I don’t feel like cooking.MNB user Mike Franklin wrote:
Business made this bed during the 40’s…offering healthcare as a benefit, when, during wartime, price and wage freezes forced businesses to offer health benefits to keep and acquire good people. Employees, covered by businesses’ health insurance policies became insulated from the true cost of health insurance. Then the downward spiral began, and it is totally out of control today. Obamacare was not the answer…single payer is a better option, but even it has drawbacks. As a nation we have totally screwed the pooch on this one and I fear only by nationalizing healthcare, can we begin to develop a system that may work.My position on this - which seems to be similar to that of Speaker of the House John Boehner - is that since Obamacare is the law of the land, people and companies need to figure out how to make it work, as opposed to continuing to fight against it.
But one MNB user disagreed:
It is the law of the land, so we'd better get used to it? Really? It’s a bad law that is destined to destroy businesses and hinder economic growth but we should get used to it? How about we continue to fight it while we prepare to minimize the damage it will cause?
The writer of the email asks the questions that need to be answered. Has the president ever run a business? NO. Do the politicians know what is about to happen? NO. Based on the results of the popular vote, I’d ask another question. Do 51% of the general population know what is about to happen? NO. Averting the fiscal cliff is not likely to matter when we find out what’s about to happen. It may already be too late but for the sake of our nation and our children we can at least go down fighting.From another reader:
Interesting to note about the possible restaurant surcharge, my husband just told me the Health insurance company he just retired from is considering adding a line as to what the affordable healthcare act adds to your premium!I'm okay with that. I think it is a good idea.
While they're at it, maybe they should add a line to my insurance bill that says how much my premiums have gone up because of people without insurance who go to the emergency room for their health care needs, which increases the cost of health care for everyone, impacting insurance rates.
BTW...once again, let's go to
Forbes.com to see its analysis of the Papa John's scenario...
"Last year, Papa John’s International captured $1.218 billion in revenue. Total operating expenses were $1.131 billion. So if Schnatter’s math is accurate (Obamacare will cost his company $5-8 million more annually), then new regulation translates into a .4% to .7% (yes, fractions of a percent) expense increase. It’s difficult to set that ratio against the proposed pie increase, given size and topping differentials, but many of their large specialty pizzas run for $16. Remarkably, a 10-14 cent increase on a $16 pizza falls in a comparable range: .6% to.9%. But the cost transference becomes less equitable if you’re looking at medium pizzas, which run closer to $12, meaning a .8% to 1.15% price increase.
"For the sake of argument, let’s say that Papa John’s sells exactly half medium/half large specialty pizzas. Averaging the ranges for both sizes, then averaging that product yields a .86% price increase — well outside the range of what Schnatter says Obamacare will cost him. So how much would prices go up, under these 50/50 conditions, if they were to fairly reflect the increased cost of doing business onset by Obamacare? Roughly 3.4 to 4.6 cents a pie.
"In September, the company announced that it would be giving away 2 million free pizzas. That was, of course, a promotion designed to increase brand awareness and to invite consumers to try the brand — with the ultimate goal of selling more pizzas. Those giveaways can’t really be cataloged alongside sales that would have been made otherwise. But just in case you’re curious, that would be the equivalent of $24 million to $32 million in pizza revenue."
I couldn't even begin to do that math on my own. But I certainly get the point being by
Forbes.com ... that this may have more to do with politics and political philosophy than arithmetic.
Which is, by the way, okay. I just think we should call things what they are, and not something else.
On the subject of more investigations into possible bribery by Walmart of officials in a variety of foreign countries, one MNB user wrote:
Walmart bribing Chinese. Stop the presses. LOL
The new premiere in China is a billionaire. Go figure.From another reader:
Actually US companies usually have business partners to do the bribing. I believe Walmart does. Therefore this is a non story.And still another MNB user chimed in:
Let’s be clear here, just the simple fact that more countries and not part of the investigation proves that this is not a one off, that the ring of knowledge just got that much bigger and the whole issue is not front and center. WalMart has spent of 99 million dollars on this with more to come, think that alone speaks volume. Be interesting that when the final results come out who and what will be done...As always, it is the MNB user who quoted a movie that wins the prize:
"I am shocked, shocked to find gambling going on in here." - Captain Louis Renault, CasablancaPlay it again.
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