News Column

Judge Orders Hostess to Mediate with Bakers Union

Nov. 19, 2012

Steve Tarter

The execution of the Twinkies brand hasn't been called off, but it has been delayed.

Hostess Brands Inc. and its second largest union will go into mediation to try and resolve their differences. That means the company won't go out of business just yet.

The news came Monday after Hostess moved to liquidate and sell off its assets in bankruptcy court, citing a crippling strike last week.

In an interview after Monday's hearing, Hostess CEO Gregory Rayburn said the two parties will have to agree to contract terms within 24 hours of the Tuesday meeting because it is costing $1 million a day in overhead costs to wind down operations.

Even if a contract agreement is reached, it is not clear if all 33 Hostess plants will go back to being operational.

That means the Hostess plant in Peoria is still in limbo. The plant at 1511 W. Lincoln Ave. produced 56 million pounds of bread and buns last year -- most of it under the Butternut label, said general manager Matt Stringer in a July interview.

Bread was first baked on the South Peoria site in 1905, when the operation was known as Schultze's Buttercrust Bakery. In the early 1930s, the bakery was purchased by Interstate Brands, a national firm that became Hostess Brands.

The bakery's closing would have a big impact on the Peoria bread scene because Butternut has a 30-percent market share of wheat bread in the Peoria market, said Hostess spokesman Erik Halvorson. The gap is even larger on the white bread side, he said. The Butternut/Wonder share of the Peoria market is almost five times more than the closest competitor, said Halvorson.

But that market share is in jeopardy. Members of the Bakery, Confectionery, Tobacco and Grain Millers Union, who represent about 100 of the Peoria plant's 130 workers, joined a national strike against Hostess Nov. 9.

Rayburn said that Hostess was already operating on razor thin margins and that the strike was the final blow. The company's announcement on Friday that it would move to liquidate prompted people across the country to rush to stores and stock up on their favorite Hostess treats. Many businesses reported selling out of Twinkies within hours, and the spongy yellow cakes turned up for sale online for hundreds of dollars.

Although Hostess' sales have been declining in recent years, the company still does about $2.5 billion in business each year.

The bakers' union filed the following statement in bankruptcy court Monday: "Hostess failed because its six management teams over the last eight years were unable to make it a profitable, successful business enterprise. Despite a commitment from the company after the first bankruptcy (in 2004) that the resources derived from the workers' concessions would be plowed back into the company, this never materialized. Management refused to invest in modernizing its bakeries or devote necessary resources to advertising and marketing, product development and new technology. Business plan after business plan failed, leaving the company ever deeper in debt."



Distributed by MCT Information Services



Source: (c) 2012 the Journal Star (Peoria, Ill.)


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