NEWS BLOG (WSAU) The bankruptcy, strike, and now liquidation of Hostess Bakeries has provided a lot of radio morning-show fodder. You’ll no longer be able to get a Twinkie or a Ho-Ho. Well, not really. As part of the company’s break-up, someone will buy they licensing and rights to continue baking, distributing, and selling those brands.

The financial problems at Hostess shouldn’t come as a big surprise. Their Wonder Bread brand is a much bigger seller than Twinkies. And the white and wheat bread market is full of competition. Almost every supermarket chain has a non-union bakery providing its own bread, buns, and rolls at much lower cost. Wonder Bread is always among the most expensive brands on the shelves, and to many consumers, bread is bread.

So why would the union strike against a bankrupt company when they know the company is likely to be destroyed in the process? The answer isn’t about Hostess. It’s about national standards and a domino affect at other union-bakeries.

In bankruptcy a company has no secrets. Its finances are made public in its court filings. The union, as one of Hostess’ creditors, gets to call witnesses and ask questions if they wish. The union leaders know exactly what the company’s cash flow is like, and how much needs to be cut to stay afloat. In a case where all cards are on the table, you’d think it would be easier to make a deal.

The problem is the cuts and givebacks would be so deep that the owners of other union bakeries would demand similar terms. A union deal with Hostess sets the bar nationally for future agreements with everyone else.

This happened once before. The Florida East Coast Railroad was hit by a bitter strike in 1963. The railroad, which was a short-line from Miami to Jacksonville, said it would not be able to survive under the work rules and contracts that other railroaders had already received from larger, national railroads. The FEC would have shut down under those national rules. The unions said any below-market-rate deal with the FEC would lead to givebacks elsewhere.

The FEC story has a different ending than Hostess. Management had access to new investment capital. They were able to outlast the strikers, eventually hiring replacement workers and making changes to work rules and operations that allowed them to survive. The FEC today has drawbridges that open and close by remote control, centralized dispatching from remote locations, and industry-leading asset utilization rates. They have a corporate culture of lean-and-mean. Other railroads have used those changes as a model, phased in over many years, one union contract at a time.

Hostess doesn’t have the cash reserves to wait out a strike. And unlike a railroad, there aren’t a lot of areas for potential cost savings in a baking operation. There are ingredients, equipment, distribution costs, and labor. Labor is the obvious area for cost-savings.

The fascinating part of this equation is the union workers. They will lose their jobs. Their next job as bakers will probably not be as good as what they’re rejecting. They’re being asked to fall on their swords to uphold the pay and benefits of other workers – who get to keep their jobs. I understand going on strike for a better deal for you. This is a strike for a better deal for someone else. You can be sure the workers don’t realize that. If they did, what they’re doing is even more irrational.

Chris Conley
11/16/12