In 2012, the Wrongologist reported on the bankruptcy of Hostess, the iconic bakery behind Ding Dongs, Ho Hos and Twinkies. Hostess’ closing was something of a national moment, with people mourning the Twinkie, and possibly, something lost from a better, more optimistic time.
It was also a symbol of the dire state of American manufacturing. Hostess died after a decade of failing health that saw two bankruptcies and five different CEOs. It left behind 36 factories, 5,600 delivery routes and 19,000 jobs.
Then, a partnership between private-equity giant Apollo Global Management and C. Dean Metropoulos, a billionaire turnaround artist known as “Mr. Shelf Space” for his revival of retail brands like Vlasic, Hungry-Man and Chef Boyardee, bought the assets of the defunct Hostess. Now, two years into the comeback of Hostess, we are learning what the cost of putting Ho-Hos and Ding Dongs back on shelves really means: The new Hostess Brands has automated more than 90% of the company’s bakery jobs.
How did they do it? Cherry picking the best assets, modernizing manufacturing and distribution, doubling the shelf life of products and capitalizing on the rare place in pop culture that Hostess products enjoyed:
• The new, smaller Hostess kept just five of the 14 original bakery plants: Of those five, one was sold, and another bakery with 400 employees closed in October.
• They invested in automation: One 500-worker Kansas bakery outfitted with a $20 million Auto-Bake system, now spits out more than a million Twinkies a day, doing 80% of the work once done by 9,000 workers across 14 plants.
• They spent on chemical research, trying to create a longer Twinkie shelf life, and succeeded in extending it to 65 days.
• The longer shelf life enabled a change in distribution. The old Hostess relied on more than 5,000 delivery routes to drop off product to individual stores. It was incredibly expensive (each route required a driver, a truck, gas and insurance), eating up 36% of revenue each year. Even with a great delivery route planner that’s a big chunk of revenue.
What kind of “cream filling” has a shelf life of 65 days?
Now, the company has arisen from the ashes to find a new place on America’s shelves, and they are thinking of an IPO at Hostess. From 9,000 bakery employees at 14 plants to 500 at one plant in Kansas. That’s just the bakery division. Thousands of more supporting jobs were lost when the plants closed for good. This may be an extreme example of automation in the 21st century, but more of it is coming, and it’s going to put a lot of people out of work very quickly.
It used to be that layoffs were a sign of bad management, now they are a sign of good management. Back in the day, bankruptcy was the last thing management wanted. Today, it is a strategic choice.
Destroying jobs is now a badge of honor.
But, no one should blame Metropoulos or Apollo for a winning strategy when, in the prior decade, five different CEOs failed at the task of saving Hostess. They have created a huge turnaround, from Chapter 11 to an IPO in two years. But, it cost thousands of jobs. Automation, layoffs or not, made sense for this business.
We all know that technology creates fewer jobs than it destroys. By some estimates technology could cost half of all current jobs in the next 20 years. So, we can expect an ever-greater number of unemployed chasing the ever-shrinking number of jobs that can’t be eliminated or simplified by technology. Thus, the prognosis for many medium and some higher-skilled workers appears grim. In fact, a good question to ask today is how much can we attribute the fact that the US labor force participation rate is the lowest in 50 years to automation?
The issue is not technology, or robots, or restoring our manufacturing base. Nor is the issue better skills, or technology or outsourcing. We have too many people chasing too few good jobs.
If we forecast continuing technology breakthroughs (and we should), and combine that with the 3 billion people currently looking for work globally, we have to conclude that the planet is overpopulated if the goal is a growing global middle class.
This is why the quest for better technology has become the enemy of sustaining middle class growth in America and the rest of the developed world.
Enjoy that Twinkie while you can still pay for it.
See you on Sunday.
It has long been clear that the post industrial age was one where jobs are not created. So advances that destroy one job do not result in new but different jobs. (At the margins a few jobs are created but they are no where near the equal of the lost jobs). So whereas in the old days, the machine spinner and loom replaced hand spinning, and employed many mill hands, and vastly increased the amount of cloth available for clothing (and so, as folks could change clothes often, fleas began to disappear from humans) and while the crofters disappeared, mill girls abounded – the new technologies, and businesses simply reduce the overall stock of jobs. We can either tax commerce as provide a living wage to all (or most) and watch as a new age of poverty overtakes us.
You and I are men of business and yet are willing to see the problem for what it is. But the Republican (nowadays) pretend the more entrepreneurship will yield growth and jobs. No they wont. Growth yes, but jobs —- no.