(Crossposted from my blog for "gearheads" and written a few days before the execs killed Hostess off)
Hostess Brands is a trucking company that bakes a bit on the side. The process of morphing from a collection of a hundred odd local bakeries into a 10,000 truck fleet with a dozen or so functional bakeries took nearly a century, Hostess’ current second bankruptcy is evidence that the process is nearly complete and the company’s days are numbered. The first sign of this corporate mission creep was buried in the financials back in the 1940s when ancestor corporate entity Continental Baking reported that the cost of delivering and selling their products had risen to the point where it exceeded the cost of actually baking it. Transportation costs took off starting in the 1980s though with a string of bakery closings necessitating longer hauls to markets that no longer had local bakeries. The company’s transportation honcho even tried to spin this as a good thing, claiming that closing bakeries improved “transport truck utilization” by increasing the mileage the big trucks ran. Hostess’ production kept slowly dropping as consumer tastes changed, grocers gave shelf space over to more local suppliers, and then Hostess responded with a distasteful additive intended to keep it from going stale on the shelf that insured that the tasteless bread stayed on the shelf.
Thus Hostess went from near four billion dollars in annual sales to half that and dropping. Yet the truck fleet barely shrunk, with about the same thousand semi tractors as Hostess had in their heyday and 8000 or so route trucks, barely shrunk from Hostess’ glory days. And those trucks have literally had the wheels run off them- with zilch new trucks since 2004, the average fleet age is a staggering 18. As the volume of Hostess baked goods sales dropped, Hostess still had to run just as many miles to deliver less baked goods to the same number of retailers. So Hostess is running a fleet of half empty worn out trucks all over creation and wondering why they’re not making money…
Now you’d think that at one of the musical executives that have briefly lounged in Hostess executive suites would have figured this out and maybe even stumbled across a solution… Like reopening local bakeries to be closer to markets, combining deliveries with other grocery suppliers (“truckpooling”), and using intermodal for long hauls. But Noooo… Hostess management du jour is doubling down, closing even more bakeries in retaliation against the bakers who have gone on strike in response to the latest wave of wage and benefit cuts. One of the bakeries closed is their only Hostess cake plant in the northwest, and production from that Seattle bakery will have to be shifted to Hostess closest cake bakeries… In southern California. How is a company whose fleet of big trucks value is dictated by current scrap prices going to muster enough trucks for that 2400 mile haul?
As I write, barring a miracle or sudden resumption of sanity in Hostess executive suites, the company has but days to live. The parcel delivery business, down to three major networks, could certainly support another competitor… And Hostess has near nationwide infrastructure and calls at neighborhood stores almost everwhere. Might be a viable business plan there… And note that logistics winners UPS is delivering bread as well as parcels now.