After lecturing us for years that Hostess is a worthless legacy company saddled with overpaid union workers, Hostess 'fessed up yesterday... There's been over a hundred offers to buy all or parts of the company.
No surprise- The wholesale bakery biz has devolved to a near monopoly, to the point that even a bakery chain saddled with mediocre management can make money... Which says something about Hostess' management. With the closure of Hostess, there's but one surviving nationwide full line bakery chain, Bimbo. On the cake side of the biz, McKee's Little Debbie brand and Flower's cake brands play 2nd and 3rd fiddle to market leaders Hostess and Dolly. On the bread side, Flowers has grown from a regional to covering most of the southern markets, and a few other regionals like Pan O' Gold in the upper midwest have large market shares. But in much of the country with Hostess gone there are only two or maybe three competitors left.
Now imagine how outrageously profitable the auto industry would be if Toyota, Honda, Nissan, VW, Subaru, KIA, Hyundai, etc. were all gone and the the only "competitors" left were the big three- GM, Ford and Chrysler. Then shut down GM... and that's the situation we've got in the baking industry today. Now it ain't rocket science that an industry with just two competitors can't help but be immensely profitable, so it's no surprise that over a hundred companies want to take Hostess' place in a near monopoly market.
Now one would think a company could just rent a big warehouse, roll in some ovens, truck baked goods all over the country, and take over Hostess market share. Well, ain't that simple- for a start you need a building that will meet sanitation standards, so not just any vacant warehouse will do. You need silos and freezers for ingredients, giant vats for preparing doughs, ovens that would fill the longest semitrailer, automated wrappers, a series of conveyors to move the bread down that line, and sophisticated computers, software, and servos to run the whole line. That'll set you back about $20,000,000 at today's prices, and that's just for a conventional bakery- for high volume metro markets like NYC, Chicago, or southern Cal you'd better upgrade to a high speed bakery for around $50,000,000. And you'll need a lot of those bakeries- truck bread over about 300 miles and the transport costs eats up all the profit. Just to cover 80% of the U.S market you'll need 40 or so bakeries and at least 5 of them should be the pricier high speed variety... Figure about a billion $$$ or so just for your bakeries. Then you've got to deliver your bread, so figure on a thousand "transport" semi tractors at over $100,000 apiece and 2000 trailers at $30,000 a piece and 100,000 shipping "racks" (big shelves on wheels) at $500 apiece... Heck, we've spent another couple hundred million and we don't even have a place for them to deliver too! You'll need at least 500 depot/thrift stores spread around the country on pricey retail corridors, so figure another 250 million $$$ there. Then you need step vans to make the final delivery to the stores- just the bare chassis (and I mean bare, not even a windshield or floor and the drivers seat is a temporary wooden bench) runs over $30,000, and figure over $50,000 by the time they put a body on in it. You'll need around 10,000 of those step vans, so add another half billion $$$ to the tab. Then there's the odds an' ends, like hundred dollar displays for your half million or so customers, 10,000 plus $1000+ handheld computers for the route drivers, and another hundred million $$$ or so in ingredients and inventory on hand. And the trademarks and brand names? I'm no expert on brand "equity" but the #1 selling bread and cake brands for decades (Wonder and Hostess) and the #3 selling bread (Home Pride) are worth a few hundred million at least- think how many "points" it'd take to just get 300,000,000 consumers familiar with your brand, never mind persuade them to buy it.
And don't forget (like Hostess execs did) that you're gonna need around 20,000 skilled workers to run all this. Sure, you can get your help from the temp agency "slave markets"... Hostess tried that during the strike and it didn't work. There's no "running a bakery for dummies" book, and screw up and you'll burn your multi-million dollar bakery down. Same with the delivery drivers- you need folks that can drive through the worst weather and deliver. The competition is paying a living wage and benefits for such skilled bakers and drivers, and any bakery that hopes to survive will have to also.
So tally it all up and it'd cost over two billion $$$ to rebuild Hostess from scratch, but with a near monopoly market position it'd still be a paying proposition. That makes Hostess worth over a billion $$$ dead or alive. So all Hostess vulture capitalist owners have to do is cover their couple hundred million dollar "investment", and beyond that it's pure profit! Yup, having legally robbed it's workers of near a billion dollars in pension contributions in bankruptcy court, Hostess vulture capitalist owners will make off like bandits!
There oughta be a law...
