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The Hostess Brands Inc. was founded in the city of Kansas, Missouri, by Ralph Leroy Nafziger in 1930 and it is the bakery firm behind Devil Dogs, Wonder Bread and Twinkies. The bakery industry in U.S. has been a budding one for close to a century now and the reason behind it is that the country’s market is large and that’s why it is able to accommodate quite a number of baking companies. The Hostess Brands has been in existence for the past 80 years but it was initially named the Interstate Bakeries but due to management issues, the company has undergone two bankruptcy pleas which has seen the company end up being closed indefinitely and in fact become forced to sell its famous brands to other bakery companies.
History and Background of Hostess Brands
In 1937 the company began its long road of business strategy of expansion through mergers and acquisitions (Cohen, 2012). In 1954, the corporation ventured into the cake business by purchasing the Butter Cream baking, Remar baking and Ambrosia Cake companies. It went on acquiring baking companies but in spite of massive efforts of the company to improve its plant efficiency, it kept on recording declined profits and this made it being saddled with numerous debts (Biesada, n.d.).
The company through a leveraged buyout was taken private in 1987 and it made acquisitions of the American Bakeries the same year. In 1995 the company made an enormous move by acquiring its leading rival, the Continental Baking company which was the chief producer of the famous Hostess and Wonder brands for the price of $510 million. With new technology on baking enzyme, the company was able to make breads that had longer shelf-life thus reducing the amount of breads that were returned and also cut down the delivery stops.
In 2004 the company filed for bankruptcy and more losses forced the company apply for an extension of its bankruptcy state which was granted by the court in January 2007 and thereafter hired an eternal CEO named Craig Jung who had become famous for successfully managing Pan-American Beverages and also Pepsi Bottling Group. In February 2009 the company exited the bankruptcy and went through a reorganization strategy which included changing its brand name to Hostess Brands and moving its business headquarters to Irving, Texas. It altered its brand name so as to influence the firm’s iconic brand. Hostess Brands named a new CEO Brian Driscoll in 2011 and in January 2012 it filed a court order for the application of Chapter 11 bankruptcy protection. Due to its inability to renegotiate a deal with the labor organization it made a company to pronounce that it would shut down and put up for sale its major iconic brands in November (Biesada, n.d.).
Hostess Brands Business/Corporate Strategy and Why It Eventually Failed
It is a wish of every company to grow with time and achieve all of its particular goals, but this is achievable only through the employment of strong business strategies. The Hostess Brands Company was not an exception since it had set proprietary actions to enable it to become more worth in terms of market share than just its assets. The company was basically concerned with its growth and attaining competitive advantage that is why it dwelled on acquisition and mergers. The company also was involved in the development of the new products as means of diversification and capturing new markets.
For instance, in 1937 the Interstate Bakeries merged with its main local rival, Schulze Baking, and this business strategy became the basis of the company’s expansion as year in year out it continues merging and acquiring new baking companies. The company increased its product base or rather underwent diversification by venturing into the cake business after purchasing three baking companies in 1954 namely Butter Cream baking firm, Remar Baking and Ambrosia Cake Company. This approach of adding fresh products basically increased revenue growth and profitability in the company. Since customers are the core assets of a company, the Interstate Bakeries went further to purchase the Continental Baking Company which was a major rival and from this the company attained market momentum, and integrated brand awareness as well as market presence.
Every company has its internal culture and operational strategies and goals and for that reason merging or acquiring a new company is sometimes tricky. Therefore the Hostess Brands Company acquired so many new companies that they cost the company high financial deficit and the planned synergies failed to materialize (Olen, 2012). There was a poor program management due to the insufficiently implementing plans and also the identification of the main interdependencies amongst the numerous work streams. Moreover, the selling of Hostess Company for at least 3 times since 1980s and these moves caused the company shed majority of its profitable assets with each consecutive merger (Kauppi, 2009).
Also weak leadership and change of management was a chief reason why the strategy of the bakery company failed. For instance the management had assured the union members during the first bankruptcy application that it would invest all the finances from plant closings in the new equipment, plant improvement, product development and capital investment, but it all went to executive payouts and bonuses. This caused the company massive losses to its financial capability thus undergoing closure last year. Seemingly the management’s ways of doing business was greedy and full of capitalism and this made the unions decline the request by the company to grant more concessions (Floyd, 2012).
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Business operates within an external environment and this environment is composed of the environment, political or legal system, socio-cultural system, economic system and the competitors. All these parameters form the PESTEL approach and the Hostess Brands Company was in a great extend affected by the external environment as much as the internal situation in the company also played part in its decline in growth.
The American economic system allows fair competition in the business sector. The economy has also grown outstandingly thus allowing economies become considerable in trading, but weakness in the economy has been felt since the great inflation in 2008 which has to a great extend reduced the sales in retail bakeries. On the aspect of taxes, the government has been imposing a lot of tax into the bakery industry and basically on the whole business sector thus discouraging budding investors. For instance, in 2010, the government got a total of $38,519,631,668 from the industry (American Bakers Association, n.d.).
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The US population has always been a busy one in terms of working and therefore majority of them depend on fast foods and snacks. The social status also allows for massive leisure periods probably on weekends and holidays and during these times many people tend to remain idle thus consumption of fast foods is high in such times. Recently there has been massive Health Awareness amongst all the customers and this has been influencing the consumption trends in the bakery industry.
Some legal policies have been favoring the baking industry but some of the political frameworks which have been created by the politicians have been threatening the industry in that some useful treaties have been pending for a longtime now but the politicians are not in a hurry to pass them. Nonetheless, some policies have been stern warnings against environmental pollution which have caused some baking companies become discouraged in further venturing into the business.
Environmental conservation is a global initiative that ought to be observed by everyone not forgetting local and foreign companies alike. So it is not the responsibility of Geneva Convention to fight for the environmental conservation and hygiene therefore all the industries and companies have to have preservation mechanisms to conserve the environment. Therefore the baking industry has been thoroughly made aware of all the environmental responsibilities they have in maintaining the environment clean and also organizations have been fighting for the use of recyclable materials in carrying out production. However, these raw materials are expensive in nature and have caused the rise in production costs thus reflecting in high prices of products (Whitaker, n.d.).
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The American business market is extremely competitive even though the market base is large. The big competitors of the Hostess Brands Company were the George Weston limited, McKee Foods Corporation and the Flowers Foods Inc. These major bakery competitors have been influencing greatly on the extent to which the Hostess Brands Company makes profits. Some have invested much in quality production and extensive employment of technology thus surpassing the Hostess Brands since the company has had management wrangles and the management has not been investing in improving the brands quality.
Meaningful Business Strategies
In order to save the Hostess Brands company’s brand, there are several liable strategies which could be deployed in 2012 and ensure that the company would not go into bankruptcy. First, brand evolution is important since it shows why brands decline and the common theory is the Product Life Cycle (PLC) which basically states that a brand goes through four stages namely: introduction, growth, maturity and eventually decline. Therefore, when sales decline, the management starts milking the brand since they consider the brand as not requiring any further investment. Also a recent theory came up which basically shows the Product Evolutionary Cycle (PEC) and it provides further approach on how brands develop. Managerial actions and competitive actions coupled with market environment determine the growth of a brand (Sunil & Chiranjeev, n.d.).
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For a company to sustain growth and profitability, it has to visualize beyond the narrow gains to be achieved on the production area of the firm and invest much in innovation. Innovation is a good business strategy and it enhances company growth and it is basically a process of “ideation, evaluation, selection, development, and implementation of new or improved products, services, or programs” (Balanced Scoreboard Institute, n.d.). I would have instilled several changes inform of innovations in the Hostess Brands Company by coming up with new packaging methods which would entail recyclable product wrappers and also change the labeling of the products to be more appealing and standing out in the market. The former manufacturing process was way too old fashioned therefore new technology and state of the art equipments would be installed. Moreover to cut cost on unyielding suppliers, tenders would be given and the best fit with regard to supply cost and the quality of goods supplied amongst all the suppliers would be selected. The performance indicator that would be used in measuring this strategy is the Return on Product Development Expense (RoPDE) and this would basically be done by comparing the operating income margin to the profitability metric.
Throughout the US there have been numerous emergences of new baking companies and this phenomenon puts the old bakery companies at risk of their brands being forgotten. Therefore in Hostess Brands Company, I would massively carryout brand knowledge strategies which include brand imaging and brand awareness (Gorton & Sutton, n.d.). So as to measure the brand strength, an indicator called top of the mind recall would be effective and when the brand health is determined then the efficient measures would be taken. Since brands constantly suffer from being upstaged, I would put mechanisms to monitor the levels of brand awareness as they predict future problems and correct them as soon as possible. To prevent brand imaging issues, there would be high monitoring of brand image and also search of any changes in the client perceptions.
Customer is a very important person in any business therefore they ought to be treated with care. For that reason I would bank much on improving the customer service delivery through observing keenly all customers and understanding their obstacles. The customer service attendants and the responsible supervisor should watch the customer’s behavior and movement while they are in the company or selling outlets and note if they look visibly annoyed, are the attendants attentive to their requests, and also gauge their body language. This information is important in analyzing customers’ satisfaction and requesting customer’s data from them like email addresses, phone numbers, name, and even address would ensure that the customers are always kept connected to the Hostess Brands Company. This act ensures that you create and add value to the relationship between you and the customers and periodic communication to them would ensure that they become live customers. To measure this strategy, the company would use the survey data obtained after a customer visitation to analyze and find out if the amount of regular customers has increased or even new customers have been attracted by the improved customer service.
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The management depends entirely on the advertisement as a marketing tool but that is not enough. The Hostess Brands would roll out massive public relations campaigns which would definitely help in building up the company’s brands. So as to create a strong PR Program, the company’s marketing team would strive to convey prepackaged news bulletin to the media and for these news to be interesting to the viewers. The personnel involved would come up with the news since they know everything about the company and its products more than anyone else. The articles coupled with great photography and interesting news would help in brand positioning (Ries, 2010). To measure this strategy, customer attrition rates would be calculated so as to know the number of customers retained and those attracted after the application of the strategy.
So as to increase the customer base, I would carry out line extensions of some of the famous brands in the company products such as Wonder Bread, Ding Dongs and Twinkies since the firm would actually increase its revenue and attain a larger market growth. These approaches would include introducing a new dimension to the brand image and varied versions of the brand where for instance a low calorie variety of the original product would be introduced. These extensions help adding visibility, vitality and variation to the brand image (Kaplan, 2012). To check on the performance level of the strategy, the total sales achieved in a year would be calculated in that specific extended brand.
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The Hostess Brands Company has a long business history which makes one wonder about the reason why the company has gone bankrupt. The main reason behind this is management issues whereby the management has only been enriching themselves with high salaries at the expense of the company and forgetting to strategize on how to make the company competitive. Many people lost their jobs due to the bankruptcy case and this really affects the economy at a great deal. Therefore the government ought to come up with measures to deal with such-like occurrences and cushion its citizens against exploitation by companies undergoing bankruptcy.