Twinkies are an iconic American pastry. They have been lining the shelves of gas station convenience stores in the middle of nowhere since the year 1930. But it hasn't been all smooth sailing for Hostess, the company that makes Twinkies and other pastries such as the Ho-Ho and the Snowball.
The company first faced bankruptcy in 2009. It was saved by a company called Ripplewood Holdings and spared a shutdown, but the bankruptcy revealed many flaws in the monolithic company. Cheap, low-quality pastries have been taking a hit for the past 20-something years as a result of a push for better health consciousness from consumers. Some junk food companies were able to market to this change by creating products like Diet Coke. However, Hostess's meager attempts to market their products to a newer market failed miserably. Their "healthier," bite-sized, 100 calorie mini-twinkies tanked, and the company was unable to make any positive changes to their business model. Additionally, Hostess refused to invest in newer, more efficient machinery and struggled with two conflicting, powerful unions.
Though it survived in 2009, Hostess faced another collapse looming in 2012. But this one looked serious. In January, the company filed for bankruptcy, and many expected Hostess to shut down permanently. This is where the economics of Twinkies gets very interesting though. Twinkies have long been a beloved food, with many people extremely loyal to the brand. As such, there was a continuing demand for the snack food. However, the supply of Twinkies appeared to be dropping to nearly zero. What happens when there is high demand and low supply? Prices skyrocket. And that's exactly what happened for the Twinkie as 2012 progressed. Entrepreneurial pastry aficionados flocked the shelves and bought up all of the Twinkies they could find, only to immediately turn around and offer them for sale online. As people's desperation to get their hands on potentially the last Twinkie they would ever get to savor got worse, prices for sales of unopened Twinkie boxes on eBay climbed. One half-eaten box of Twinkies was listed at a starting bid of 595$, and a pristine box, at the height of the craze, was offered for 10,000$. (To be clear, I can't tell if anyone actually bought any of these since the offer pages have long since been delisted on eBay.)
The craze eventually died down as Hostess was bailed out again, and resumed selling their products. Even so, the Great Twinkie Scare of 2012 was a perfect representation of the market forces behind our price system.
Sources:
https://www.forbes.com/sites/susanadams/2012/11/21/why-hostess-had-to-die/#608848c36dfe
https://www.theatlantic.com/technology/archive/2012/11/on-ebay-the-starting-bid-for-a-single-twinkie-is-now-5-000/265346/
https://www.nydailynews.com/news/national/price-twinkies-skyrocket-online-article-1.1203799
Wow, I never would have thought Twinkies would be such a good example of supply and demand. As someone who doesn't like Twinkies, I can never even imagine thinking about paying $10,000 for a box.
ReplyDeleteWhen someone talks about supply and demand the first example that pops into my head is gasoline. Unlike Twinkies, gasoline is something that has a very high demand due to it being a neccessity if you are somone who drives a gas powered car. With gasolne the economics are simple. As quantity decreases, prices skyrocket, but why is it the same with Twinkies. Why is it that consumers are willing to pay absurd amounts of money for something that has such little value (Twinkies), but as soon as prices of something valuable rise (gas) people start complaining?
This is a super interesting post. I had no idea that Twinkies struggled to stay on shelves because I always saw them. I think it is super interesting that what saved Twinkies was them nearly going out of business. It is ironic that the demand increased when people thought that Twinkies was going out of business.
ReplyDeleteTo be clear, the shelf price of Twinkies did not increase at all. The reason the prices got so high was because people were buying them as the supply diminished a ton, hoping that, once Twinkies left the shelves forever, they could sell them online for a much bigger profit. What really ended up saving the company was that it got bought up by another group called Apollo Global Management, who bailed it out and is currently trying to make it profitable now.
DeleteThis is an really fascinating post. I remember this happening and I think I saw an episode of a show maybe parks and rec that referenced it. Where one of the character had one of last Twinkies. Today Twinkies are still being sold so I wonder if the scare was actually what saved the company? Additionally Toys R Us which went out of business is making a come back. So it might be a similar phenomenon?
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