Hawaii’s “gift to the world” faces an urgent need for redemption.
Hawaiian Host Inc., a 60-year-old kamaaina producer of chocolate-coated macadamia nuts widely loved by tourists, has been one of the Hawaiian businesses hardest hit by the COVID-19 fallout.
The company that tabled the phrase “Hawaii’s Gift to the World” recently let suppliers know that it was looking to settle overdue invoices from all of its suppliers at a discount – by paying 75 cents of the $ 1 – in order to be able to obtain new investment capital and satisfy unpaid accounts.
In a letter last month explaining the offer, Hawaiian Host also said bankruptcy was the other option for the company, which has around 460 employees.
Many Hawaii businesses, especially those that rely heavily on visitors for their income, face perilous times as state and county government leaders plan a repeatedly delayed tourism recovery that is now expected to begin on October 15 by welcoming visitors without a mandatory 14-day quarantine if they have a negative approved COVID-19 test within 72 hours of arrival.
The difficult situation of Hawaiian Host shows a particularly profound extent of this danger.
In the letter, Hawaiian Host noted that tourism accounts for 65% of its business and it cannot pay vendors on time due to a crackdown on the state’s largest industry.
The letter from Hawaiian Host President and CEO Ed Schultz also said the company was forecasting negative cash flow until Hawaii began receiving at least 10,000 tourist arrivals per day.
Data from the Hawaii Tourism Authority shows that the total number of trans-Pacific air passenger arrivals has been around 2,000 per day over the past week, although the vast majority are returning residents, aircrews and the military, while only 60 to 100 people per day indicated the purpose of their trip was pleasure or vacation.
Hawaiian Host’s dire financial situation follows receipt of a $ 5 million to $ 10 million federal paycheck protection program loan repayable in April and a $ 30 million sale-leaseback of its plant production facility in Honolulu in June following a historic acquisition of Hilo-based Mauna Loa Macadamia Nut. Corp. five years ago for an undisclosed price.
Company officials did not respond to requests for comment on the recapitalization effort.
In an interview with Hawaii Business Magazine published on June 18, Schultz discussed some operational pressures and adaptations amid the coronavirus pandemic.
According to the magazine, Schultz said he expects a reduction in tourism over the next three years and that Hawaiian Host is implementing unspecified cost reduction initiatives while moving from a focus on sales of high volume products to products with higher profit margins and new products. introduced in the local market and on the mainland.
Schultz also hinted at upcoming challenges and stress tests, although the published interview did not mention debt restructuring.
“While we are confident in the ‘new normal’ that we have mapped out, we also openly recognize that shipping will not be smooth,” he told Hawaii Business.
Hawaiian Host claims to be the premier producer of chocolate coated macadamia nuts, producing more products at a premium level than anyone in the world.
Company founder Mamoru Takitani developed a unique recipe for mixed chocolates with his wife, Aiko, in the attic of his parents’ house in Maui in 1950 and created a ‘sensation’ on the island of La valley with chocolate-coated macadamia nuts, according to Hawaiian Host.
Takitani established Hawaiian Host in 1960 in Honolulu after purchasing and renaming Ellen Dye Candies, a confectionery company established in 1927.
Milestones cited by the company in its history include the industry revolution by dry roasting mac nuts in 1975 and the establishment of a candy-making plant in California in 1980 to complement its Honolulu plant. .
In 2015, Hawaiian Host acquired Mauna Loa, a competing Hawaii Macaron nut snack maker from the nation’s largest candy maker, The Hershey Co., which spent $ 130 million to acquire Mauna Loa in 2004, when Mauna Loa had an annual turnover of around $ 80 million.
Hawaiian Host has maintained Mauna Loa as a separate subsidiary and brand ever since, but the consolidation has added to what Hawaiian Host is trying to maintain now in the midst of COVID-19.
A month after the imposition of tourism restrictions on Hawaii in March, Hawaiian Host was among Hawaiian companies receiving the largest federal P3s to help struggling businesses with fewer than 500 employees.
Of the approximately 25,000 Hawaiian businesses that received PPP loans, 20, including the Hawaiian Host, had the largest loans of $ 5 million to $ 10 million, as did parent company of Zippy restaurants, four hotel companies and the owner of the Honolulu Star-Advertiser.
Hawaiian Host said its April 5 PPP loan saved 460 employees’ salaries.
Then, in June, Hawaiian Host sold its Iwilei factory and headquarters for around $ 30 million with a provision to continue using the property on a long-term lease, sales records show.
Such sale-leaseback transactions are a way for businesses to generate large sums of money in the short term by selling real estate that they then have to pay for long-term use depending on the length of the lease.
Hawaiian Host’s lease is for 25 years and is valued at approximately $ 26 million.
“In the short term, like most businesses here on the islands, this crisis has certainly cost us dearly,” Schultz said in the Hawaii Business interview. “As an island community, we will need to take risks in order to improve the struggling finances of many businesses in Hawaii, as very few have been isolated from the travel and tourism shutdown.”