Reflecting on a banner week for baking

by Josh Sosland
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Under normal circumstances, it was a banner week for baking. Indeed, in light of the extremely difficult economic environment, the week could have been called spectacular.

To begin with, two of the industry’s largest companies released financial results that were extremely positive measured by the standards of the food industry and across all of business today. Flowers Foods net income in 2008 was up 28% and in the fourth quarter jumped 50%. Sara Lee baking operating income was up double digits, excluding special charges, and saw volume trends that were particularly encouraging. Both companies were optimistic about the earnings outlook.

Still, the largest development in baking was the emergence of Interstate Bakeries from a painful bankruptcy that lasted nearly 4½ years. The confluence of these happenings is rich in meaning for the future of baking. The emergence of a newly capitalized I.B.C. free from the constraints of bankruptcy and armed with new labor agreements surely will change the competitive dynamics that have prevailed in baking in recent months and years.

Whether I.B.C. and other bakers constructively adjust to these changes remains to be seen and is the most important question facing the industry. Public comments from I.B.C. have been encouraging, but asked this week about the prospective emergence of Interstate, one competitor executive replied, "Whatever I.B.C. does doesn’t alter what we’re doing in terms of our reinvention plan on fresh bakery."

Perhaps in some abstract, literal way this statement is true. If the future earnings hopes are to be realized, everyone will need to be realistic as they adjust to the week’s important developments.

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