Business

Bittersweet experience

They're some of the most popular snack-food brands in America — Hostess and Dolly Madison — generating buzz most recently by adding a banana-cream-filled Twinkie to its lineup of sweet treats.

But behind the scenes, those familiar brands' parent company, Kansas City, Mo.-based Interstate Bakeries Corp., has been grinding through a Chapter 11 bankruptcy reorganization that has rippled through its Columbus factory at 1969 Victory Drive.

The local Dolly Madison plant — Interstate Bakeries' only one in Georgia — already has survived a consolidation in April 2005 that closed a bakery in Miami and shook up sales routes in the Florida-Georgia territory.

Columbus lost about 50 sales, or route-driver, jobs at the time, said Sandi Sternberg, a spokeswoman for the company. The plant, which now has about 550 manufacturing positions, since has solidified its operation by picking up business as part of what the company calls its "Dolly direct" initiative.

Production, packaging and handling equipment were added recently to the Columbus plant, said Sternberg, who had no estimate of the capital investment here.

In essence, the aromatic factory is churning out products such as Twinkies, Zingers, doughnuts, fruit pies, angel food cake and pound cake, then shipping them directly to retailer's warehouses for their own distribution rather than delivering straight to stores.

The corporation would not allow a tour of the Columbus facility, citing "hygiene and safety" reasons.

"There have been no dramatic changes in the Columbus bakery other than those improvements," SteinbergSternberg said, acknowledging that Interstate Bakeries' entire operation is constantly being scrutinized for any way to make it more efficient.

"You're always going to be looking at the what the individual plants are doing, but I don't know of any plans for the Columbus plant," she said.

The bankruptcy process has been more bitter than sweet for thousands of Interstate's employees. Since the initial Chapter 11 filing on Sept. 22, 2004, the snack manufacturer has whittled 7,000 from its payroll nationwide. It has about 25,000 employees today.

Nine bakeries have been closed, giving the company 45 today, while the number of distribution centers has fallen from 1,000 to 800. Interstate's retail outlets — it has three locally, including one in front of the Dolly Madison plant — have dwindled from 1,200 pre-filing to 850 today.

Perhaps the most important detail now missing from the bakery giant's story is the date when it will emerge from bankruptcy reorganization.

In February, the company received permission from a U.S. Bankruptcy Court to replace existing chief executive officer Tony Alvarez II with Craig Jung, who was praised by Interstate Bakeries as a consumer goods and "direct-store-delivery" specialist with a track record for turning companies around.

Jung's primary strategy is basic — fix Interstate's cost structure, grow profit and operating margins, create a "performance culture," and "accelerate innovation."

More specifically, Jung said the snack-food specialist must become more innovative and stand out in an increasingly competitive marketplace. There also is the critical need to create healthier products in a world that has become ever more conscious of obesity and heart disease.

"Despite the progress of the past two years, our cost structure has not been aligned to our revenue or today's reality of higher commodity prices and intense competition," Jung said as he took the CEO job. "As a result, the company is still unprofitable and in Chapter 11. That has to change."

As it was handing the reins to Jung, Interstate's board of directors received court permission to extend its debt financing facility — the firm's revolving loan — from June 2 of this year to Feb. 9, 2008. Interstate said it has not borrowed any of the $200 million available to it, although the company has committed $109 million, primarily to pay for insurance.

Interstate executives will be meeting this week with various committees involved in the bankruptcy, presenting a business plan to them, Sternberg said. The court does not have to approve the business plan, she said.

"Assuming everybody signs off on that, then they can start thinking about a plan of reorganization," she said. "The process we're in now is developing a business plan so that the company is viable when it comes out. The reorganization plan says who gets paid what, those that were owed pre-petition. That the court has to approve."

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