Milling & Baking News - August 30, 2005 - 27

BREAD

industry

White Bread Fans was introduced July 18 in
six test markets.

plant closings, the company said,
"There is a risk that the consolidation announced today could significantly increase the amount
of the liability to I.B.C. should
a total or partial withdrawal
from the multi-employer
pension plans covering
the Southern California P.C. (profit center)
employees be found to
have occurred. I.B.C. is
conducting the Southern
California P.C. consolidation in a manner that it believes
will not constitute a total or partial
withdrawal from the relevant multi-employer pension plans. Nevertheless, due to
the complex nature of such a determination,
no assurance can be given that withdrawal
claims based upon I.B.C.'s prior action or
resulting from this consolidation or future
consolidations will not result in significant
liabilities for I.B.C."
How this pension matter or other issues
yet to be resolved turns out remains to
be seen, but investors are betting that the
outcome will be a successful one for the
company. After trading as low as $2.05 immediately after the bankruptcy filing, I.B.C.
shares have more than quintupled, closing
recently at $11.52.

Major changes at S.L.B.G.
I.B.C. hardly has been the only company
in the midst of significant change. In fact,
only the bankruptcy of the nation's largest baking company could overshadow
the extraordinary range of developments
during the past several months at Sara Lee
Bakery Group, the nation's second-largest
baking company.
Having tinkered beginning in 2003 with
resuming geographic expansion, Sara Lee in
October 2004 unveiled plans to begin selling
its products in new markets in Florida, the
Carolinas, Virginia and Ohio.
Pleased by initial successes, Richard A.
Noll, S.L.B.G. chief executive officer, in February 2005 unveiled ambitious plans to accelerate its geographic growth and establish
a presence in every state of the continental
United States. To achieve this goal, Sara Lee
fresh baked foods will be available only at the
stores of certain retailers with whom S.L.B.G.
is partnering. Still yet to be determined in the
plan was how Sara Lee will meet demand as
the company seeks to make its bread more
widely available in its new markets. A Sara
Lee spokesperson last week affirmed that
the company was committed to extending
its market coverage to all 48 continental

28 / Milling & Baking News, August 30, 2005

perspective

BREAD

states, but said
the expansion
was proceeding more slowly
than indicated
in February.
Mr. Noll has
not been at the
helm of the bakery
group to shepherd this
process forward. Only
days after the plan was
announced in February,
Sara Lee Corp. announced a
major corporate restructuring
that includes plans to spin off
its apparel business. Mr. Noll was
assigned the position of president
and chief operating officer of the
apparel group.
With the restructuring, Sara Lee Bakery Group will no longer exist as a separate
segment within Sara Lee Corp. Instead, the
business is being folded into Sara Lee Food
& Beverage, the new retail division of the
company. The Food & Beverage group also
includes packaged meats and the Senseo
coffee business and is headed by C.J.
Fraleigh. The baking business will be
moved to Chicago from St. Louis.
With Mr. Fraleigh heading this
group, no specific successor was
named for Mr. Noll. William J. Nictakis is president of U.S. Fresh Bakery,
the highest ranking executive devoted
specifically to the fresh bread business
in the United States.
Continuing to streamline its business, Sara Lee recently announced
plans to close three baking
plants (see related story on
Page 14). Late in 2004, the
company closed its Hutchinson, Kas., baking plant. A
few months later, it closed its
Fort Payne, Ala., plant.
Major moves also have
been made by Sara Lee in its
bread variety lineup. While
each major baking company
has devoted some attention to
the growing market for whole
wheat bread, none has been
more active in this regard than
S.L.B.G. Over the course of a
few months beginning in late
2004, the company more than
doubled the number of whole
grain bread varieties it offers.
The moves were made in anticipation of stern recommen-

Sara Lee Soft & Smooth is available in all the markets Sara Lee
fresh baked products are sold.

industry

perspective

dations for consumers to increase intake of
whole grains in the Dietary Guidelines for
Americans 2005, issued earlier this year by
the U.S. Department of Agriculture.
The product innovation began with Earth
Grains Extra Fiber bread introduced in November and continued into 2005 with Heart
Healthy Plus introduced under the Sara Lee
brand. The bread was introduced in multigrain and 100% whole wheat varieties.
Most dramatically, Sara Lee in July introduced Sara Lee Soft & Smooth Made with
Whole Grain White Bread. A transitional
bread that has the taste, texture, appearance
and economy of white bread, the product
contains a 70/30 blend of enriched wheat
flour and whole grain flour. In contrast to
White Bread Fans, a 100% whole grain product, Soft & Smooth is premised on the idea
that many white bread consumers have a low
tolerance threshold for any product that looks
or taste like whole wheat bread. Only a blend
like Soft & Smooth will satisfy this group of
consumers while still providing an introduction to whole grains, Sara Lee has said.
"Let's get in the habit of buying products
that taste great, where there is no sacrifice in
terms of taste, there is no sacrifice in terms
of texture - because we know consumers like that soft and smooth
texture of white bread," Mr. Nictakis said earlier this year. "We're going to offer consumers the chance
to have a product that looks like
white bread, tastes like white bread,
it is white bread, but it has (added)
nutritional benefits."
Against this backdrop of changes
in its business and product introductions, Sara Lee Bakery
Group enjoyed solid financial
results in what appears to
be its last year as a separate
unit of Sara Lee Corp. Operating income of S.L.B.G. in
the fiscal year ended July 2
was $213 million, up 37%
from $156 million in fiscal
2004. Sales were $3,297
million, down 3.5% from
$3,415 million. Operating
income was boosted by cost
savings from restructuring
actions and product mix
improvements.
The decline in net sales
and volumes decreased as
a result of the company's
planned exit from unprofitable non-branded business
and the impact of the 53rd
week. In announcing the
plans for the geographic
expansion in February,
Mr. Noll predicted that the
sales declines were nearly

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Milling & Baking News - August 30, 2005

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