James R. Elsesser, chief executive officer of I.B.C., disclosed plans for the experimental shipment program in remarks Tuesday at the annual meeting of Interstate shareholders in Kansas City.

At the meeting, Mr. Elsesser and Michael D. Kafoure, president and chief operating officer, spelled out changes I.B.C. is studying to produce and distribute products more efficiently.

Noting Interstate's position as a market leader in wholesale baking, Mr. Elsesser told shareholders, "Now is the time for us to be a market leader in changing and improving the way the industry does business."

Mr. Elsesser said the company's extended-shelf-life program "opens the door for fewer and larger distribution centers." He added, "We also see some distribution being shifted from the existing route system to the warehouse."

In the next 30 days, Mr. Elsesser said, I.B.C. will test "a high-volume product line" with warehouse deliveries for a number of Wal-Mart Supercenters and Neighborhood Markets in Texas.

"It's only a test, but it's a major effort on our part," he said.

In discussing what he said were among other "promising opportunities," Mr. Elsesser added that Interstate needed "fewer and more automated plants to bring fixed costs under control."

In the company's quarterly conference call Friday, Mr. Elsesser said Interstate was reviewing its production capacity and operating costs and anticipates "closing several plants and investing in more automation."

The election took place Sept. 16 at the annual directors/shareholders meeting in Newark, N.J. The cooperative elected Mark Dirkes, senior vice-president, Interstate Bakeries Corp., Kansas City, as vice-chairman of the board.

Re-elected to the cooperative’s board were Ronald Barlow, regional manager, George Weston, Williston, Vt.; Gloria Kozyra, president/secretary, American Bakers Cooperative; and Mr. Dirkes.

The cooperative elected David C. Scott, regional vice-president, Flowers Bakeries L.L.C., Thomasville, Ga., as a new director.

Mr. Elsesser, reviewing plans of the board of directors to put I.B.C. "back on course," indicated that in three years, I.B.C. should be a much different company than it is today.

Hit by flat sales and higher-than-expected costs, net income of Interstate Bakeries in the fiscal year ended May 31 fell to $27.5 million, equal to 62c per share on the common stock, down sharply from $69.8 million, or $1.39 per share, in fiscal 2002. Net sales totaled $3.5 billion, down slightly from the previous year.

"Some of our company's woes are directly attributable to the tough economic climate," Mr. Elsesser said. "Indeed, the entire industry is under intense pressure due to rising health and pension costs, the increased cost of ingredients and energy spikes.

"But the economy is not entirely to blame for this year's results. The marketplace is changing, and we have not adjusted quickly enough. Consumers are becoming more resistant to price increases and less responsive to promotional activity. Actions that have worked well in the past are having a diminished impact now. We are losing momentum and face the challenge of reversing that trend."

Interstate's immediate action plan includes a number of market tests to determine what's right in today's marketplace, Mr. Elsesser said. The information gained from these efforts should help identify ways to streamline operations and stabilize unit trends. The programs include:

· Several market tests of an Every Day Low Price pricing strategy for both bread and cake product lines.

· A market test of the impact of reducing stock-keeping units.

· An in-depth review of promotional tactics.

· A comprehensive test of single-serve cake packaging.

Interstate's SOAR (Systems Optimization and Re-Engineering) Program should identify long-term strategies, Mr. Elsesser pointed out.

"With the many challenges we currently face, it is an extremely important undertaking for our company's long-term competitiveness," he said.

Mr. Elsesser said that during the next three years, Interstate intends to implement changes designed to:

· "Re-engineer our business processes.

· "Allow us to become more efficient and to achieve a more focused, company-wide direction.

· "Rationalize our investment in production, distribution and administrative functionality.

· "Reduce the ongoing cost of supporting this infrastructure.

· "Identify growth opportunities and adjust the brand portfolio to follow demographic shifts and altering consumer preferences."

In describing Program SOAR as a major business transformation, Mr. Elsesser added, "It will affect our strategic outlook. Our primary focus is to establish operational excellence. In three years, I.B.C. should appear much different from what it is today."

From an operational perspective, Interstate is particularly focused on the cost side, both short- and long-term, Mr. Elsesser said.

"Under Program SOAR, the I.B.C. operating team is addressing nine initiatives identified as major areas for profit improvement," he said. "Short-term, we are looking to become more efficient — and cost-conscious — by reviewing production capacity in our system."

Interstate in fiscal 2003 closed 96 thrift stores and announced the closing of bakeries in Boise, Idaho; Montebello, Sacramento and Castroville, Calif., and Tampa, Fla.

Those plant closings do not represent a step backward or the forgoing of possible sales, Mr. Elsesser emphasized.

"Production from these plants has been moved to more efficient plants," he said. "The sales organization associated with these five plants are largely unaffected by the closures. We also have begun restructuring some cake distribution in the Northeast. At the same time, we are eliminating marginally profitable sales activities."

At the same time, Interstate in fiscal 2003 invested in plants in Birmingham, Ala.; Orlando, Fla.; Tulsa, Okla., and the new bakery in Henderson, Nev.

"We are committed to being the market leader in branded bakery goods," Mr. Elsesser said. "Just being the biggest baker doesn't make us the market leader. We need to have consistent quality, efficient production, consumer relevant brands and continual innovation to meet the demands of consumers and our customers. The transformation envisioned in Program SOAR will start us on that journey. We expect that journey to lead to growth."

Fiscal 2004, Mr. Elsesser added, will be an exciting year as Interstate implements its action plan and builds long-term strategy.

"The future, however, will mean change for all of us at I.B.C.," he pointed out. "At the very least, it will involve a culture change. I.B.C. has prided itself on its decentralized management model, but more centralization is called for today in all of our strategic decisions. Administrative redundancies will be eliminated in the field, both for cost containment reasons and for efficiency, and we will give our managers enhanced tools that will allow them to be more responsive to market demands.

"The challenge, of course, is to bring the best ideas and changes forward, without for a moment taking our eye off the consumer, our marketplace execution and the need for strong results. It will not be easy and there is no assurance of success, but we are striving as a company to do what it takes to succeed and build shareholder value."

In its annual 10-K statement filed Aug. 22 with the Securities and Exchange Commission, I.B.C. said it tentatively had settled the class-action suit during the third quarter ended March 8. The case is one of several class-action suits filed in recent years involving wholesale baking company route salesmen and overtime pay issues.

I.B.C. said a state court July 25 approved the settlement in the Washington suit for approximately $6.1 million. There is a 30-day period for appeal, it added.

The class-action suit, filed in November 1996, alleged that I.B.C. failed to pay the route sales representatives required overtime wages under state law. The plaintiffs sought unpaid wages, with interest, and other relief deemed proper by the court.

"We have established reserves that will sufficiently cover the anticipated costs of the settlement," I.B.C. said. "We also have negotiated and put into effect a new union contract with the route sales representatives in the state of Washington that we expect to address this issue. We have asked the state of Washington's Department of Industry and Labor to review and approve the contract's provision relating to overtime pay."

I.B.C. said two additional wage-and-hour cases have been filed under state law in New Jersey, one on behalf of a class of route sales representatives.

"We are also aware of an additional wage-and-hour case brought on behalf of a putative class of bakery production supervisors under federal law," the company said of the News Jersey case.

"These cases are in their preliminary stages," I.B.C. said. "We are evaluating these cases and the amount of potential loss, if any, cannot reasonably be estimated."

In the second quarter of fiscal 2002, Grupo Bimbo's U.S. business had operating income of NP$76 million on sales of NP$3.2 billion.

Grupo Bimbo, one of North America's largest wholesale bakers, said the second-quarter sales decline reflected discounts granted to independent distributors in Texas.

"Grupo Bimbo continues to actively launch new products as well as to support the imports of its Mexican brands in order to strengthen the company's presence within the Hispanic population in the U.S.," the company said. "So far this year, sales of Mexican brands in the region have increased over 20%."

Bob Oakley, chief negotiator for the Bakery, Confectionery, Tobacco Workers and Grain Millers Union, said that upcoming contract talks for I.B.C.'s Southeast U.S. division, comprising about 20 bakeries, could prove as dicey as the negotiations that led to the one-hour Midwest strike beginning at midnight Tuesday.

"If Interstate continues with the same management, we're going to have more (strikes)," Mr. Oakley said. "That's my prediction."

This week's strike affected I.B.C.'s plants in six Midwest states. The union has about 3,000 members at those facilities; about 500 workers from other unions also honored the picket lines.

The union's members in I.B.C.'s Midwest division had worked without a contract since their last three-year agreement with the company expired May 10.

I.B.C. officials did not return telephone calls concerning the matter. But the dispute stemmed from the company's attempt to reign in soaring health care costs that have battered the entire grain-based foods industry.

For the new Midwest regional contract with the union, I.B.C. proposed doubling health-care premiums for single workers to about $400 per year. The proposal could have boosted a worker's share for family coverage by as much as $6,000 annually if the family chose to use out-of-network medical services, Mr. Oakley said.

But the strike culminated with a tentative three-year agreement similar to the last contract, Mr. Oakley said. I.B.C. officials scuttled their insistence on raising health plan costs for workers, whose coverage costs will not increase. Workers also will receive annual wage raises of 30c to 50c per hour; wages in the last three-year agreement rose 35c, 35c and 40c per year, respectively.

Mr. Oakley said he expects union members to ratify "overwhelmingly" the new contract when they officially vote on it Saturday.

However, a similar contract covering the union's members in I.B.C.'s Southeast division expires in mid-August, and Mr. Oakley said he anticipates difficult renegotiations there, too.

He acknowledged the company needs to change to compete more effectively. He claimed the union has not resisted plans that I.B.C. officials announced earlier this year to spend about $50 million during the next three years to upgrade technology at the company's plants, even though I.B.C. admits those upgrades will cause some job losses.

On the other hand, Mr. Oakley scoffs at the notion that I.B.C. is struggling financially, even though profits in its recently completed fiscal year plummeted 61%.

When asked if workers must absorb some higher health care costs to keep I.B.C. viable, Mr. Oakley replied, "Not according to the salaries and bonuses they're paying."

He noted that Charles Sullivan, I.B.C.'s former chief executive, continues receiving an $800,000 consulting salary from the company and that James Elsesser, the company's new c.e.o., has a guarantee to receive half of his annual bonus "whether they make money or not."

"You can't be lining the pockets of c.e.o.s and then coming back to the workers and saying the company is struggling," Mr. Oakley said. "We don't deny the c.e.o.s the money they're getting, we just don't want them to deny us."

He added that the union approached the company in the mid-1990s and asked to work with it to help control rising health care costs through congressional lobbying or other measures.

"We have come to this company and told them we would try to work with them on health care," he said, adding that if the union continues allowing I.B.C. to pass rising health care costs along to workers "they're never going to take an interest in settling these problems.

"We need to get together on this."

Mr. Oakley said the union historically has had a good relationship with I.B.C., which employs 10,000 of its members, more than any other company.

However, he expressed disappointment at how I.B.C. handled this week's strike and accused the company of trying to intimidate workers.

The union had set a strike date two weeks ago. Last week, Mr. Oakley said I.B.C. officials brought about 60 replacement workers to the company's Lenexa, Kas., facility.

"They marched them through the plant in front of our members and told them these are the people that are going to take their job," he said.

But Mr. Oakley said the tactic backfired, yielding a unanimous rejection by the union of the company's proposal to boost health care costs and a unanimous strike vote.

I.B.C. is no stranger to labor strife. In March 2000, the company endured a costly eight-day Teamsters strike in its Northeast region that stripped retail shelves bare of the company's famous Hostess Twinkies from Boston to New York City.