Common Stocks and Common Sense

4 INTERSTATE BAKERIES

In 1905, 18-year-old Ralph Leroy Nafziger started baking breads in the basement of a church in downtown Kansas City. The breads were good and sold well. The success motivated Nafziger to build and purchase a number of real bakeries. Twenty years later, he sold the bakeries to a competitor, but soon afterwards used the proceeds from the sale to purchase a number of other bakeries that, in 1930, he combined to form Interstate Bakeries. Over the next 30 years, Nafziger acquired 15 additional bakeries, building Interstate into one of the largest bread and snack cake companies in the United States.

Interstate’s business included distribution and marketing as well as baking. Bread has a relatively short shelf life. Therefore, it must be delivered to stores soon after it is baked. To accomplish this, in the 1980s, Interstate operated a fleet of more than 3,000 delivery vehicles that transported its breads and other baked products to tens of thousands of supermarkets, smaller grocery stores, convenience stores, and restaurants. The drivers of the vehicles, who belonged to the Teamsters union, placed the newly baked products on the shelves and removed the products that were not fresh. Most of the stale bread was sold at deeply discounted prices through 450 thrift stores operated by the company. The thrift shops were an unprofitable burden on the company but were necessary.

I became interested in Interstate in the fall of 1985 when a friend mentioned that Howard ...