Sara Lee Corporation: Strategy and Brand

What is Sara Lee’s Corporate Strategy? How has the retrenchment strategy changed the nature of its business line-up?

Sara Lee was operating as a conglomerate before 2004. The business portfolio consisted of many unrelated businesses acquired over time. Initially, this was a good strategy, and it yielded high profits up until 1999. However, inefficiencies in management and other synergistic disadvantages started to drive down there profits. Soon, management determined that it was time for a shift in the strategy; otherwise, the company would continue with its downward trend.

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The current strategy involves massive downsizing and divesture. The company also plans to invest in a massive advertisement in order to strengthen its brand equity. Management emphasizes customer focus too. Sara Lee sold off several business units and re-consolidated its portfolio. The business units that were disposed of include European Nuts and Snacks, Direct Selling, US Retail Coffee, US Meat Snacks, European Meats and European Apparel.

All these businesses, except European Apparel, were sold to interested investors for a reasonable price. The European Apparel Unit had numerous liabilities, some of which Sara Lee retained after the disposal. The pension plan Sara Lee had set up for its employees in European Apparel was short of the required funds. The new owners required Sara Lee to make up for the amount since it was their responsibility.

The new business line up contains three Strategic Business Units. These three are Sara Lee Foods and Beverages, Sara Lee International and Sara Lee Food Service. Sara Lee foods deal with both the meat and bakery products in America. The major focus of this SBU is the retail stores such as supermarkets. Sara Lee Food Services focuses on wholesalers, hotels and other large buyers. Finally, Sara Lee International is the export SBU. It exports shoe care products, insecticides, air fresheners and coffee, among other items. This business line up is easier to manage and contains more related businesses than the previous line up.

What is your assessment of the long-term attractiveness of the industries represented in Sara Lee Corp.’s business portfolio?

Sara Lee Food Service has the most attractive future compared to the other SBUs. This business thrives on peoples’ changing eating habits. The more Americans and the world eat away from home, the more the foodservice industry grows. If the industry grows, Sara Lee’s sales also grow. Currently, there is an increase in the number of working mothers worldwide, hence a reduction in the number of stay-at home-mums. This means that there is a drastic reduction in the number of home-cooked meals being prepared, and an increase in the take-out and restaurant meals being consumed. Sara Lee Foodservice has the opportunity to ride on this wave if they position themselves as the preferred supplier.

Sara Lee International also possesses great growth potential as a unit. The advent of the internet age has eased international trading greatly. This means that Sara lee International’s market is virtually unlimited. It can sell to all the continents with ease now. The business products are already market leaders in some countries. Sara lee can leverage this brand equity to make more sales.

Sara Lee Foods and Beverages industry thrives on consumer loyalty. When it comes to food, consumers usually prefer one familiar taste. Therefore, this industry may not grow as fast as the previous two. However, since people have to eat, it is still attractive over the long term. The search for convenience foods will also fuel the growth of the foods and beverages industry. SLFB is already the second-largest market player in its industry. More marketing should be employed to enhance customer loyalty.

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What is your assessment of the competitive strength of Sara Lee Corp.’s different business units?

All of Sara Lee’s business units are highly competitive. They are all market leaders or slightly lower than the current market leader. This means that they possess the potential to control their respective markets. This is an advantage of the retrenchment strategy.

Sara Lee Foods and Beverages are performing very well in its industry. Currently, it is the second-largest seller behind Kraft foods. SLFB’s competitive advantage is based on its new and innovative, convenient product line. The market has really embraced its pre-sliced meat line. The division also managed to increase its shelf space in retail stores such as supermarkets, gaining it a greater audience with the consumers. Finally, SLFB took advantage of holidays to step up its advertising and as a result, its sales too.

Sara Lee International’s market is concentrated in Western Europe. This division supplied the second-largest amount of coffee to the world in 2006. The margin between SLI and the market leader is not large and can be closed easily. Sara Lee International performs best in the household goods. Kiwi, Sanex and the insecticides brands are worldwide market leaders in their respective segments. They are also sold in more than 201 countries. The competitive advantage of Sara Lee International is based on its strong brand recognition and equity. The poorest performing segment is the international bakery. This can be attributed to consumer’s preference for fresh baked bread.

Sara Lee Food Services is also highly competitive. Its advantage is based on the product innovations created by Sara Lee Foods and Beverages. This is a perfect example of how synergy in the new business line-up is an advantage. These synergies enabled Sara Lee to capture a substantial part of the pies market in 2006. This was also mirrored in the meat market since restaurants found the pre-sliced meat convenient and clean. Overall, all the three SBUs are highly competitive and have great growth potential.

What does a 9-cell industry attractiveness/business strength matrix displaying Sara Lee’s business units look like?

BUSINESS UNIT STRENGTH
High Medium Low
INDUSTRY ATTRACTIVENESS High Sara Lee International Sara Lee Food Services
Medium Sara Lee Foods and Beverages
Low

The Sara Lee business strength matrix is presented above. It is based on both the industry’s long-term attractiveness and the specific business unit strength. In drawing this matrix, I have considered my answers in the previous two questions.

Sara Lee international has the highest industry attractiveness and business unit strength. The industry is attractive because it is virtually limitless due to globalization. The business unit is highly competitive due to its recognized brand names, which are also market leaders.

Sara Lee Food Services operates in an industry that is highly attractive, but the business unit strength is medium. This industry has high projected future growth. However, Sara Lee Food Services has only managed to capture almost half of the pies market. In such a high growth market, the company should aim for more market share. The SBU should also employ R&D to create its own competitive advantage instead of relying so much on SLFB.

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Sara Lee Foods and Beverages operate in an industry whose long-term attractiveness can be rated as medium. The SBU’s strength can also be rated as medium. Though it is the second largest seller, SLFB made an operating loss of $48 Million in 2006.This is not a good sign. Management should look into the cause of the loss despite high sales. This will make the unit more competitive.

Does Sara Lee’s portfolio exhibit good strategic fit? What value-chain match-ups do you see? What opportunities for skills transfer, cost sharing or brand sharing do you see?

A portfolio with good strategic fit is one in which all the Strategic Business Units exist for a reason and aid in the success of the other SBUs. In Sara Lee’s new portfolio, the major focus is the foods industry. Currently, there are two SBUs operating in different segments of the food industry.

Sara Lee Food Services and Sara Lee Foods and Beverages have the greatest synergies and opportunities for brand sharing. The two deal in the same products at different scales. This means that Sara Lee can build one brand name that wholesalers, retailers and consumers recognize. Such a strategy is bound to reduce the advertising cost incurred by the company. The two value chains can also be synchronized such that there are bulk purchases, which will result in economies of scale.

There is a great opportunity for savings in such a value chain arrangement. It will also increase efficiency and supplier relations. The company will be dealing with fewer suppliers. This gives them the opportunity to create lasting relationships. In regards to skills transfer, SLFS can send some of its employees in the R&D department to SLFB to learn their methods of innovation. Alternatively, the two R&D departments could be combined and the resultant discoveries applied where suitable. The products SLFS and SLFB deal in are very similar; therefore, such a venture would succeed.

The SLI business unit is slightly independent from the other units. It deals in products other than foods. This makes skills transfer, brand sharing and value chain synergies difficult. The company may be forced to create a very separate brand for this business unit.

Does Sara Lee’s portfolio exhibit good resource fit? How profitable are each of Sara Lee’s three business segments? How did the profitability of its divested businesses and Hanesbrands compare to the businesses retained after the retrenchment was completed?

PROFITABILITY ANALYSIS
BUSINESS NET PROFIT/LOSS($ MILLIONS)
Retained Businesses
2005 2006 Change
Hanesbrands 0.2185 0.3225 0.1040
Sara Lee Food& Beverages 175 -48 -223
Sara Lee Food Services 182 121 -61
Sara Lee International 785 620 -165
Total Change – 449
Divested Business
2005 2006 Change
Direct Selling -12 54 66
US Retail Coffee -33 -39 -6
European Branded Apparel -296 -153 143
European Nuts& Snacks 3 3 0
Sara Lee Courtalds -1 -71 -70
US Meat Snacks -1 -9 -8
European Meats -22 -41 -19
Group Net Profit Margin 8% 2% -6%
Total Change 106

Sara Lee’s Profitability was greatly affected by the divesture. Each of the retained business units except Hanesbrands posted lower profits than the previous year. In total, the profits for the retained units reduced by around $ 499 Million. This performance is disappointing compared to the divested businesses whose net profit in total increased by approximately $ 106 Million. The impact of the divesture was also felt in the group net profit margin, which reduced drastically from 8% to 2%.

These figures lead us to conclude that the divestment left Sara Lee in a not-so perfect resource fit. The SBUs may be doing well in the market but the financials do not reflect the same. Hanesbrand’s performance improved slightly. This means that the spin-off was a good decision for this line.

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What is your overall evaluation of Sara Lee’s retrenchment plan? Does the resulting business line-up have a good chance of providing the company’s shareholders with above-average market returns?

Sara Lee’s retrenchment plan has some positive and negative sides to it. The positive side is that the resultant SBU’s are now strategically aligned. There are also fewer business units to manage. The company has the opportunity to exploit the resultant value chain synergies. Marketing costs can be reduced by employing brand sharing. Finally, the SLFB and SLFS divisions can exploit economies of scale during purchase of their supplies.

The down side is that the company has lost business units that used to contribute greatly to its profit margins. This has resulted in a poor financial position. The Net Profit reduced drastically to 2% from 8%. The resource-fit of the retrenchment plan is wanting. Sara Lee’s management needs to devise a method to make the good business performance reflect in the financial statements.

Overall, the plan has resulted in more good than bad. It may have taken off to a slow start, but it has great growth potential. This is evident in the 9-cell industry attractiveness/business strength matrix.

What strategic actions should Brenda Barnes take to improve the corporation’s financial and market performance? What further portfolio changes might she consider? What corporate wide strategies should be considered to improve the performance of Sara Lee’s business units and overall performance?

Brenda Barnes needs to address the financial problems at Sara Lee with immediate effect. She should consider introducing a cost-cutting plan until the profit margins pick up. The company should also consider using free marketing channels such as social media in order to cut down advertising costs. Further, she could dispose off any idle assets the company possesses to create additional cash for operations.

The employees at Sara Lee play a great role in the implementation of the plan. Brenda should take time to ensure they understand where the company is going and are on board with her ideas. Failure to do this could result in silent resistance. Such tension causes company performance to decline. Brenda should make it a corporate wide policy to take employees for team-building sessions. She should also introduce an incentive-pay system. This will encourage employees to participate in the strategies.

In regards to the portfolio, Brenda should consider acquiring some of the smaller competitors to the current SBUs. She can use the proceeds from the divesture to acquire other strategically aligned businesses. This will increase Sara Lee’s market share. It might push the company to become the market leader. Sara Lee International ought to expand its business to the other continents. Currently, their focus is Europe. Brenda should realize that this is a global market and she needs to exploit it.

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