Sara Lee Corp Analysis Essay
Sara Lee Corp Analysis
1. What is Sara Lee’s corporate strategy? How has its retrenchment strategy changed the nature of its business lineup? Sara Lee corporate strategy was to implement acquisition strategies which would enlarge their geographical coverage in order to expand into new business classes. When the company started it was a small wholesale distributor of several items: coffee, tea and sugar and over time Sarah Lee acquired food processing, packaging, distribution and the retail food business. Over 40 years, the Sarah Lee Company acquired related and non-related business. Sarah Lee sold 8 businesses that were looked upon as non-strategic. This initiative was expected to generate combined net after tax proceeds in excess of $3B. The leaders of Sarah struggled over time to manage broadly diversified and geographically operations. So it was decided in order for the company to stay focus it would concentrate on the grocery portion and the upcoming trend of the single serve coffee machines. Therefore, Sarah would also focus on the single serve coffee line business, which they believed would be profitable for the company and shareholders.
The retrenchment strategy changed the nature of its business lineup from a small wholesale distributor to acquiring retail food business. The retrenchment strategy would allow Sarah Lee to focus even more closely on the food, beverage, and household products. Management believed in order to save cost and to be more profitable they would concentrate its financial and managerial resources on a smaller number of business segments in which market prospects were promising and by Sara Lee’s brands being well known and well positioned would help them to stay in alignment with the strategy. Sarah Lee also executed an outsourcing strategy known as Project Accelerate. It’s a company-wide cost saving and productivity project that focused on outsourcing, supply chain efficiencies, and overhead reduction.
2. What is your assessment of the long-term attractiveness of the industries represented in Sara Lee Corp.’s business portfolio? In 2008 100M revenue, with 10-12 core products was recorded as showing an increase in market share in 2010. However, in between 2008-2010, divisional sales had grown faster than any other food processing company; Sarah Lee’s market share had increased from 9.2% in 2009 to 12.3 in 2010. Keeping in mind, the state of the economy along with the size of the household’s, it usually cheaper for people to eat their meals at home and bring their lunches to work. By consumers purchasing lunch meats and other foods products of the well know brand – Sarah Lee products would mostly remain high. Therefore the retail, foodservice, and other related industries represent the most attractive long-term business portfolio growth for the Sarah Lee Corporation.
3. What is your assessment of the competitive strength of Sara Lee Corp.’s different business units? By Sarah Lee staying focus in the food industry and having less or in some cases no focus on non-fitting industries allowed for value chain match-ups in the form of production technology, shipping logistics and customers. This direction offers opportunities for skills to be transferred, cost and brand sharing including the production of bakery, retail and foodservice goods because many of these are products are similar or the same products. By having product similarity the Sarah Lee Company can manufacturer a large batch of the same product, costing less than having to set up and run a separate product line. North American Retail: market-leading brands
30% market share in smoked sausage
23% market share in hot dogs
14% market share in lunch meat
58% market share in breakfast sausage
22% in frozen desserts
55% in single-serve coffee
North American Fresh Bakery:
Sales increased from $91 million in 2003 to $2.1 billion in 2009 Best-selling brand of packaged bread with 8.3% market share
Number one ranking in hot dog and hamburger buns
Increased shelf space= 1.5 feet to 4.0 feet
Resulted in tripled average weekly sales
North American Foodservice:
Even though recession, caused division years $2.2 billion in sales to $1.9 billion in 2010 Held a 65% market share in liquid coffee and tea
52% market share in pies
19% market share in cakes
20% market share in refrigerated dough
40% market share in Europe in single-serving coffee machines In 2009, expanded line to include L’OR Espresso capsules which were compatible with the second-best-selling brand of single-serve coffeemaker with a 27% market share International Bakery
Bimbo fresh bread sold in spain accounted for 63% of division sales Bimbo frozen bread sold in Australia accounted for 12% of division sales Bimbo refrigerated bread sold in France accounted for 25% of division sales Bimbo was market leader with 37% market share
International Household &Body Care
Kiwi brand was the number one shoe care brand worldwide with distribution in 200 countries and global market share of 30% Sanax was the number one brand of bath and shower products in Denmark, Spain and France, and Ambi Pur was the best selling air freshener in the Netherlands and Spain. 3rd best-selling air freshener brand in the U.K., Italy, and France.
4. What does a 9-cell industry attractiveness/business strength matrix displaying Sara Lee’s business units look like?
5. 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? Yes, Sara Lee’s portfolio does exhibit a good strategic fit for the following reasons: Product line and product relations support one another like: bakery, beverage and meat items can be sold together which can save cost, time and increase profits. By Sara Lee retailing and whole selling is an advantage for all the products, all products will most likely be consumed. The opportunity of skill transferring
enhances cost saving by allowing a bakery worker to work in the beverage and meat sector or vice versa. Brand sharing the products can be handled by various techniques, saving time, cost sharing, promotions/ads and generate revenue. 6.What is your assessment of Sara Lee’s financial and operating performance in fiscal years 2008-2010, the period following the divestitures that were the core of Sara Lee’s retrenchment strategy? Sara Lee deciding to close 8 business units, (Direct selling, U.S. retail coffee, European apparel, European nuts & snacks, European rice, U.S. meat snacks, European meats and Sara Lee branded apparel) after adapting the retrenchment strategy which was not an easy decision. With this incentive the company expected to increase its operating profits margins by 12%, but the company could not achieve its targets.
From 2008-2010 to help with cost savings the project named Project Accelerate was implemented which was estimated to save the company between $350M – $400M by 2012, accumulative the project saved the company $180M. 7.What is your overall evaluation of Sara Lee’s retrenchment plan? What evidence and/or reasons support a conclusion that Sara Lee’s shareholders have or have not benefitted from the company’s retrenchment strategy? The retrenchment plan created a gamble for the leadership team’s expectation and it did not create a huge impact for providing additional revenue for the Sarah Lee Company. Per Sara Lee’s financials and not due to the retrenchment strategy the company did show growth in some sectors and barely over previous years. The leadership team felt the retrenchment strategy would increase improvement on its return on investments, increase revenue to $14B by 2010 and operating profit margin in 2010 by 12% against operating profit margin in 2004.
Sara Lee did manage to improve its operating margin to only 8.5% where as $10.8B of revenue was generated in the 2010. Sara Lee stakeholders did not really benefit as much as the company hoped they would from the retrenchment strategy. The book value of the common stock decreased from $3.61 to $2.25 The market value of the common stock decreased from $17.4 to $13.9 Dividends Declared decreased from $0.50 to $0.44
8.What actions do you recommend that Sara Lee management take to improve the company’s performance and boost shareholder value? Your recommended actions must be supported with convincing, analysis-based arguments. Research and endorsing current products (ex. teas and coffee) in new markets such as in the Asian and European markets to help with increasing brand awareness, revenue and profitability. There is a limited margin on the dessert products. By selling off its dessert brands, Sara Lee can invest the profits of the sale into other innovations business units. Sara Lee International should expand its household and body care brands into the United States. Its air freshener brands hold significant market share in Europe, which could be utilized in North America.
The market for cleaning products and air fresheners is strong in the United States. Sara Lee’s innovations would be very successful in the growing market across the Atlantic. With Sara Lee having the product lines that are related products can take a declining shift at the same time, therefore an innovative product line needs to be added/ expanded/developed. Sara Lee should utilize some of its cash and perform another stock buyback program. Sara Lee’s leadership team needs to be analysis to see who should stay and who should go. Once that process is completed then the leadership team needs to manage what is working well and Project Accelerate should stay in place to continue to increase cost savings and increase profits. All of the recommendations are needed in order for the consumer base to continue be to grow at the necessary rate also for the company to continue to grow per goals and to keep the shareholder happy.