BLL October 30, 2008 Sara Lee Corporation

Sara Lee retrenched seven of its business units in 2006 in order to focus its resources on its more profitable industries. The company’s goal is to boost its sales lines by at least 2 percent and increase its profit margin to 12% by 2010. By developing three competitive capabilities in each of its remaining business units, Sara Lee looks to improve its net profits within the next few years. Divested Businesses Analysis Sara Lee divested seven of its units, including: direct sales, U.S. retail coffee, European apparel, European snacks, and U.S. and European meats. The company followed a strategy which allowed it to increase its corporate profits, since most of its business units it retrenched were unprofitable. By 2006, five business units had negative net profit margins and negative operating margins. Four of those units had negative margins of more than 10%, with different units seeing steady or sharp declines in revenues in profits since 2004. The only two profitable units were the direct selling unit and the European snack lines. These two lines were seeing declining revenues and operating margins, except in 2006, when both lines increased their margins. Divesting the snack business was a correct decision, since it was only producing net profits of $3 million, which would not help the business to increase its shareholders’ wealth. Plus, the company received a $70 million after-tax gain, more than 22 times the current net profit. Selling its direct sales business was not a good decision, since it was still drawing a 27% profit margin and income of $54 million. The business compliments

did correlate with the businesses included in Sara Lee International. which were concentrated in the food industry.5 since 2004. After the spin-off of Hanesbrands. The primary products offered are not innovative products. a $700 million increase from its total losses in 2006. Though the direct selling line was still profitable for the company. which would have allowed the additional distribution of apparel to foreign markets. the significant amounts of debt left over may hinder its ability to turn solid profits in the future. however. showing that Hanesbrands had been capable of keeping its debts low compared to the amount of equity it had on hand. Returns on assets have fallen 5% since 2004 and return on equity was cut in half during the same period. The unit exposed the company to other markets. Sara Lee should have retained this business. the business acquired significant debt in order to remain a standalone business. This sector of Sara Lee did not correlate with its other North American business. The sector. allowing it to expand in foreign markets it already had a presence in while bringing in revenues which could be used to accelerate other businesses. Though the company was able to pay off $100 million in long-term debt. Sara Lee’s decision to spin-off Hanesbrands is questionable. Though revenues.its current household and body care line within Sara Lee International. Sara Lee gained $440 million. After divesting these seven units. Hanesbrands saw an increase of more than $100 million in net income after 2005. Debt-to-equity ratios have been around . Sara Lee received a net gain which was 4 times the unit’s current profits. gross margins and operating margins have been flat. while it could have allowed the company to find potentials for its other products in those markets. but provide a solid base of revenues for the company. .

While holding a 14% market share in a $100 billion industry. though its strong share in baked goods is in a segment .Retrenchment Strategy Evaluation After Sara Lee’s retrenchment. Sara Lee is positioned to increase its profits significantly in this segment. Sara Lee provided innovative breads for its customers. Its meats have seen increases in sales and operating income. The company holds a 20% market share in a growing industry of almost $10 billion. Sara Lee’s key objectives for its remaining businesses were to focus on customer needs and operating excellence. selling similar meats to its foodservice customers. while creating a strong brand through wide innovations and competitive pricing. The foodservice sector provides Sara Lee the ability to use its meats in restaurants and fast-food dining centers. leaving the segment to rely on baked breads. while dominating the breakfast bread market. Sara Lee has generated strong market shares within this sector. the company was able to focus on its food & beverage. These innovations boosted sales more than $100 million. Fresh bread sales jumped more than $600 million within 3 years. Sara Lee misread the market for dessert items. while efficiently taking advantage of innovations within grocery items. even when its core products’ sales were flat. Sara Lee is the market leader in retail breads in North America. due to the leverage Sara Lee had with grocery stores to increase shelf space for its products. and was known to provide poorly made coffee pods. while closely trailing Kraft within the meat sector. The company was unable to produce significant sales in its frozen desserts or its coffeemakers. The company successfully utilizes its retail meats. foodservice and international businesses.

Its beverage profits are strong. where it dominates the country with a 54 percent market share. it is expected to increase to 25% by 2015. SLI has a 9 percent market share of retail coffee. Sara Lee is currently holding a modest position within the meats segment. While providing low-calorie desserts to its customers. however. which is growing at 5% as well. SLI is currently not in an attractive market.which is growing very slowly. though. The division is working to successfully integrate its businesses by adding continuous improvement programs. Sara Lee has met the needs of its customers and captured a larger market share. Its sales are surpass $1. bakery and household and body care brands. but if packaged breads sales improve. Consumers prefer fresh-baked bread. The company can grab more market share within this segment with its innovative packaged meats. where another portion is amassed in Asia and Australia. SLI may be able to capture a large market share. Sara Lee remodeled its best selling coffee pots to serve cappuccino and espresso drinks. which have helped to reduce customer’s labor costs. This investment should help to increase its sales within these markets.7 billion. Most of the division’s sales are made in Western Europe. Though packaged bread only makes up 12% of the bread market. making it the second largest in the world. . while introducing the best selling coffee product in Europe. Since the continent has strong demands for specialty coffees. Sara Lee’s bread has been successful in Spain. Sara Lee can only provide packaged bread. The bakery line for the company has not been as successful throughout Europe. Sara Lee International’s products consist of beverage. where the segment is growing at 5%.

The company looks to continue innovating products to capture significant market share within that market. SLI holds the number one brand of shoe polish. Business Units Strengths and Ability to Increase Value . net income. Sara Lee has successfully revamped its business strategy. The division has managed to amass market share of 25% in several Western European country. such as its household line in SLI. SLI holds a 28% market share of insecticide brands. focusing its future growth in Asia.000. diverting its attention from its strong points. where it is positioned to grab market share with its innovative Ambi Pur 3volution. The company has segments in unrelated industries. revenue and assets declined significantly. which amasses a global market share of 63%. Kiwi. though some segments of its businesses may not prove to be as successful. Its lineup of businesses allows it to grow in several markets.Sara Lee International has positioned itself in growing segments and stalling unrelated segments within its household and body care product lines. Sara Lee will need to focus on its key performing businesses. Its shoe polish accounts for almost 16% of the unit’s sales. In order to grow its revenues and profits. The positive aspects financially of the restructuring was that sales per employee increased by $60. This prevents the company from taking advantage of potential revenues within the market. while inventory turned over 3 additional times. Though SLI has the third largest brand of air fresheners in Europe. Though SLI has the leading shower brand. This segment diverts away from Sara Lee’s core food items businesses. the market has decline by more than 1%. focusing on innovative products and meeting customer demand. After the company restructured itself. The rest of the company has focused on food items. the market is slowly growing at 1%.

however. utilizing the sales from its coffee pods. Though SLI has other insecticide and household brands. hold a fair market share in the foodservice business. Its desserts are not fairing as well. with significant market share held in a slow-growing industry. The Senseo coffee pods are the second best selling coffee product in Europe. which generates almost $300 million in sales. innovating products that will allow it to grow market share within this segment. Its other products generate large sales for the company. Sara Lee International has captured strong market share within Western Europe. allowing Sara Lee to cater healthier options to fast-food customers. which has captured a strong market share while producing strong sales for the North American Retail Bread segment. The company should be able to continue generating its constant sales of $280 million. SLI has taken advantage of the growing hot and cold coffee drink industry. generating $25 billion in sales for SLI. should be able to take advantage of the some of the growing packaged bread sales. it diverts quickly from the company’s core line of businesses.Sara Lee has positioned itself with strong food products which make the company successful in both the retail and foodservice industry. but stray . The company’s household brands are overshadowed by Kiwi. Bimbo. though private label brands are preferred. Sara Lee’s thick-sliced bread is very popular in supermarkets. saving costs within the company while building strong relationships with other businesses. The desserts. Sanex is a cash cow for this segment. with sales approximated to decrease over the next several years. SLI’s number one brand of bread in Spain. The company can utilize its strong growing meats in its food service business. Bimbo may not be able to continue its sales within the International Bakery segment due to the switch to private brands in the future.

The company should be taking advantage of its situation.5%.away from the company’s main focus. which may prevent its 3volution from generating large sales to improve value for the company. This is a decrease from 15.7% in 2005. Though sales have increased $100 million.4 billion sales. as more Americans are eating away from home. The sales of bakery items have declined to restaurants. Bakery revenues remain stagnant. mainly due to the decline of the packaged bread market in Europe. providing an opportunity for the company to further expand and increase its $2. Stale growth in Sara Lee’s bakery items has prevented growth within the business. and are positioned to overtake the rapidly-growing Asian market. Overall . margins are down 2% since 2005. This increase has propelled margins up 2%. Meat products sold in North American grocery outlets have increased by $100 million. currently at almost 13%. due to the 3% margin declines in its beverage and household & body care units. The insecticide brands do have the largest market share. but reduced costs have created a small margin of 0. Sara Lee International has seen high operating profit margins. with new innovations in prepared meals and promotions helping to spur growth. Its bakery business saw declines of only 1%. SLI’s coffee sold to restaurants and cafés make up 10% of the market. Profitability and Divestiture Sara Lee has developed many of its brands within North America and internationally. while beverages make up almost 30% of overall sales. as revenues have not changed. while single-service coffeemakers have hurt growth. developing healthy operating profits in several of its brands. Sara Lee’s foodservice business has seen declining operating margins since 2005. Its air fresheners are in a declining market.

Most of its brands had significantly negative profit and operating margins. The company’s direct sales line provided the company the opportunity to expand its international household products to other regions and increase sales. which have significant market share. which have produced favorable operating margins over 14% in 2006. bakery sales will continue to slide as Americans eat healthier foods. Its European snacks complemented its international beverage and bakery lines. especially from its dessert items. Though some innovations have been made. and is not growing within the foodservice industry either.operating profits for Sara Lee Food & Beverage are increasing before significant items. the company should eliminate its dessert sales and the sale of single-serving coffeemakers. Sara Lee’s divestment of its seven brands. has allowed the company to prosper in the future. The company could have sold its dessert lines. while keeping its bread lines. with profits increasing by $70 million. though it did not account for a significant amount of sales. excluding Hanesbrands. Since Sara Lee has significant market share with its packaged bread in North America. Recommendations Sara Lee has several positions that it can take that can strategically grow its profitability. Sara Lee did not divest its North American and foodservice bakery lines. while being unrelated to most of the company’s other products. Sara Lee should have kept its direct sales business and European snacks line. By selling off its . Growth in this segment is very slow. The company currently has limited margins on its bakery line. which have been unprofitable for the company for several years.

the company will be able to amass profits similar to what it had before its divestures. This strategy allows Sara Lee to develop larger profits by selling its teas and coffees within local businesses throughout Europe. If Sara Lee follows these strategies. . Nations in Africa are still growing. where few treatments are available to prevent bacteria. and with the current contacts and knowledge of the foodservice industry. The company can also sell more of its insecticides in developing nations. Sara Lee can invest the profits of the sale into other innovations in its other business units. These beverages could be sold to local retail business. profits could easily be managed.dessert brands. Beverage products sold by Sara Lee International produce almost 50% of all profits. The market for cleaning products and air fresheners is strong in the United States. which could be utilized in North America. similar to what is done with Sara Lee Foodservice. Its air freshener brands hold significant market share in Europe. and could utilize the insecticides to improve farming practices within the continent. The company has already begun selling beverages in retail operations. Sara Lee International should expand its household and body care brands into the United States. Sara Lee’s innovations would be very successful in the growing market across the Atlantic.

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