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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

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

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

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

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

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

as revenues have not changed.7% in 2005. The insecticide brands do have the largest market share. Sara Lee International has seen high operating profit margins. This is a decrease from 15. currently at almost 13%. providing an opportunity for the company to further expand and increase its $2. This increase has propelled margins up 2%. while beverages make up almost 30% of overall sales. but reduced costs have created a small margin of 0. Profitability and Divestiture Sara Lee has developed many of its brands within North America and internationally. The sales of bakery items have declined to restaurants. Though sales have increased $100 million. while single-service coffeemakers have hurt growth. Meat products sold in North American grocery outlets have increased by $100 million. Its bakery business saw declines of only 1%.4 billion sales. which may prevent its 3volution from generating large sales to improve value for the company. Its air fresheners are in a declining market. and are positioned to overtake the rapidly-growing Asian market. as more Americans are eating away from home.away from the company’s main focus. The company should be taking advantage of its situation. SLI’s coffee sold to restaurants and cafés make up 10% of the market. Overall . Sara Lee’s foodservice business has seen declining operating margins since 2005. mainly due to the decline of the packaged bread market in Europe. with new innovations in prepared meals and promotions helping to spur growth. due to the 3% margin declines in its beverage and household & body care units. Stale growth in Sara Lee’s bakery items has prevented growth within the business.5%. developing healthy operating profits in several of its brands. margins are down 2% since 2005. Bakery revenues remain stagnant.

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

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