Sara Lee Corporation Strategic Analysis

Sara Lee Corporation Strategic Analysis

2 December 2012

Abstract

Sara Lee Corporation is an American brand name, specializing in retail food and beverages, as well as grocery-style breads, meats and snacks. The company grew into itself through a series of acquisitions, divestures and retrenchment initiatives. Throughout Sara Lee's transformations the company remained profitable, albeit barely, but struggled to see great success in many of the industries management pursued. Through Project Accelerate, a massive initiative undertaken between 2008 and 2010, Sara Lee Corporation hunkered down on supply chain efficiencies, cost savings and productivity measures. This essay explores the growing of pains of Sara Lee Corporation and Project Accelerate.

Sara Lee Corporation, as it's known today, grew out of several small acquisitions beginning in 1939 as C.D. Kenny Company and expanding through 1985 when the company officially became Sara Lee. Between 1975 and 2000 the company's chief acquisition strategy was supported by "diversification efforts and its emergence as a global corporation" (Thompson, et al., 2010, p. C-245). Sales grew steadily from $5 billion in 1980 to $10 billion in 1988, $15 billion in 1994 and peaking at $20 billion in 1998. The company's sales remained steady at $20 billion while the company struggled to manage its diversified operations around the globe.

Corporate Strategy

In 2000, Sara Lee Corporation installed a new CEO, C. Steven McMillan. McMillan's core strategy, aimed at boosting company sales, was to focus on packaged-goods through a small number of globally branded products. These products are represented as Food and Beverage, Intimates and Underwear, and Household Products. To focus strategic efforts on these three segments, the company began a retrenchment strategy, exiting eight businesses that were targeted as nonstrategic. (Thompson, et al., 2010)

The eight Sara Lee businesses that were shed expected to generate combined after-tax proceeds of $3 billion. The company shed its direct selling department, U.S. retail coffee, European apparel, European nuts and snacks, European rice, U.S. meat snacks, European meats, and Sara Lee branded apparel. This all but removed Sara Lee from the European market. The move to cut Sara Lee branded apparel resulted in spinning the entire business into an independent company, which came to know as Hanesbrands Inc. (Thompson, et al., 2010)

The retrenchment strategy of Sara Lee changed the nature of its business lineup by significantly cutting down its European market. This was a wise decision as the companies European offerings were largely unprofitable save the European nuts and snack line, which only brought in a modest $8 million dollars in 2006. The nature of business lineup changed from a small wholesale distributor to acquisitions of retail food businesses, as well as several other related and nonrelated businesses. The business lineup became more centrally focused on food, beverages and household products. (Thompson, et al., 2010)

Attractiveness, Competitive Strength and Strategic Fit

With the retrenchment strategy complete, Sara Lee Corp. turned all its attention to increasing sales, market shares and profitability of its three core industries by launching Project Accelerate in March 2008. Sara Lee Corp. has strong name recognition in the retail food industry, offering long-term attractiveness to consumers. In order to cash in on the Sara Lee name, the company split the remaining businesses into a structure of six-divisions: North American Retail, North American Fresh Bakery, North American Foodservice, International Beverage, International Bakery and International Household and Body Care. Sara Lee's competitive strength rests in the compatibly of its core businesses. (Thompson, et al., 2010)

The North American Retail segment limits its product lineup to items with high margins that are growing faster than the overall industry. Consumers also showed preferences for branded products rather than private-label brands, causing Sara Lee products to standout in the grocery stores. In 2010, Sara Lee's North American Fresh Bakery department accounted for 8.3% of the market share for packaged bread, though poor economic conditions slightly slowed the division's growth in revenues. The North American Foodservice department offers competitive advantage by providing products to national restaurant chains. By narrowing the company focus in the food industry, Sara Lee was able to streamline its value chain, using production technology and logistics integration. The North American Retail, Bakery and Foodservice as well as the International Beverage and Bakery divisions share opportunity costs and employee skills transfers as most of the items sold in these segments are similar in nature. (Thompson, et al., 2010)

9-Cell Industry Strength Matrix

Industry Attractiveness Measure Importance Weight N.A. Retail N.A. Fresh Bakery N.A. Foodservice INTL Beverage INTL Bakery INTL Household

Market size and projected growth rate 0.10 0.9 0.9 0.9 0.9 0.8 0.6

Intensity of competition 0.25 0.75 2.25 2 2 0.75 1

Emerging opportunities 0.10 0.8 0.8 0.8 0.9 0.5 0.5

Cross-industry strategic fit 0.20 1.6 1.6 1.6 1.8 1.6 0.6

Resource requirements 0.10 0.2 0.5 0.6 0.6 0.5 0.6

Seasonal and cyclical influences 0.05 0.1 0.1 0.1 0.1 0.1 0.1

Societal, political, regulatory and environmental factors 0.05 0.1 0.1 0.1 0.1 0.1 0.1

Industry profitability 0.05 0.45 0.4 0.4 0.45 0.25 0.25

Industry uncertainty and business risk 0.10 0.3 0.2 0.4 0.2 0.6 0.3