Sara Lee

Sara Lee

Sara Lee, a former global conglomerate which by the end of this year is going to be a meat company with operations only in North America. The announcement came in early 2011 that the company is going to be divided into two pure-play publicly traded companies, one focused on the international coffee and tea market and the other on North American meat. Since that date Sara Lee executives started another round of acquisitions and divestitures supporting the new (easy way out) strategy.

Analyzing the numbers it might be understandable why the executive team chose such approach, the North American Retail division was one of the profitable businesses the company have with market shares ranging from 14 to 55% across different categories and a growth rate higher than any other food processing company. They have a strong presence in single-serving coffee with a 55 % market share in North America, and the international beverage division is a leader in most of the markets operating at. The coffee industry growth projection looks very promising with an expectation to grow from $51 billion in 2009 to $62 billion in 2013.

Some would argue that the strategy behind disposing business units and spin-offs is to restructure the company around their strongest business lines. This might be true in some cases I have nothing against that, however, in order to decide whether this is the case with Sara Lee or not we need to step back and examine some facts and details.

Sara Lee Roots:

When looking on Sara Lee and how the company evolved one would find that acquisitions was the main driver behind the company growth. It doesn't look like that the company had any goal behind these acquisitions other than growing globally and increasing the business span. It was a broad diversified business model that at some points acquisitions were unrelated, some acquisitions were relevant and affected the value chain. We can see some acquisitions were towards the end consumer (when the company acquired Piggly Wiggly chain) and other was toward the manufacturing process (In this case the meat processor companies). And then during the 1980's and 1990's the majority of acquisitions were toward new businesses that are unrelated to the core business taking the company out of focus. Which I believe at this point the main goal was to emerge Sara Lee as a global company.

In my opinion the reason behind the fading of Sara Lee as we see it now is lack of innovation and R&D. Sara Lee could have emerged as a global company by just focusing on the core business they had (Meat, Bakery and Coffee) or in other words food processing. Should the company invested in this sector and cemented its position through innovation or even more acquisitions for new innovative companies in the same sector I believe this wouldn't be the situation these days.

Revenues were growing every year the company was growing and it became a big global player, but underneath the company was very fragile. Sara Lee was competing on many different fronts against strong global players. At one point Sara Lee was competing with P&G, Unilever and the whole body care market; competing against the apparel industry and even vacuum cleaners market! But sales were growing every year so it seemed that everything is fine and the company didn't realize that the market dynamics has changed and the diversification era has ended. Companies started to consolidate their businesses and getting more focused while Sara Lee still fighting on different fronts with no real edge.

Sara Lee Actions:

The company started to narrow the focus in 2000 between global consumer packaged goods (foods & beverage), intimate apparel and household products. All through from 2000 to 2004 the company started in divest some of the business unites its owned, but yet with no big impact on the business model. In 2005 with the presence of the new CEO, a new more focused plan was initiated and the decision was made to exit what was called nonstrategic businesses. Here I want to point out (Since I know what happened and the current plan of the company) there is only two possibilities that I can think of. Either the strategy wasn't clear and they were just trimming of the company to get more cash and meet some goals they have, or they didn't stick to the strategy they had and didn't fulfill their promises and commitment to the initial strategy upon which they decided to sell those nonstrategic businesses.

Sara Lee sold eight businesses claiming they are not strategic, however, when you look at those businesses some of them make sense to get rid of and others actually don't. Let's go through each of the sold businesses and examine the rational behind it.

1. Direct Selling: This was a $450 million business dealing in cosmetics and skin care through a network of independent sales people. Obviously for Sara Lee this wasn't a strategic business for the company moving forward as they decided to get rid of the apparel business altogether. The company reached a deal to sell the business for the amount of $547 million in cash, which according to the numbers in hand seems like a good deal and boosted the books by around $550 million in cash. For this deal I believe it was a move that made sense for the company, as they got rid of one unit that was totally out of the company focus with a fair price.

2. U.S retail coffee: This was a $213 million business that marketed well known brands across the U.S. It's also worth mentioning that the company kept the Senseo brand which was a growing global coffee brand at the time generating $85 million in sales. In this deal one should ask a question, if the company portrays the coffee business as a strategic business why they sold half of the business labeling it as nonstrategic. In my belief the reason is as I mentioned before that this company has a lake in innovation. What happened is (and this is an assumption based on the data in hand) they found some brands that they can cash in to meet the target they need, so instead of renovating these brands and build on their equity they got rid of it and kept the winning brand. They had all these brands that can add to and strengthen the firm's bargaining power position among suppliers and distributors and they just didn't take advantage of that and chose to cash in. Even the selling price wasn't a good deal in my belief; they kept Senseo and took $82 million which is short $46 million from the value of the business. I don't believe that this move was consistent with the strategy of the company, and we can see now it wasn't in the companies favor. (It was announced that Sara Lee will be divided into two pure -play publicly-traded companies,