SARA LEE CORPORATION IN 2011: HAS ITS.RETRENCHMENT STRATEGY Arthur A. Thompson The University of Alabama In February 2005, Brenda Barnes, Sara Lee Corporation's newly appointed president and CEO, announced a bold and ambitious multi- year strategic plan to transform Sara Lee into a ‘more tightly focused food, beverage, and house- hold products company. The centerpiece of Barnes's transformation plan was the divestiture of weak-performing business units and product categories accounting for $7.2 billion in sales (37 percent of Sara Lee's annual revenues). While the divestitures would cut Sara Lee’s rev- enues from $19.6 billion to about $123 billion, Bames believed that Sara Lee would be bet- ter off concentrating its financial and manage- rial resources on a smaller number of business segments in which market prospects were promising and Sara Lee’s brands were well positioned.' Once the retrenchment initiatives ‘were completed, the plan was to drive the company’s growth via initiatives to boost the sales, market shares, andl profitability of the key remaining brands: Sara Lee breads and bakery products, Ball Park meats, Douwe Egberts cof fees, Hillshire Farm meats, Jimmy Dean sau- sage, and Senseo single-serve coffee products. Company executives believed that the retrench- ment would allow revenues to increase to $14 billion by fiscal 2010 and that the company’s operating profit margin in 2010 would increase to atleast 12 percent (versus an 8.1 percent oper- ating profit margin in fiscal 2004)? BEEN SUCCESSFUL? John E, Gamble University of South Alabama By fiscal year-end 2010, it remained unclearto what extent the retrenchment strategy had ben- efited shareholders. The company had missed both revenue and operating profit’ margin projections for 2010. Revenues had increased to only $108 billion in fiscal 2010, and the company’s operating profit margin during the year had improved to only 85 percent. During 2010, Sara Lee had engaged in further retrench- ment with the divestiture of its International ‘Household and Body Care business, which pro- duced and marketed Kiwi shoe care products, Sanex personal care products, Ambi Pur air fresheners, and various insecticides and clean- ing products sold outside North America. The company was also well under way with Project Accelerate, a company-wide cost savings and productivity initiative launched in 2008 that focused on outsourcing, supply chain efficien- cies, and overhead reduction. Project Accelerate had produced savings of $180 million by 2010 and was expected to produce cumulative sav- ings of $350 million to $400 million by the end of fiscal 2012, Management also launched a share buyback plan in 2010 that would repur chase $2.5 billion to $3 billion of shares over a three-year period. Also during 2010, Brenda Bares had been forced to step Gown as CEO Copyright © 2010 by Arthur A, Thompson and John E. Gamble. All ights reserved. ec38 0 in August after suffering a stroke in May. The company’s chief financial officer, Marcel Smits, hhad been named interim CEO while the board searched for a permanent replacement. Smils’s strategies for 2011 focused on increasing share in the company’s most powerful brands, pur- suing growth in attractive geographic markets, and fully capturing the anticipated benefits of Rroject Accelerate. COMPANY BACKGROUND The origins of Sara Lee Corporation date to 1939, when Nathan Cummins acquired C. D. Kenny Company, a small wholesale distributor of sugar, coffee, dnd tea that had net sales of $24 million. The purchase of Sprague, Warner & PartTwo: Section 8: Corporate Strategy in Mulibusiness Companies Company in 1942 prompted a name change to Sprague Wamer-Kenny Corporation and a shift in the headquarters location from Baltimore to Chicago; the company’s shares began trad- ing on the New York Stock Exchange in 1946, In 1954, the company’s name was changed to Consolidated Fooc's Corporation to emphasize its diversified role in food processing, packag- ing, and distribution. In 1956, Consolidated Foods acquired Kitchens of Sara Lee and also entered the retail food business by acquiring 34 Piggly Wiggly supermarkets (later divested in 1966). The next 40 years were marked by a series of related and unrelated acquisitions: John H. Bryan, former head of Bryan Meats (which the company acquired in 1968), became President and CEO of Consolidated, Foods 1988 Bryan Foods, a moet producte producer Gant, an apparel producer Country Se, an apparel producer 1869 Aris Gloves (later renamed Aris Isotoner) 197 Killshire Farm, 2 moat producer ud’ Farm, 2 mast producer 1972 Er E Kat's Sons Company, a produeer of meats Flectroluy, a direct salle of vacuum cleaners Year ‘Acquisitions 1982 ‘Jonker Fis, a Dutch producer of eanned goods 1965, Oxford Chemical Corporation Canadelle, a producer of women's intimate apparel a Dutch company that produced and marketed personel cere products (ater renamed intradal 1978 hot Pietro, a manufacturr/distriburr of frozen propared desserts Douwe Egberts, a Dutch cafe and grocery company 1800 Productos Cruz Verde, a Spanish household products company 12 Standard Meat Company, 8 provassor of moat praducts 1984 ‘Jimmy Dean Meats, e manufacturer of verious meat, food, and leather products Nicholas Ki Limited, an Australian-based manufacturer and marketer of personal, household, shoe and car care products end home medicines 1987 il Mar Foods, a producer of turkay-based products Dim, S.A, the lading hosiery brand in France 1988 Adams-Milis Corporation, a manufacturer of hosiry product (rovided an entry into the men's besio suck business) 1989 ‘Champion Products, manufacturer of prfessional-qualt kit athletic wear Van Nell, © Dutch company active in cotfes and tea Hyarede Food Products, a manufacturer of hot doys, luncheon meats, bacon, and ham (which included ‘the Ball Park and Hygrade hotdog brands} 1990 Henson-Kickernick inc. manutaeturr af high-quality foundations and daywear {continued}Gese 11 Sars Lee Corporation in 2011: Has its Retrenchment Strategy Been Successful? © 307 Year Acquisitions (concluded) 1891 Playtex Apparel Ine, an international manufacturer and marketer of intimate apparel products Rinbros, 2 manufecturor/marketer of mon’s and boys" underwearin Mexico 1992 ‘BP Nutition’s Consumer Faods Group Gitex Hosiery Bessin Corporation ‘The fumiture care businesses of SC Johnson Wax ‘A majority interest in Maglio Bola SpA Solect assets of Mark Cros Ine 1092 ‘SmithKline Beochac’s European bath and body care brands 1997 Aoste, 2 French mests company Lovable italiana SpA, an talon intimate apparel manufacturer Brossard France SA, a Fronch manufacturer of bakery products 1985 NuiMtetics Café do Ponta 1988 Wechsler Cotfos Chock ful o'Nuts Continental Coffee 2000 Hills Bros. MJB, and Chase & Sanborn coffee brands (acquited from Nesté USA) Courtauds Textiles, UK-based producar of intimate apparel brands Gossard and Berlei Café Pildo, the number one cotfae company in Breall Soly Oro, the leading company in women’s underwear in Argentina, 01 ‘The EarthGrains Company, the number two player in the U.S, bekery markat ‘A major European bakery company _- eee in 1975 and served as CEO until 2000; Bryan was appointed chairman in 1976, a position he held until 2001. Bryan was the chief archi- tect of the company’s acquisition strategy dur- ing 1975-2000, guiding both its diversification efforts and its emergence as a global corpora- tion. By 1980, sales had reached $5 billion. In 1985, Consolidated Foods changed its name to Sara Lee Corporation. Sales reached $10 billion in 1988, $15 billion in 1994, and $20 billion in 1998, But revenues peaked at the $20 billion evel in 1998-1999 as management struggled to manage the company’s broadly diversified and geographically scattered operations. In 2000, C, Steven McMillan succeeded John Bryan as CEO and president of Sara Lee; Bryan remained chairman until he retired a year later, ‘at which time McMillan assumed the additional title, McMillan launched strategic initiatives to narrow Sara Lee's focus on a smaller number of global branded consumer packaged-goods segments—Food and Beverage, Intimates and lO Year Divestituras 1958 Piggly Wiggly supermarket chains 7000 PPYa/Monaren {sold to Royal Anos US. ood service for nearly ni ‘Champion Europe Coach The International Fabries division of Courtaulds ‘The international bakory businesses in France, India, China, nd the United Kingdom 2006 Filodoro, an Italian intimate apparel business ee Underwear, and Household Products. McMillan orchestrated several divestitures to begin the process of sharpening Sara Lee's business focus. Brenda C. Barnes, who had been president of PepsiCola North America from 1996 to 1998, joined Sara Lee as’ president and chief oper- ating officer in July 2004. At the time of hereg 388 © PartTwo: Section B: Corporate Strategy in Mulibusiness Companies appointment, Bames, age 50, was a member of the board of directors at Avon Products, the ‘New York Times Company, Sears Roebuck, and Staples. During her 22-year career at PepsiCo, Bames had held a number of senior executive positions in operations, general management, manufacturing, sales, and marketing. From Noyember 1999 to March 2000, she served as intetim president and chief operating officer of Starwood Hotels & Resorts. Barnes's appoint- ment as president and CEO of Sara Lee was announced on February 10,2008, the same day as the announcement of the plan to transform Sara Lee into an even more tightly focused company. SARA LEE’S RETRENCHMENT INITIATIVES The first phase of Brenda Barnes's transforma- tion plan for Sara Lee was to exit eight busi- nesses that had been targeted as nonstrategic: + Direc selting—a $450 million business that sold cosmetics, skin care products, fra- grances, toiletries, household products, apparel, and other products to consumers through a network of independent sales- people in 18 countries around the world, most notably in Mexico, Australia, the Philippines, and Japan. in August 2005, ara Lee announced a definitive agreement to sell ils direct selling business to Tupperware Corporation for $547 milion in cash? The sale included products being sold under such brands as Avroy Shlain, House of Fuller, House of Sara Lee, NaturCare, Nutrimetics, Nuv6 Cosméticos, and Swissgarde. * US. retail coffee—a $213 million business that marketed the well-known Chock full, o'Nuts, Hills Bros., MJB, and Chase & Saniborn coffees plus several private-label coffees, Not included in the divestiture plan was the sale of Sara Lee's fast-growing global coffee brand, Senseo, which had sales of approximately $85 million. The US. retail coffee business was sold to Italy-based Segafredo Zanetti Group for {$82 million in late 2005.4 + European apparel—a Sara Lee business unit that marketed such well-known brands as Dim, Playtex, Wonderbra, Abanderado, ‘Nur Die, and Unno in France, Germany, Italy, Spain, the United Kingdom, and much of Eastern Europe; it also included Sara Lee Courtaulds, 2 UK-based maker of private-label clothing for retailers. The branded European apparel business had nearly $1.2 billion in sales in fiscal year 2005, ending July 2, 2005; the Sara Lee Courtaulds business had fiscal 2005 sales of about $560 million. In November 2005, Sara Lee sold the branded apparel portion of the European apparel business unit to an affiliate of Sun Capital Partners, a US. pri- vate equity company, based in Boca Raton, Florida, for about $115 million plus pos- sible contingent payments based on future performance.’ In May 2006, a big fraction of Sara Lee Courtaulds was sold to PD Enterprise Ltd,, a global garment producer with nine facilities that produced more than 120 million garments annually, including bras, underwear, nightwear, swim- and beachwear, formal wear, casual wear, jack- ets and coats, baby clothes, and socks; the deal with PD Enterprise did not include three Sara Lee Courtaulds facilities in Sri ‘Lanka (Sara Lee was continuing its efforts to find a buyer for the Sri Lanka opera- tions). Sara Lee received no material consid- eration as a result of the sale and remained able for certain obligations of Sara Lee Courtauld after the disposition, the most significant of which was the defined benefit pension plans that were underfunded by $483 million at the end of 2005. © European nuts and snacks—a business with approximately €88 million in annual sales in fiscal 2005 that marketed prod- ucts under the Duyvis brand in the Netherlands and Belgium as well as the Bénénuts brand in France. Sara Lee sold its European nuts and snacks business in the Netherlands, Belgium, and France to PepsiCo for approximately $160 million in November 2005.°Case 11 Sara Lee Corporation in 2011: Has Its Retronchmant Strategy Boon Successful? European rice—a small business that packaged Lassie brand rice sold in the Netherlands and other European counties. ‘The business unit was sold to Grupo SOS of Spain for $62 million in November 2006. U.S. ment snacks—a small unit with annual sales of $33 million in fiscal 2005 and $25 million in fiscal 2006, This business was sold in June 2006 for $9 million” European meats—a $1.1 billion packaged ‘meats business in Europe that had respect- able market positions in France, the Benelux region, and Portugal and included such brands as Aoste, Justin Bridou, Cochonow, Nobre, and Imperial. Headquartered in ‘Hoofddorp, the Netherlands, Sara Leo's European meats operation generated $1.1 billion in sales in fiscal 2005, and employed approximately 4,500 people. In June 2006, Sara Lee completed the sale of this unit to Smithfield Foods for $575 milion in cash; based in Smithfield, Virginia, Smithfield Foods was the world’s largest grower of hogs and producer of pork products and had subsidiaries in France, Poland, Romania, and the United Kingdom that ‘marketed meats under the Krakus and Stefano’s brands as well as other brands.* (> exHIBITA \ © 39 * Sara Lee branded apparel—a business that consisted of producing and marketing 10 brands of apparel: Hanes, Leggs, Champion, Bali, Barely There, Playtex, Wonderbra, Just My Size, Duofold (out door apparel), and Outer Banks (gol, corporate, and stylish sportswear); sales of these brands were chiefly in North America, Latin America, and Asia: Sara Lee's strategy for exiting branded apparel (2004 sales of $45 billion) was to spin ‘the entire business off as an independent company named Hanesbrands Inc. Two top executives of the Sara Lee branded apparel business were named to head the new company. The spin-off was com- pleted in September 2006 when Sara Lee distributed 100 percent of the common stock of Hanesbrands to Sara Lee share- holders; shares were traded on the New York Stock Exchange under the symbol HBL Sara Lee management expected the retrench- ment initiatives to generate combined net after- tax proceeds in excess of $3 billion. Exhibit 1 provides financial data relating to the divested businesses. The next section provides addi- Honal details about the Hanesbrands spin-off (2) Sales and income of Divested Businesses, Fiscal Years 2004-2006 ($ milions) Net Sales of Divested Businesses Direct selling US. otal cates European brended apparel European nuts and snacks Sars Lee Courtaulds European rica US. meat snacks European meats Total net sales Fiscal Years S m2 sam $487 im 23 268 oH 1184 1206 5 64 86 a 538 53 nla a ia B 2 3 wane 178 uni 58 $3,688 $3675 (continued)390 © Port Two: Section 8: Corporate Strategy in Mulibusiness Companies > EXHIBIT (conciu Ce Fiscel Years 206 2005) : si 3 US. retail coffee (48) (33) European branded apparel (186) {302} {European nuts end snacks & 7 ‘Sara Lee Courtauias (63) - European rice a a US iment snacks 8) it) European meats is7) 0 ‘Total pratax income (loss) $4950) ‘$(199) Aiter-Tax Income (Loss) of Divested Businesses Direct sting $5 $1 US. ol coffee (3) (3) European branded apparel (083) (25) Europoan nits and shacks 3 3 ‘Sara Loe Courtaulds iy a) Exropcan rice a va US. meat snacks o) in European me ay a} Total atertax income (oss Si) toma) (6) Proceeds Realized from the Sales ofthe Divested Businesses ($ millfons) SalePrice _ProtaxGainon Sale Tax Benefit (Charge) After Tax Gain vr Direct seling sm sa shi07} US. retail coffee 2 5 (1 a European branded apperel a8 % a 85 European nuts end snacks 180 8 4 np Sara Lee Courtaulds No material 2 = 2 ‘onsideration** European tice 82 na Wa wa US. meat snacks 8 1 wy = European meats? 35 _2 @ 0 Totals ‘Siss0e S500 sie) sun caus ere Sead ca acl 07 eta pring ego eth leon a coms eels of Nive. pry asus othe es querer af ea 207 cored ee ay untae pens Benet of $5 tlan Sa Le Cau nd mee poyrra ppm Sen tora aby ung 208, tuned pem bina te ae thee see was dont 8.2 bona uking i acon payments made a en ued pansion bites ot ara ee Courant nd other coisincrredin scorn oparsng aarnen a ‘a = notable ores Sores 2 10 :op.p 8 an vaou company ress leses munch sl nd ipaion othe businesscase 11 THE SPIN-OFF OF “HANESBRANDS Sara Lee management's decision to exit the branded apparel business was driven princi- pally by eroding sales and weak returns on its equity investment if branded apparel—see | Exhibit 2. But rather than sell the business, “i management determined that shareholders would be better served by spinning off the branded apparel business as a stand-alone com- pany. Sara Lee shareholders received one share of Hanesbrands stock for every eight shares owned. Hanesbrands began independent oper- ations in September 2006 and organized its business around four product/ geographic seg- ‘ments, as shown in Exhibit 3. ry ( > EXHIBIT 2 een ea eee ‘Sara Lae Corporation in 2011; as Its Retrenchment Stretegy Been Successful? 391 However, the spin-off of Hanesbrands had some unique financial features. The terms of the spin-off called for Hanesbrands to make a one-time “dividend” payment of $2.4 billion to Sara Lee immediately following the commence- ment of independent operations. But in order to make the $24 billion payment to Sara Lee and to fund its own operations, Hanesbrands, borrowed $26 billion, thus saddling itself with a huge debt that prompted Standard é& Poor's to assign the company a B+ credit rat- ing (which put Hanesbrands in the bottom half of apparel companies from a credit rating standpoint). The company’s debt-to-equity ratio was extraordinarily high, raising some questions about whether the interest expenses associated with the high debt would still leave Peco uate Fiscal Years Ending July1, — July3, July 3, June 28, June 29, 200620052004 2003 2002 ‘Statements of lacome Data Netsales SHaT2g2 94989583 $4832.78 $4909685 $4.920840 Cost of sales 323571 3092008 3.01083 3,278,506 Gross profit 160,112 1,580,715, 812338 Seling, general and administrative expenses 1053854 116549 Charges fr {income fom) exit ativtins 78 77580 Income from operations 53400, 08,205, Interest expanse 5 2 2509 {Interest incoma (6.795) (21,280) oem (18789) Income bofore income taxes 16320 SBI6 590478489 Income tax expense (benoit) wig 12560 139,888, Net income Soma S$ Tess SF SS amBMNO SORT Balance Shoot Data Cash and cash equivalents $ 799252 $1.080709$ GMEISL —$ 266816 $106 250 “otal assets ‘4881075 4257154 4400758 -BIRSTS | 4p6730 ‘Noneurrent liabilties: Noncurrent capital lease obligations 2788 6.08 7.200 10054 yaart Noncurrent deferred tex labilies 5014 7a71 — 6599 10,140 Other noncurrentlabities sea 200 70794 3259 37,900 Total noncurrent bilities 19.987 135935508 49251 59971 “otal Sare Lee equity investment 320513 2602982 «27STAM 2 207AMB 1 SDR Seuss Hanasbrand col 08 10% repr.382 © — PartTwo: Section B: Corporate Strategy in Muti b> EXHIBIT 3 thusiness Companies Meio cit ord Product/Geographic Segments _ Primary Products Primary Brands Innerwear g Intimate apparel, such as bras, Haas, Playtex, Bali Barely there, Just panties and badywear My Size, Wonderbra ‘Men's underwear and kids! Henes, Champion, Polo Ralph Laurent* ie undenvear Socks Hanes, Champion Outerwear Activowoar, such os performance Hanes, Champion, Just My Size ‘shins and shorts Cesval wear, such 98 Tshirts, Hanes, ust Mi Size, Outarbans, fleece and sport shits Hanes Beaty. Hosiery Hos Leggs, Hanes, Just My Size Intemational Activewear, man’s underwesr, Hanes, Wenderbre,* Playéax* kids’ underwear, intimate apparel, socks, hosiery and Champion, Rinkres, Balt, casual wear ranéed apparel us a ids a Hanesbrands with sufficient funds and finan- cial flexibility to invest in revitalizing its brands and growing its business. A BusinessWeek reporter speculated that the reason for the unusually outsized dividend payment to Sara Lee was that the proceeds Sara Lee realized from the sales of the divested units fell far short of the hoped-for $3 billion that was an integral part of the retrenchment strategy and restructuring announced by CEO Brenda Barnes in February 2005, To make up for the shortfall, Sara Lee supposedly opted to ‘get more cash out of the Hanesbrands spin-off, SARA LEE'S POST-RETRENCHMENT STRATEGY: INITIATIVES TO REVITALIZE SALES AND BOOST PROFITABILITY Upon the completion of Sara Lee Corporation's disposition of nonstrategic businesses in September 2006, Sara Lee management turned its full attention to increasing the sales, market es provetad Haresbrands rom cling Wonder Sout afc. fnnearundor he Plo Ralph asc te shares, and profitability of its remaining bust nesses. The two chief financial goals were to boost top line sales by 2-4 percent annually to reach $14 billion by 2010 and to achieve a 12 percent operating profit margin by 2010. Sara Lee planned to achieve its objectives by developing three competitive capabilities in all ofits remaining businesses, The company’s ‘management believed that competitive pricing, innovative new products, and brand-building capabilities were essential to its efforts to please consumers, Category management and lever- age through size were also thought to be neces- sary for the company to win new accounts with supermarket and discount store customers. Operating excellence was the third key element of its corporate strategy, which was critical to competitive pricing. Major operations initia- fives at Sara Lee included lean manufacturing, centralized purchasing to achieve economies of scope, and the implementation of a common corporate-wide information systems platform, While the company was making headway in focusing on consumer needs and category management, its efforts to improve operating efficiency and increase operating, margins wereCase 11 Sara Lee Corporation in 011: Has Ii Retrenchmant Strategy Bocn Successful? <2 395 showing little progress by year-end 2007. Top management Iaunched Project Accelerate in ‘March 2008 to strengthen the company’s abil- ity to meet its objective of achieving an operat- ing profit margin of 12 percent by 2010. Project ‘Accelerate included additional business process outsourcing, operating segment restructuring, new supply chain efficiencies, reductions in cor- porate overhead, and reductions in employee benefit costs. By the end of fiscal 2010, Project ‘Accelerate had produced total cumulative bene- fits of $180 million. Management expected cumu- lative benefits for Project Accelerate to reach $350 million to $400 million by the end of fiscal 2012, ‘The organizational structure developed by Brenda Bames and other key Sara Lée manag- ers that would best enable the company’s busi- nesses to contribute to corporate goals was a six-division structure built around product simi- lnrities, customer types, and geographic regions. The North American Retail division included such products sold in supermarkets and dis- count stores as lunch meats, breakfast sausage, smoked sausage, frozen desserts, and single- serve coffee; its North American Fresh Bakery division included fresh breads, buns, and bagels sold in supermarkets; and North American Foodservice included the sales of meat prod- ucts, bakery products, and coffee and tea prod~ ucts sold to food service accounts in North ‘America. The International Beverage division included the sales of coffee and tea products in Europe, wile the International Bakery division included sales of bakery goods in Europe. The company’s International Household and Body Care division included insecticides, personal hygiene products, and cleaning brands sold out- side North America. The Household and Body Care division was discontinued in 2010, with all but shoe care products and cleaning brands divested during the year. In fiscal 2011, Sara Lee ‘was negotiating with a number of potential buy- ers for the sale of these remaining businesses. Exhibit 4 presents a summary of Sara Lee's financial performance for 2004 through 2010 that includes all businesses operated in each report- ing year. A summary of the financial perfor- mance between 2006 and 2010 for the company’s continuing operations in 2010 is presented in Exhibit 5. Exhibit 6 presents sales and operating profits for Sara Lee’s major business segments for 2008 through 2010. North American Retail Sara Lee's North American Retail division had limited its product lineup to food categories that offered retailers high margins, were grow- ing faster than the overall industry, and showed. consumer preferences for branded products versus private-label brands. In 2010, the divi- sion had a number of market-leading brands such a8 Ball Pack franks, Jimmy Dean sausage, Hillshire Farm smoked sausage, State Fair com dogs, Sara Lee frozen desserts, and Senseo sin- gle-serving cofleemakers and coffee pods. Sara [Lee was the second-largest seller of lunch meats and frozen desserts in North America. In 2010, Sara Lee North American Retail businesses held market shares of 30 percent in smoked sausage, 23 percent in hot dogs, 14 percent in lunch meat, 58 percent in breakfast sausage, 22 percent in frozen desserts, and. 55 percent in single-serve coffee. Ten of the division's 12 core products increased market share in 2010, Between 2008 and 2010, the division's sales had grown faster than the sales of any other processed food com- pany. Also, the operating profit margin for the division improved from 9.2 percent in 2009 to 12.3 porcent in 2010. Going into 2011, Sara Lee’s North American Retail meats business unit was ‘near completion of a state-of-the art meat-slicing plant and the planned divestiture of its kosher hot dog brands and commodity meat business, ‘The division's Senseo single-serving cof- fee pods were also the nuniber one brand in North America, with a 55 percent share of the market for single-serving coffees in 2008. However, the division's Senseo cof feemakers and coffee pods had experi enced lite growth in the United States and achieved US. sales of only $26 million in 2008. 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In 2010, Sara Lee was the best-selling brand of packaged bread sold in the United States, with an 83 percent market share. Arnold's, Nature’s Own, and Pepperidge Farm were the three next bestselling brands in US, supermarkets and discount stores. The North American Fresh Bakery division held a number one ranking in hot dog and hamburger buns, and produced and marketed the EarthGrains brand of packaged bread. The company's ability tonegotiate with supermarket buyers to increase shelf space allocated for its bakery products accounted formauch of the growth in bakery sales, In several cases, Sara Leo's fresh bakery division ‘had been able to increase space on the bread aisle from 15 feet to 4.0 feet, Average weekly sales tri- pled in stores where Sara Lee gained shelf space. Poor economic conditions in the United States had slowed the division's growth in revenues considerably, but the company had been able to improve operating income through pricing dlisci- line and Project Accelerate productivity gains. 2010 2008 2008 ee acca er 8 2818 $2767 8.2013 2128 2200 2028 ara 2082 2186 32 3.082 328 5 795 Sa 103825 wis 103999 (22) (a) (eo) ‘0789 sige ‘10998 3 4B $253 8 1 4 5 125 #8 (aoe) 52 293 51 (3) 34 (346) 3000 3 64 5 8 North American Foodservice Sara Lee’s North American Foodservice. division marketed and sold products available to con- ‘sumers in North American supermarkets to food service distributors such as U.S. Foodservice and Sodexho. North American Foodservice also sold meat, bakery, and coffee products to national restaurant chains like Sonic, Dunkin’ Donuts, Waffle House, Quiznos, and Burger King. Most of the division’s sales were standard Sara Lee, Jimmy Dean, Hillshire Farm, Ball Park, and State Fair branded products, although the division did customize meat and bakery prod- ucts for its largest customers. Coffee brands sold to North American food service accounts: included Douwe Egberts and Superior Coffee, North American Foodservice also provided conumercial-grade coffee machines and espresso makers to food service customers, The food service industry was expected to be a considerable growth opportunity for Sara Lee as Americans continued to eat a higher Percentage of meals away from home. However, the recession that began in late 2007 and result. ing reduced consumer spending that continued {nto 2010 had dramatically decreased spendingCase 1 Sara Loe Corporation in 2011: Has iis Retrenchment Suatepy Been Succossful? © 367 at restaurants, Even though division sales had declined from nearly $2.2 billion in sales in 2008 to approximately $1.9 billion in sales in 2010, the division had preserved market share in key product categories. North American Foodservice held a 65 percent market share in liquid coffee and tea sold to food service cus- tomers, a 52 percent market share in pies, a 19 ‘percent market share in cakes, and a 20 percent share of refrigerated dough sold to food service customers. The division also operated a route sales coffee business and distributed a number of low-margin sauces and dressings sold to res- taurants that were both slated for divestiture Sara Lee's food service division had benefited from the innovations developed by Sara Lee's retail divisions since the food service trends mir- rored those in the grocery industry, For exam ple, presliced deli meats that were intended to satisfy consumers’ desire for convenience also made sense for food service accounts. Food ser- vice customers had found that it was more cost- effective and more sanitary to purchase presliced ‘meat than to purchase bulk meat for restaurant ‘employees to slice. Sara Lee's dessert and bak- ery brands like Sara Lee, Bistro Collection, and Chef Pierre also benefited from innovations developed for consumers. International Beverage Sara Lee's International Beverage business included teas and coffee products marketed in Europe, Australia, New Zealand, and Brazil. ‘The strength of the company’s coffee brands— which included Douwe Egberts, Maison du Café, Marclla, and Senseo—made it the leader in retail sales of coffee in the Netherlands, Belgium, Hungary, Denmark, and Brazil in 2010. Sara Lee's coffee brands were ranked sec- ond in retail coffee sales in France and Spain in 2010. The company was also the number one seller of coffee to food service customers in the United States, the Netherlands, Belgium, Hungary, Denmark, and Norway in 2010. The global retail coffee market was expected to grow from $51 billion in 2009 to $62 billion in 2015, with instant coffee retail sales projected to increase from $19.6 billion to $236 billion, espresso expected to grow from $43 billion in 2009 to $9.9 billion in 2013, and single-serving coffee pods expected to increase from $2.9 billion to $53 billion between 2009 and 2013. Retail sales of traditional roast and ground coffee were projected to decline from $24.3 billion in 2009 to $235 billion in 2013. In 2010, Sara Lee's Senseo single-serving coffeemakers were the bestselling brand of single-serving coffee machines in Europe, with a 40 percent market share, and the sales of its coffee pods had increased from about 15,000 tons in 2004 to approximately 28,000 tons in 2008. The company launched nine new Senseo coffeemaker models in 2009 and expanded its lineup of single serving coffees to include LOR Espresso capsules, LOR Espresso capsules were compatible with Nestl’'s Nespresso espresso makers, which were the second-bestselling brand of single-serve coffeemaker in Europe, with a 27 percent market share in 2008. International Bakery Sara Lee's International Bakery division primarily consisted of the Bimbo brand of fresh, frozen, and refrigerated bread products. Bimbo fresh bread was sold in Spain and accounted for 63 percent of division sales; Bimbo frozen bread was sold only in Australia and accounted. for 12 percent of division sales; and Bimbo refrigerated bread sold in France accounted for 25 percent of division sales. Bimbo: was the market leader among packaged breads sold in Spain in 2010, with a 37 percent market share—private-label brands collectively ranked as the second-best-selling packaged bread in Spain. Even though Bimbo was the best-selling brand of packaged bread in Spain, the deep long-term economic recession in Spain, which included an unemployment rate higher than 20 percent, had caused division sales declines and operating losses every year since 2007. The division had’ met with limited sticcess mar- keting packaged bread in European countries outsitle of Spain because of a consumer pref- erence for fresh-baked bread. Sara Lee hoped to improve financial performance within the division by introducing new products, adopt- ing an everyday low pricing strategy and increasing bakery capacity utilization from 58 percent in 2009 to more than 80 percent in388 © PartTwo: Section B: Corporate Strategy in Mulsbusiness Compenies 2011 and beyond. Increased capacity utilization would be achieved through the sale ot closing of underutilized facilities. International Household & Body Care Sara Lee's International Household & Body Care unit's Kiwi brand was the number one shoe care brand worldwide, with distribution. in 200 countries and a global market share of 30 percent in 2008. Sanex was the number one brand of bath and shower productsin Denmark, Spain, and France, and Ambi Pur was the best. selling air freshener in the Netherlands and Spain and the third best-selling air freshener brand in the United Kingclom, Italy, and France. The division also included various insecticide brands sold primatily in India, Malaysia, Spain, and France. Jn 2009, Sara Lee announced its intention to divest its entire Household and Body Care busi- ness, During 2010, the company sold its house- hold insecticides business in India to Godre} ‘Consumer Prodiicts Ltd. for €185 million and its Ambi Pur air care business to Procter & Gamble for €320. Also during fiscal 2010, Sara Lee agreed to sell its global body care and European detergents business to Unilever for €1.275 billion. The transaction was expected to close by the end of the 2010 calendar year, The sale of the company’s remaining insecticide brands to $.C. Johnson and Son for €153.5 million wes also expected to close by the end of the 2010 calendar year. The company had identified several poten- tial buyers for the remainder of its Household and Body Care unit, which included Kiwi shoe cate products sold internationally and Endust and Ty-D-Bol cleaning products sold in the Asia- Pacific region. Analysts believed that Sara Lee coulkl expect $300 million to $400 million from. the sale of Kiwi. The amount Sara Lee might ENDNOTES * Sora eo press solene, Foust 1026, Sara es press celeasesonFbruary 10,205, nd February 25,205, ® Sara ee, poss lease, August 0 2, Sara ee pres lease, Oster 2, 205 * Sora ee oes lean, November 4,208, receive for the Endust and Ty-D-Bol brands was less definite EXPECTATIONS IN EARLY 2011 Sara Lee's top management believed that the company’s restructured business lineup and cor porate strategy initiatives—both those planned and those under way—would deliver strong increases in shareholder value in 2011 and 2012. Sara Lee's interim CEO, Marcel Smits, expected that the company’s divestiture of its Household and Body Care businesses, the repurchase of $360 million of shares of common stock in 2011, and cumulative Project Accelerate benefits of $850 million to $400 million expected by 2012 would lead to improvements in earings per share of $0.15 to $0.20. In addition, the company planned to restructure the corporate functions of its International Beverage and Bakery busi- nesses to eliminate 390 positions and reduce overhead by €30 million by fiscal 2013, The company intended for most of its growth to come from the further development and growth of its premium brands such as L’ OR Espresso and Senseo as well as its market-leading brands like Ball Park, Hillshire Farm, Jimmy Dean, and Sara Lee. The company also expected that an increased emphasis on wellness and nutrition ‘would allow it to inerease sales of its meat and bakery products in North America and Europe, The company expected to contain growth in operating expenses through a continued empha- sis on efficieney, focusing on its most promising markets, and by reducing inventories, Smits and his chief lieutenants believed that the company Was fully capable of delivering significant gains in shareholder value as the search continued for 2 permanent CEO, Saree, pets leas, Novembar2, 2005, 7 Sara Le, fea! 2006 10K report. "Sara Ls, rose rleee Jane 2,286, ® Jone Sasseen, “How Sor Lae Lftiresin is Ska,” Besinsabeet, Seponter 1620594, 1 1 r t