This paper analyses Sara Lee Corporation’s business strategy. Business strategy refers to a business plan because it contains the measures that the business plans to take and specific objectives attached to each measure. Sara Lee Corporation or Sara Lee is an American consumer goods company. It specializes in the production of beverages, food, and household goods; trades in 40 countries. However, the company’s current state is a product of Brenda Barnes’ business strategy back in 2005. In 2005 Brenda Barnes, the then president and Chief Executive of Sara Lee, came up with a strategy to transform the company into a firmly focused business.
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Initially, Barnes’ team followed a six-step plan: primarily, the company carried out an assessment of its competitiveness followed by an assessment of its units (Gamble, & Thompson, 2011). Then Barnes’ team carried out an evaluation of the extent at which Sara Lee’s cross- business strategies fitted along its value chain (Gamble, & Thompson, 2011). Finally, Barnes’ team investigated the extent at which Sara Lee’s resources fitted the requirements of its existing business arrangements (Gamble, & Thompson, 2011).
Eventually, Barnes and her executive team resolved to do away with some of the company’s business units and brands to concentrate on the most profitable ones. These include aspects such as: Barnes planned to diversify its business of operations by concentrating on smaller, but high competitive business units. Barnes projected that Sara Lee would lose approximately $ 8.2 billion in annual revenues or about 40% (Thomson, & Gamble, 2007). In other words, the plan would reduce the company’s annual revenues from $19.6 billion to about $11.4 billion in 2005 (Thomson, & Gamble, 2007). Nevertheless, Barnes plan was to carry on with the retrenchment of employees from the affected business units. After the retrenchment, Barnes planned to drive Sara Lee’s growth by concentrating on advertisement, product promotion, and research to boost the company’s market share, sales, and profitability of the remaining product brands (Thomson, & Gamble, 2007). Barnes strategy was to boost the profitability of Sara Lee’s breads and bakery goods, Kiwi shoe-nourishment products, Sanex products, and Ambi Pur air fresheners (Thomson, & Gamble, 2007). Other brands included Ball Park meat products, Douwe Egberts coffee products, Jimmy Dean Sausage, Hillshire Farm meat products, and Senseo coffee products (Thomson, & Gamble, 2007). Below is a table summarizing the financial benefits of Barnes’ plans:
|Grow revenues to $14 billion per year in 2010||Reduce costs and increase sales and of profitability by at least 12% up from 8.1% in 2004.
Spend $ 250 million per year in advertisements, promotions, research and advertisements.
|1. Create additional products worth $575 million per year.||Raise Sara Lee’s innovativeness.|
|2. Create additional savings of about $550 million a year.||Reductions in marginal costs.|
|Reduce the company’s debt from $ 4.8 billion in 2004 by about $ 1.5 billion to $2 billion by 2010.||Retrenchment|
Barnes initiated a retrenchment exercise that was supposed to see the sell or the winding up of seven business units and their respective brands. The first target was Tupperware Corporations, which produced and sold cosmetics, toiletries, skin care products, perfumes, household products, apparel, among other products to 18 countries (Thomson, & Gamble, 2007). Tupperware Corporations was worth $450 million, but Barnes sold it for $557 million thereby making a profit of about $107 million (Thomson, & Gamble, 2007). In addition, Barnes sold Tupperware Corporation’s trademark names including “House of Fuller, Avroy Shlain, Nature Care, Swissgarde and Nuvo Cosmetos” (Thomson, & Gamble, 2007).
Next was a U.S. Retail Coffee, which was worth $250 million when it was sold for $82.5 million to Segafredo Zannetti Group (Thomson, & Gamble, 2007). At the same time, Sefagredo Zannetti Group also acquired the company’s brand names such as Senseo, and Hill Bros, Chockfull o’Nuts among others. In addition, Barnes eliminated European Apparel, which was known for reputable brands such as Playtex, Wonderbra, Abernderado, Dim, among other products (Thomson, & Gamble, 2007). European Apparel had total annual sales of about $ 1.2 billion in 2005 (Thomson, & Gamble, 2007).
Barnes also sold other companies at a lower price relative to the actual value of those companies. For example, European Nuts and Snacks made annual sales that was worth about $88 million in 2005 (Thomson, & Gamble, 2007). In fact, European Nuts and Snacks marketed its products in the Netherlands, France, and Belgium. Nevertheless, Barnes sold European Nuts and Snacks to PepsiCo for about $150 million in 2005 (Thomson, & Gamble, 2007). Moreover, in 2006 Barnes sold U.S. Meat Snacks for $9 million, yet the company had made annual sales of $33 million and $25 million in 2005 and 2006, respectively (Thomson, & Gamble, 2007. Barnes also sold the $1.1 billion European Meats to Smithfield Foods for $557 million. However, Barnes gave up Sara Lee Branded Apparel to Hanesbrands Inc. in 2006. In fact, Hanesbrands Inc. became an independent company, but it retained Sara Lee Branded Apparel’s shareholders. As such, Hanesbrands Inc. took over all the operational elements of Sara Lee Branded Apparel except the name.
As at the end of 2006, Sara Lee had reduced the cost of running its business empire. This was because after the sale of seven units, Sara Lee had given up all the weaker business units such as the U.S. Meat Snacks was registering negative growth in profits (Gamble, & Thompson, 2011). That is, in 2005 and 2006 U.S. Meat Snacks registered a negative growth in revenues since it made sales worth $33 million and $25 million, respectively (Thomson, & Gamble, 2007). As such, U.S. Meat Snacks was becoming a liability to Sara Lee because it was supposed to pay for its operational costs, and taxes, among other expenses regardless of the plunge in revenues.
The tables below illustrate Sara Lee’s sales and income from divested business between 2004 and 2005:
Net Sales of Divested Business in Millions
|Direct selling||$ 202||$ 473||$ 447|
|U.S. retail coffee||$ 122||$ 213||$ 206|
|European branded apparel||$641||$1,184||$ 1, 276|
|European nuts and snacks||$ 54||$ 64||$ 66|
|Sara Lee Courtaulds||$ 437||$ 558||$ 536|
|U.S. meat Snacks||$ 25||$ 30||$ 33|
|European meats||$ 1, 114||$ 1, 176||$ 1,111|
|Total sales||$ 2595||$ 3, 698||$ 3, 675|
Pretax Income (Loss) of Divested Business (in Millions)
|Direct selling||$ 14||$ 55||$ 55|
|U.S. retail coffee||$ 46||$ 39||$ 2|
|European branded apparel||$ 186||$ 302||$ 67|
|European nuts and snacks||$ 8||$ 7||$ 12|
|Sara Lee Courtaulds||$ 69||$ -||$ 14|
|U.S. meat Snacks||$ 14||$ 1||$ 1|
|European meats||$ 57||$ 90||$ 101|
|Total sales||$ 350||$ 190||$ 246|
After Tax Income (Loss) of Divested Business (in Millions)
|Direct selling||$ 54||$ 12||$ 34|
|U.S. retail coffee||$ 39||$ 33||$ -|
|European branded apparel||$ 153||$ 296||$ 68|
|European nuts and snacks||$ 3||$ 3||$ 7|
|Sara Lee Courtaulds||$ 71||$ 1||$ 26|
|U.S. meat Snacks||$ 9||$ 1||$ -|
|European meats||$ 41||$ 22||$ 86|
|Total sales||$ 256||$ 362||$ 221|
The Table below Shows Sara Lee Made from Direct Sales of Divested Businesses (in Millions)
|Item||Sales Price||Pretax Gain on Sales||Tax Benefit Charge||After Tax Gain|
|Direct selling||$ 557.0||$ 327||$ 107||$ 220|
|U.S. retail coffee||$ 82.5||$ 5||$ 2||$ 3|
|European branded apparel||$ Appr. 115.0||$ 45||$ 41||$ 86|
|European nuts and snacks||$ Appr. 150.0||$ 66||$ 4||$ 70|
|Sara Lee Courtaulds||$ No material consideration||$ 22||-||$ 22|
|U.S. meat Snacks||$ 9.0||$ 1||$ 1||-|
|European meats||$ 575.0||$ 42||$ 1||$ 40|
|Total sales||$ 1, 488.5||$ 508||67||$ 441|
From the table, it is evident that Sara Lee made a good profit from its proceeds. With reduced expenses, Sara Lee was better placed to focus its attention on the few business units and brands.
In conclusion, Brenda Barnes’s strategy for Sara Lee’s was meant to reduce costs and enhance the company’s competitiveness. As such, Brenda Barnes conducted research to identify and eventually eliminate least competitive business units which were eventually sold or transformed into independent business. Through such actions, Brenda Barnes finally managed to realize its vision to create a small company with high competitive brands.
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Gamble, J., & Thompson, A. A. (2011). Essentials of strategic management: The quest for competitive advantage. New York: McGraw-Hill Irwin.
Thompson, A. A., & Gamble, J. (2007). Sara lee Corporations: Retrenching to a narrower range of business. In Top of Form
Thompson, A. A, Cram101 textbook outlines to accompany Strategic management: concepts and cases, Thompson and Stickland, 13th edition. S.l.: Academic Internet Publishers.