Management on Sara Lee Corp - Case Study Example

?What is Sara Lee’s corporate strategy? How has its retrenchment strategy changed the nature of its business lineup? Prior to 2005, Sara Lee’s corporate strategic direction was that of organizational growth, pursued through an unrelated / conglomerate diversification approach. Post 2005, Sara Lee adopted an organizational renewal strategic direction which was pursued through a retrenchment strategy. The retrenchment strategy enabled Sara Lee enhance the relatedness of its business portfolio into a more compact six-division structure built around product similarities, customer types and geographic regions (Thompson & Gamble, 2010). What is your assessment of the long-term attractiveness of the industries represented by Sara Lee Corp’s business portfolio? Sara Lee Corp is represented in four industries: packaged meat products, retail coffee and tea, bakery products and household and body care products. In two of this industries, packaged meat products and retail coffee and tea, Sara Lee had huge market shares that is could leverage to sustain its profitability and thus retain their attractiveness. In the packaged meat industry Sara Lee held huge market shares in several categories within North America: 30% smoked sausage, 23% hotdogs, 14% lunch meat and 58% breakfast sausage (Thompson & Gamble, 2010). Given the aging of the US population and general mean rise in per capita incomes, we expect the demand for convenience food to remain high. In retail coffee and tea, Sara Lee held huge market shares in the US, a few European countries and Brazil. Furthermore, it also sold the most single-serving coffeemakers in Europe. With the global retail coffee market expected to grow from $51billion in 2009 to $62 billion in 2013 we can presume the industry will remain very attractive to Sara Lee. The bakery products success was limited to Spain and the US. With Spain’s economy doing poorly and huge costs incurred in the US while to secure shelf space in US supermarkets we find the long-term attractiveness of this industry to be low. In the household and body care industry Sara Lee’s Kiwi harbors the greatest potential to long-term attractiveness given that it was the number one shoe care brand worldwide with a global market share of 30%. We believe that the firm could use the income it obtains from Kiwi to sustain the brand’s competitive advantage. What does a 9-cell industry attractiveness/business strength matrix displaying Sara Lee’s business units look like? What is your assessment of the competitive strength of Sara Lee Corp’s different business units? Sara Lee’s North American Retail division, North American Foodservice division and International Beverage divisions all have very high competitive strength largely because they have strong portfolio of market leading brands within industries that have been projected to grow in future. The global retail coffee market is expected to grow from $51-62 billion by 2013, and with ageing populations in US and Europe, we expect the demand for convenience food to also rise. We also see the company innovating in the meat business (e.g. in meat slicing) and offering complimentary products in its coffee business (single-serve coffee machines). Sara Lee could leverage its market share as bargaining power over its suppliers and customers or enter into alliances to strengthen it further. On the other hand, the North American Fresh Bakery division, International Bakery and the International Household and Body Care divisions are not as convincingly as strong as the other three divisions. North American Fresh Bakery has well performing brands and strong market share however; we are informed that its revenue arose when the company negotiated for increased shelf space at supermarkets and other selling stores. Assuming that “negotiating” for more shelf space implies extra costs we would expect less profits accruing to the company in this arrangement. The fact that Sara Lee has to negotiate for extra shelf space to improve its revenues lowers this division’s competitive strength. The International Bakery is only strong in a country whose economy is struggling, Spain. This does not portend well for its future given that the rest of Europe prefers fresh-baked bread. With regards to the International Household and Body Care division, the greatest challenge is its non-relatedness to the other divisions of the company. All the other divisions are focused on consumer food products. International Household and Body Care division has a very low ability to benefit from strategic fits with the other divisions in the company. Does Sara Lee’s portfolio exhibit good strategic fit? What value-chain match-ups do you see? What opportunities for skills transfer, cost sharing, or brand sharing do you see? Sara Lee Corp’s portfolio comprises of businesses in four industries: packaged meat products, retail coffee and tea, bakery products and household and body care products. The meat, bakery and beverage products are predominantly sold to food service customers (often implying restaurant chains). Given that the operations of food service customers bear semblance to each other, Sara Lee could combine several of its value chain activities across its business units. This could include sales and marketing activities, using common distribution channels, combining after sale-service activities and even use common brand names. The meat, bakery and beverage products offer great opportunity for cross-selling to the same customers. The household and body care products offer very little when it comes to cross-business strategic fit. What is your assessment of Sara Lee’s financial and operating performance in fiscal years 2008-2010, the period following the divestitures that were the core of Sara Lee’s retrenchment strategy? Operating performance: Revenue per employee increased each year from 2008 – 2010 ($30,027 - $32,706) which implies increased personnel productivity. Operating margin increased from 0.02 in 2008 to 0.06 in 2009 to 0.09 in 2010. Financial performance: Net profit margin increased from -0.01 in 2008, to 0.03 in 2009, to 0.05 in 2010 whereas Return on Assets in 2010 remained the same as it was in 2008. Even though neither the net sales rose to 14 billion nor the operating margin rose to 12%, the retrenchment strategy increased Sara Lee’s operating margins, employee productivity and net profit margin. Nevertheless, following from these results the management should be reassured by the continuous rise in both operating margin and net profit margins. What is your overall evaluation of Sara Lee’s retrenchment plan? What evidence and/or reasons support a conclusion that shareholders have or have not benefitted from the company’s retrenchment strategy? Sara Lee’s retrenchment plan is working as anticipated however at a slower rate than management had desired. The operating margin is on an upward trend. Shareholders have yet to benefit from the retrenchment strategy given that even though declared dividend and market value of shares have risen between 2008 and 2010, they are still lower than they were pre-retrenchment, that is 2006. Shareholders can only hope that the upward trend continues in future. What actions do you recommend that Sara Lee management take to improve the company’s performance and boost shareholder value? Your recommended actions must be supported with convincing analysis-based arguments? First, management will need to divest or overhaul its International Bakery division given that its low market share in Europe coupled with its out-of touch product. Other than Spain, all other European countries prefer fresh baked bread which the International Bakery division does not provide. Secondly, Sara Lee should seriously consider skills transfer, cost sharing, and brand sharing within the remaining divisions since they all supply mainly to food service customers. Finally, Sara Lee will need to adopt a concentration strategy as its growth strategy. Concentration strategies will allow the company to support the Project Accelerate program with increased focus on operational excellence. We believe concentration will enable the company identify and build its core competencies, improve asset productivity and increase value proposition through product differentiation and/or cost reduction. References Thompson, A. A., & Gamble, J. E. (2010). Sara Lee Corporation in 2011: Has its retrenchment strategy been successful?  Read More