Sara Lee Corporation - Case Study Example

Sara Lee Corporation Case Study Company Analysis Sara Lee’s Retrenchment Initiatives In a strategy designed to try and boost the company’s profit margin by an approximated amount of 12% by the year 2010, Sara Lee Corporation developed a strategy that saw it retrench eight of its business units in the year 2006. The strategy was also developed so as to allow the company to primarily focus its vital resources on the currently more profitable household products, beverages and foods industries with the aim of strengthening the company’s financial position. By the year 2007, Sara Lee’s Operating Excellence was seen not to be progressing as expected and hence the management introduced a new policy to help optimize the company’s overall productivity by initiating Project Accelerate (Thompson, et al., 243-256). Issues and Problems The seven units that Sara Lee divested generally included European nuts and snacks, direct sales, European and U.S. meats, U.S. retail coffee, European apparel, European Rice and Sara Lee branded apparel. By exiting from the operations of these eight businesses that the company perceived as being mainly nonstrategic, the company essentially followed a strategy that allowed it to increase its share of the corporate profits, due to the fact that most of the business units that the company retrenched were deemed as being unprofitable. By the year 2006, about five of these business units were seen to have negative net profit margins as well as negative operating margins. The European nuts and snacks, and the direct selling unit were essentially the only units that were generally profitable. These two units were experiencing declining operating margins and revenues apart from the increase in margins that they experienced in 2006 (Thompson, et al., 254). The decision to divest the company’s snack operations can be deemed as having been the correct one as the division was only able to produce net profits of about $3 million an amount which would not have resulted in considerably increasing the wealth of the company’s shareholders. In the deal to sell the unit, the company managed to receive about $70 million after taxes, this was a positive development as it was about 22 times the current net profit (Thompson, et al., 248). The decision to spin off Hanesbrands can essentially be seen to have resulted in seriously crippling Hanesbrands as it incurred a huge long-term debt that can potentially seriously affect its ability to turn considerable profits in the future (Thompson, et al., 248-249). The decision to sell its direct sales units can generally be regarded as having been a bad decision as the unit was drawing a profit margin of about 27% with an estimated income of about $54 million (Thompson, et al., 247). The direct sales division also served to expose Sara Lee corporation to other markets a factor which could have served to allow the company to potentially find new markets for some of its other products. However, by selling the unit, Sara Lee managed to receive a net gain of about 4 times of the unit’s current profits. An Analysis of Sara Lee Corporation’s Macro-Environment Pestle Analysis of Sara Lee Corporation There are various key factors that can be seen to be affecting Sara Lee’s Corporation’s external environment. Some of these factors include: Political Factors: Some of the main political factors affecting Sara Lee include the various political issues surrounding the company’s strategy of divesting its business operations. Economic Factors: The impact of the recent global recession was seen to have an effect on a number of industries across the world and was seen to also affect the operations of Sara Lee corporation. The company’s bimbo brand of fresh bread that was seen to be the market leader in packaged bread that was sold in Spain with an impressive market share of about 37 percent and was subsequently ranked as being the second-best-selling packaged bread in Spain happened to be rather severely affected by the global recession that eventually caused operating losses and sales declines in Sara Lee’s International Bakery division every consecutive year since 2007 (Thompson, et al., 255). Social: Changing lifestyle habits have been seen to impact Sara Lee as evidenced by the preference for fresh products by consumers in the European markets which is seen to affect the sale of its packaged bread in the various European markets. Sara Lee’s North American Foodservice division also expected to capitalize on the social trend by most Americans to consume a significantly higher percentage of the actual number of meals that they happen to consume away from their homes, however, this projection was seen to be impeded by the global recession. However, the food service division managed to considerably capitalize on its innovative pre-sliced deli meats that although intended for the convenience of consumers were quickly adopted by the food service accounts as the food service accounts perceived that they were not only more cost effective but they were also more sanitary as the meat did not require any slicing by restaurant employees (Thompson, et al., 255). Technological: One of the technological fronts that Sara Lee has managed to capitalize on is on the sale of its Senseo single-serving coffeemakers. This line of coffeemakers were seen to be the best selling single servicing coffee maker brand in Europe in the year 2010. The coffeemakers managed to secure a massive 40 percent of the European market share (Thompson, et al., 255). Legal: Being a multinational corporation, Sara Lee Corporation is faced with the arduous task of ensuring that it complies with all the legal requirements that are enforced by the various governments in the myriad of countries in which the company happens to have its operates. Environmental: Sara Lee Corporation has embarked on a program that has seen it increasingly create and deliver a variety of products that actively promote CSR. The Five Forces Model of Competition Potential Entrants The potential for new entrants is high. Sara Lee Corporation focuses its attention in industries whereby the majority of the goods it produces happen to be necessities, as such, there exists a relatively high demand among consumers for these necessities, the high demand by consumers for these necessities is seen to attract a large number of new producers as entrants into these markets. Threat of Substitute Products The threat of new substitute products in this market is relatively high. Similar products to those being produced by Sara Lee are seen to be already available in the market. Some of the companies that are seen to be producing similar products to Sara Lee include Unilever, Lancaster Colony, Kraft foods as well as Hain Celestial Group. Bargaining Power of Customer The bargaining power afforded to customers is seen to be fundamentally high. The various customers, and particularly more so those who happen to be bakery owners, coffee lover, restaurants and families are afforded a large number of possible product choices at very competitive prices. This tends to make the costs involved in switching to a new competing product to be relatively low and as such, the customers happen to have high bargaining power. Bargaining Power of Suppliers The bargaining power enjoyed by suppliers in this industry is perceived to be moderate. The main suppliers in this industry include cafe’s various convenience stores as well as supermarkets. Sara lee is able to offer a number of readily available products from the different suppliers at the prevailing market rates. However, the company also offers products that are exceedingly differentiated. Rivalry within the Industry Rivalry with in the Industry is moderate. With Sara Lee’s diverse interests in a number of different units actively competing in a number of different industries, it generally stands to reason that the company is facing competition from multiple fronts afforded by players in the various industries. Some of Sara Lee’s main rivals include: Unilever Hain, Lancaster Colony, Kraft foods and Celestial Group. Sara Lee currently has relatively weak rivalry in its NA (North American, Fresh Bakery, International Beverage, and North American (NA) retail. However, It should be noted that Sara Lee experienced a decline in the net sales in both its international bakery business units and the NA food service units, where net sales were seen to decrease during the fiscal years ranging from 2008-2010. Sara Lee’s Key Success Factors Low Cost of Production: Sara Lee Corporation has a large number of different factories across the globe producing a large number of different consumer products. The company’s large scale operations are seen to allow it to enjoy a variety of economies of scale such as relatively low production costs. The Breadth of the Company’s Product Line: Sara Lee Corporation enjoys an impressive breadth of different products that it offers for its customers. This large array of differentiated products that happen to be priced differently is seen to help the company capture and appeal to a significantly larger market share. Flexibility to Make a Range of Products: Due the company’s size and the relatively large number of factories that it operates, Sara Lee is able to produce a large number of different products that help it easily capitalize on and churn profits from the different industries. An Analysis of Sara Lee Corporation’s Internal Environment SWOT Analysis of Sara Lee Corporation Sara Lee’s Internal Strengths One of the key strengths of Sara Lee Corporation is the company’s retrenchment program that saw it offload some of the business units that were performing relatively poorly. This move is seen to help the corporation focus on its more promising business units (Thompson, et al., 256). Sara Lee is able to reap immense benefits from its being a global corporation and hence able to spread out its risks across different countries and manage to reap maximum benefits. Sara Lee Corporation happens to have a relatively well recognized and strong brand that is able to effectively market the company’s products in the various markets that it operates in. Weaknesses Although Project Accelerate helped the company make some initial gains, the benefits it has largely failed to deliver some of the anticipated gains as a result of the impact of the global economic crisis (Thompson, et al., 256). Although the diversification of its product offering is seen to have helped the company in capturing different market segments, it can be argued that the company has over diversified its products and as such has caused some of its products to essentially be slow moving. Sara Lee has been experiencing decreasing profits in recent years a factor that can partly be attributed to the global economic crisis. Some of the strategies adopted by the company’s management such as the spinning off of Hanesbrands and selling it for a relatively large amount of money causing it to incur massive debt have been seen to be largely unappealing to the company’s shareholders. Opportunities Sara Lee has the opportunity to try and narrow its main focus so as to become an essentially more agile company that is able to effectively concentrate its efforts and focus. The company’s large scale operations and diverse interests are seen to provide Sara Lee Corporation with the opportunity to effectively grow the Sara Lee brand across different regions globally. Threats During the company’s retrenchment program that saw it sell of a number of business units, the company is seen to have lost a considerable amount of reacquirable revenue (Thompson, et al., 246-247). By selling off some of its business units, Sara Lee is seen to have radically altered its plans and has subsequently become relatively too focused. Sara Lee is also not able to adequately meet the rather aggressive company goals that had originally been laid out under Project Accelerate. The economic crisis initiated economic slumps in a number of countries, a factor which is seen to have radically affected the profit margins and sales of Sara Lee Corporation. Key Recommendation for Sara Lee Corporation Sara Lee Corporation should attempt to try and make advances in currently lucrative International Beverage Unit, this is especially so for the coffee industry. The coffee industry has in recent years been experiencing positive growth and the company stands to make good profits if it were to invest in this industry. Sara Lee can also look into crafting a formula that will help it expand its Food Service Industry so as to be able to fully capitalize on the profits it is able to earn from this industry. In addition to expanding its ready-made meals service, Sara Lee should also look into ways of providing healthier foods that will help it reap benefits from the trend by most American and European consumers that has seen them show a positive preference for healthy foods. Sara Lee should critically evaluate and reviews the overall effectiveness of project accelerate. The necessary amendments should be made on the project so as to help the company sufficiently achieve its expected outcome. In order for Sara Lee to appease its shareholders, the company needs to try and focus on improving its current market share, its participation in the various foreign markets that it operates in, it should also improve on its branded product portfolio in addition to improving on its general management. Works Cited Thompson, Arthur, et al. Crafting & Executing Strategy: The Quest for Competitive Advantage: Concepts and Cases. McGraw-Hill Education. 2013. Print. Read More