Business Strategy Analysis: The Case of Sara Lee Corporations

Business Strategy Analysis: The Case of Sara Lee Corporations

Sara Lee Corporation or Sara Lee is an American consumer goods company. Initially, Sara Lee began as a collection of unrelated and related business enterprises. In 2005, the company appointed Benda Barnes as its president and CEO. Under Barnes’ leadership, Sara Lee carried out an assessment of its competitiveness followed by an assessment of its units (Gamble, & Thompson, 2011). The company also did an evaluation of the extent at which its cross- business strategies fitted along its value chain. The company further investigated the extent at which its resources fitted the requirements of its existing business arrangements. Eventually, the company resolved to do away with some of the seven business units that they found to be least promising. Sara Lee’s overall objective was to make it into a food, beverage, and household only products company. Thus Sara Lee would benefit from a simple, but diversified business; a shared value chain. As a consultant, I analyzed Sara Lee’s major decisions during the retrenchment period and after the retrenchment period.

Sara Lee began the retrenchment process by directly selling its business to other companies. This was a good approach because the directly sold businesses were not related to the business that the company wanted to keep; Sara Lee’s plan was to focus on food, beverage and household products. As a result, such business units would pose little competition to the firm. In addition, an analysis of the market size and projected growth rate of the business units that were sold indicates that it was small and low. As such, the resource requirement for the sustainability of those units would be outside the Sara Lee’s main center of attention.

The first Sara Lee’s target for direct sale was Tupperware Corporations which produced and sold cosmetics, toiletries, skin care products, perfumes, household products, apparel, among other products to 18 countries. Although Sara Lee would lose ownership these brands, the company was justified to make the retrenchment in this business. For example, by getting rid of such a large number of brands, the company would reduce the managerial complexity owed to its retention of many brands. As such, the company’s future plan was to narrow their business by focusing on well-positioned brand names.

The next business unit that Sara Lee retrenched was the U.S. Retail Coffee. The business was worth $250 million when Sara Lee sold it to Sefagredo Zannetti Group. In spite of the fact that by selling this business unit, Sara Lee was reducing its beverage’s market share, Sara Lee reduced its marginal costs. For instance the rivalry among competing firms in the beverage industry is high thereby pushing up costs.  In addition, in the Donuts, Dunkin and Starbucks have already conquered a share in the United State’s beverage market. In addition, the United State’s consumers are becoming health-conscious; a substitution to coffee products was a viable. Nevertheless, Sara Lee’s decision to retain Senseo was great because this coffee brand had already established itself as a global coffee brand. As such, Sara Lee stood to benefit from Senseo’s popularity while eliminating its reliability on the least competitive coffee brands.

Barnes also sold European Nuts and Snacks which had made annual sales worth about $88 million in 2005 for $150 million (Thomson, & Gamble, 2007). This was a bad idea because some value chain can be shared with the food industry. Meat is a major food item in the food market. Therefore, the resources, distribution channels and capabilities that could be used to make meat products could be used to make meat sausages and other snacks. Nevertheless, the retrenchment of the European Nuts and Snacks also had good projections. Primarily the retrenchment process reduced the possibility of making loss. This is because European customers are becoming wary of their health status thereby reducing their meat intake.

The last bit of Sara Lee’s retrenchment process was the disposal Sara Lee Branded Apparel. In this case, Sara Lee spun it into Hanesbrands Inc., an independent company. This was a well-informed decision. Essentially, Sara Lee wanted to focus on Food, beverage and household item production. As such, the apparel business would not share resources and capabilities that Sara Lee future business units.

The tables below illustrate Sara Lee’s sales and income from divested business between 2004 and 2005:

Net Sales of Divested Business in Millions

Pretax Income (Loss) of Divested Business (in Millions)

After Tax Income (Loss) of Divested Business (in Millions)

Direct Sales of Divested Businesses (in Millions)

Eventually, an analysis of Sara Lee’s competitiveness indicates that the overall competitiveness of its food and beverage division is strong. For instance, Sara Lee’s North American retail meat and bakery market share is large. As such, the two business entities can definitely benefit from strategic positions owing to the presence of their complimentary business units by sharing of common resources. In addition, Sara Lee’s North American food and beverage units have a strong bargaining leverage in the market. Therefore, these units have an added advantage when it comes to their negotiations with suppliers and buyers. Furthermore, these units have strong brands. Thus with the company’s advertisements, and product promotions these brands promise to command larger market share.

In other continents, Sara Lee’s household brands are also strong. For instance, Kiwi shoe products command large market share in Africa and South American markets. Such popularity is due to their longevity in the market, good quality and fair prices. Therefore, Sara Lee’s business units in Africa and South Africa are competitive. Nevertheless, Sara Lee’s household good face competition from cheaper Chinese brands such as Dragon Shoe Polish. However, Sara Lee’s outstanding quality is an incentive to sustaining its competitiveness in the household market. The improving economic fortune in Africa, South America and a stable North American economy is an incentive to the company’s market leadership.

In conclusion, Sara Lee’s overall weighted competitive strength for Sara Lee is moderate. In addition, its related market share for international beverage and bakery products is moderate. As such, the company’s profitability relative to that of its competitors for the household industry is high. Nevertheless, Sara Lee stands to benefit from its minimal marginal costs and highly competitive market brands.

References

Top of Form

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.

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