CASE STUDY: SARA LEE
Sara Lee has been changing its overall strategy with the passage of time. Initially when the company was formed, it acquired different companies to grow and improve its market share. The corporation initially acquired different business categories in order to expand globally and enter into different markets. The corporation first laid its foundation working as a wholesale distributor of different products like tea, coffee and sugar.This business later gave fruits as a result company planned to further diversify its products investing in different business categories for instance acquisition offood processing and packaging was done. This created different ways for the company and it all ended up as the company invested in retail food business.Moreover successes at different stages and markets lead the company to further acquire different businesses which were somewhat related and unrelated to their main portfolio. Hence further diversifying in terms of products and geography expansion of the company resulted in creating problems for managers as they were unable to cope up with the diversification issue so as a result retrenching strategy was put into practice by the company to make sure that every business division is profitable and close business divisions that are not highly lucrative.
This transformation of strategy has been done keeping the view that more focus will be given to front line businesses as those businesses have been giving good rewards and have been more profitable. Moreover, these businesses; food, beverages and household have good potential in terms of growth (). Furthermore company is keen on saving money and for doing that they have introduced Project Accelerate which includes cost saving technique as management believes that focusing on these promising businesses would save them loads of money as they are already well positioned in the market and would increase the overall return on investment.
Regarding long term attractiveness of industries in Sara Lee’s corporation, my analysis is that the retail industry and the food service industry have lot of potential.Since Sara Lee has a huge name in the retail industry it will definitely be able to increase its market share. As currently the company is very much successful in supplying meat (retail) not only to consumers butalso to food service customers. As a result sales of meats have shown increase.Moreover company is taking advantage by using focusing on grocery items as well which resulted in giving $ 100 million revenue to companyin the year 2008.Moreover 10 out of 12 core products have recorded an increase in the market share in 2010. However in between 2008- 2010, the divisional sale of Sara Lee have grown faster than any other food processed company as the market share of the company has increased from 9.2% in 2009 to 12.3% in 2010.
Similarly further attractiveness can be seen in terms of Senseosingle serving coffee which was also number one brand of North America in 2008 with 55% share of market.Therefore one can see that these products are likely to remain competent as industry is still offering growth and Sara Lane because of its retrenchment strategy is now more focused on these business units and is ready to increase its market share. Moreover current standing of the company is also a plus point in this regard as they can very much manipulate and try to bring new innovation in the market structure.
Sara Lee has adapted a retrenchment strategy and after this strategy, the company would increase its competitive strength. The company after retrenchment will be able to focus more on the business units that are left with the company. Therefore the company would be able to meet the needs of the industry and come up with more competitive products. As the company will be focusing only on these business units so they would be using all of their resources in making sure that these business units flourish. Moreover the focus on food industry has given Sara Lee opportunities to match up in the form of production technology, customers and shipping and logistics.One way or other, this would enable the company to take advantage of transferring of skills, cost sharing and brand sharing. Sara Lee would be able to reduce its costs by aligning and using similar resources for different departments and divisions. The company can use the same retail outlet to offer the bakery products, and other food items along with beverages. This would allow the company to take advantage of the cost sharing, transfer of skills and even brand sharing. Same employees and resources would be used in this way to offer all these products and thus the company would be able to save its costs and increase its profitability.
9-cell matrix is used to reflect the position of the company and the industry. The higher the growth of the industry, the higher the company is placed on the y-axis. On the x-axis, the performance and the strength of the company is analyzed and if the company is strong and has sufficient strengths, then it will be placed on the left side of the x-axis and if the position of the company is weak then it will be placed on the right hand side of the x-axis.
By analyzing the performance of the industry, it can be said that the industry is growing but not at a very rapid pace therefore it can be placed in between the high growth of the industry and moderate growth. After analyzing the company’s performances, it can also be seen that the company was able to increase its profit margin to 8.5% however it expected to increase this ratio to around 12%. Therefore the performance of Sara Lee is also not outstanding but not bad as well since it has been able to increase its operating profit.
Therefore in the 9-cell matrix, Sara Lee is placed as shown in the picture below:
Sara Lee’s portfolio does exhibit good strategic fit for number of reasons. The first and foremost reason is the product line. As almost all the products one way or other are related to each other and support each other. This can be beneficial in so many ways. For instance bakery items beverages and meat items can be sold under one roof. As the product types are similar and all are eatables therefore it would save the cost of the company and help in increasing profits. Furthermore since the company is retailing and also whole selling so therefore this would give them the extra advantage as all the material is likely to consume. Moreover product category in this business line also enhances their chances of saving costs in terms of skill labors, or skills transfers. For example a person working in the bakery can easily work in beverages sector and vice versa same goes for meat industry.
This on a broader spectrum can easily make ways for saving huge amount of money for the company.as branding of all different products can be single handedly done by various techniques. Furthermore products can be placed under one store.whichwould give them lot of savings and at the same time help in promotion and revenue generation as well.
Since the company is supplying and distributing itself so further saving of money is eminent. Plus by whole selling the company is not only generating revenues but also enjoying advertisement as wholesaler and other market competitors are using its productslike sauces.
The management of Sara Lee took a brave step after adapting a retrenchment strategy as closing down business units is not an easy decision for organizations. However the company expected to increase its operating profit margins by 12% after the retrenchment strategy, but it could not achieve its targets. During this time period, from 2008 to 2010 the management also started a program with the name of Project Accelerate to save the cost. This program has been estimated to save cost of arund $350 million to $400 million by 2012. However this project benefitted the company by saving $180 million accumulative.
Sara Lee’s retrenchment policy hasnot made any huge impact in terms of generating further additional revenues. Furthermore this gamble does not paid well as per the expectations of managers of Sara Lee’s company. By looking at their financials, the company has shown growth in some parts or sectors not because of retrenchment policy but because of potential in that particular sector. Furthermore if somehow they have attained growth the amount is not that much as compared to the previous years or in other words it is barely an improvement or extension than previous numbers.
Similarly company’s executives believed that by following retrenching plan, company will grow in terms of revenue generation and it would be able to improve its return on investment.The management believed that retrenchment policy would lead them towards an increase in revenue to $14 billion US dollars by 2010 and company’s operating profit margin in 2010 would increase at least 12 % against operating profit margin in 2004. On the other hand,in the year 2010 the company could not achieve both the revenue expected and profit margin projections for 2010. The company managed to improve its operating profit margin to only 8.5 percent where as $10.8 billion of revenue was generated in the year 2010.
This shows that Sara Lee’s stakeholders were not very much benefited from the retrenchment strategy . However, if retrenchment plan was considered to be the final plan,then still the company should have limited its magnitude.
After doing analysis of the company it is clear that retrenchment plan has not given them a great boost in terms of growth in major sectors. However this policy has also restricted their revenue generation sources as well. As the company is only left to work with food, beverages and household product markets thereforeproper management is necessary and ways should be develop in order to expand business and they do not only need to rely on these industries as well. Although these industries are showing potential but there are chances of severe competition in the future. As currently many industries around the world are making shifts because of the recession. Furthermore Sara Lee should endorse their current products in new markets as well for instance Sara Lee could enter in the Asian markets to further increase its revenues and profitability. Moreover all of the three products lines of the Sara Lee are one way or other related to each other. If one industry or product type shows decline then it may affect other as well. Therefore new product lines should be developed and considered and project accelerate should continue to work in order to save money and increase profits.