The Sara Lee Corporation: Damsel in Distress?

Historically, Sara Lee, then the Kitchens of Sara Lee, wasn’t even purchased until seventeen years after the original C.D. Kenny Company began in 1939, which in turn underwent two name changes, Sprague Warner-Kenny Corporation and Consolidated Foods Corporation (Thompson & Gamble, 2007).  After its purchase in 1956, it wasn’t until 1980 that the organization became the Sara Lee Corporation.  Before the end of the last century, the Corporation had acquired many and varied businesses that themselves had been at least as well-known as Sara Lee – for example, Chock full o’Nuts, Hills Bros., Playtex, Wonderbra, Hanes.

Sales grew happily from “$10 billion in 1988 to $20 billion in 1998.”  Alas, however, disaster of momentous proportions struck when sales remained a measly $20 billion the following year, which, apparently, placed the Lady Sara Lee in Distress.  What to do, of course, was to replace the current CEO (no doubt leaving with a “golden parachute”) and find a new magic person to revive the dying Lady, Steven McMillan.  McMillan began the retrenchment process “to narrow Sara Lee’s focus on a smaller number of global branded consumer packaged goods segments – Food and Beverages, Intimates and Underwear, and Household Products” (p. C-307).  McMillan recruited Brenda Barnes and announced (2005), “We recruited Brenda last year to be my successor, and her contributions and leadership have exceeded all expectations.  Brenda has played a key leadership role in designing our transformation plan and, for continuity and focus, it is appropriate that she lead its execution from the outset (McMillan, as quoted in Thompson & Gamble, p. C-307).

Current Situation at Sara Lee

Internal strengths. In 2005, Barnes becoming CEO was itself considered a strength:  “The charismatic McMillan…elevated to CEO in 2000…presided over five years of poor sales and operating earnings growth” (Berner, 2005, p.2).  There were high expectations that streamlining the company by divesting itself of 7 businesses (direct selling, U.S. retail coffee, European apparel, European nuts and snacks, U.S. meat snacks, European meat, and Sara Lee branded apparel) would be successful (Thompson & Gamble, 2007, PP. C-307-C-308).  Indeed, on the day of the announcement, February 10, 2005, there was a “positive reaction from the investment community.  Shares rose between 5% and 6% per share on the NYSE” (Scardino, 2005, p. 57).  Divestments resulted in $1.4 billion, seemingly a strength, but, unfortunately, Barnes had projected a profit of about $3 billion (Sasseen, p. 40).  Probably because of this overestimate, the problematic decision was made (discussed below) to “spin off,” rather than sell, Hanesbrands (Thompson & Gamble, 2007, pp. C-307-C-308). What seems an obvious strength is that Sara Lee frozen deserts, initially led by its cheesecake, would be delicious even without their genuinely mouth-watering packaging.

Internal weaknesses.  As noted above, the decision to “spin off” Hanesbrands was problematic.  Sara Lee put Hanesbrands $2.6 billion in debt (Thompson & Gamble, 2007, p. C-311) – “then paid itself a big, fat dividend” (Sasseen, p. 40).  It initially seemed that Barnes had met her 2005 projection, but some analysts were pessimistic about Hanesbrand being able to “sustain the debt over the long term…leaving shareholders [of both companies] poorer overall” (p. 40).  Without accusing Barnes of an ethical violation, much of human decision-making is subject to unconscious motivation (Hunt & Ellis, 2004), and at the time of her appointment in 2005, shareholders were impatient, suggesting she would have a “grace period” of “two to three years,” but also the expectation of noticeable progress “in the next couple of quarters” (Jargon & Ryan, 2005, p. 1).  Instead, at the end of fiscal year 2006, Sara Lee stock had “fallen 6.8% to $15.00, the worst performance of any U.S. packaged food company” (Jargon, 2006, p. 9).

Jargon and Ryan (2005) noted that overcoming Sara Lee’s weaknesses required being “able to cook up new products capable of growing faster than their markets” (p. 1) and Sterrett (2007) recognized that efforts in doing so had not yet led to that crucial “blockbuster new product” (p. 2).  In a major effort to produce such products, construction of an 150,000 square foot research and development center has begun, which, according to Kleinbach-Suitor, senior vice president of research and development, said “was going to be the recipe for our success” and would have a staff of about 120 people (quoted in Steinriede, 2007, p. 36).  Apparently, these efforts were not successful, and in 2008, shares of Sara Lee stocks were reported to “have declined 30% since Ms. Barnes became CEO” (Sterrett, 2008, p. 1).  In an effort by Barnes “to cut costs and boost profits” (p. 1), several top executives, including Kleinbach-Suitor, left the company (top executives presumably are never “fired”).  In other cost-cutting efforts, in 2005, “about 350 jobs” were eliminated (Women’s Wear Daily, 2005, p. 2), in 2006, 1,300 more were eliminated at Sara Lee International (Thompson & Gamble, 2007, p. C-316), and in 2008, 700 more jobs were eliminated by “outsourcing” them (Associated Press).

External opportunities.  Unfortunately, given the current worst economy since the Depression (Associated Press, 2008), the federal government, in initiating business  bailouts, might fail to recognize that Sara Lee’s dire situation  began considerably earlier, possibly in 1956 (Thompson & Gamble, 2007) when, after buying the Kitchens of Sara Lee, the company failed to use “Sara Lee” as an identifying label.  Other organizations that have become “household” names began, not in expensive laboratories, but when an individual recognized and acted on an inspiration (Lorenzen, 2005).  Ray Kroc, who after investing his life savings to become exclusive distributor of Multimixer, heard about and visited a Hamburger joint, McDonalds, using 8 of the mixers at a time.  He then convinced owners Dick and Mac McDonald to put him in charge of opening what would become the McDonald’s chain.  Obviously, Walt Disney was the genius behind not only the original Disney studios, but also behind opening Disney Land and creating the plans, but not living to see them fulfilled, for the Disney World resort in Orlando and later resorts around the world.  Assuming that successful global enterprises such as these have withstood current economic pressures, Sara Lee, which already was having some success in its International Division (Coolidge, 2008) might hire a cook with experience in creating inexpensive but tasty foods, which McDonalds, for example, might be persuaded to add to its international menus as “McDonald’s McLees”! While “American culture” has been termed an “oxymoron” in Great Britain (Tartar, 2006, p. 47) and Parisians have never tried to hide their disdain for Americans as “cultural nincompoops” (Levenstein, 2004, p. 134, they happily munch McDonald’s quarter-pounders as they respect our reputation for producing the best cheap hamburgers in the world.

External threats.  For a company already being written off as a financial loser (Sterrett, 2008), a severe downturn in the economy must be considered a potential dying blow.  Despite damage, other companies generally retained their relative standing on Fortune 500’s list (2008).  Instead, Sara Lee dropped from a not-very-impressive 125 in 2007 to 203 in 2008.

Central Issues

Strengths/weaknesses vs. opportunities/threats.   To summarize the above, clearly Sara Lee’s current internal weaknesses outweigh its strengths and its external threats outweigh its opportunities.

Missions and goals.  Based on Sara Lee’s publication (2007-2009), their mission is “to simply delight you…every day”, their vision is “to be the first choice of consumers and customers around the world by bringing together innovative ideas, continuous improvement and people who make things happen,” and their values are to Act with INTEGRITY Use IMAGINATION be INCLUSIVE Work as a TEAM Have a PASSION to excel.”

Competitive strategy.  As described above, beginning with McMillan and accelerated with Barnes’ appointment as CEO in 2005, Sara Lee’s strategy was to streamline its operation by divesting itself of 7 types of businesses (each including multiple individual businesses) and bringing together to one location (Downers Grove, IL, outside of Chicago) the units of its newly structured Sara Lee Food & Beverage Division.  In recognizing the need for genuinely new products, they also broke ground on a massive research and development facility at the same location.

Implementation of the strategy.  Perhaps, as discussed above, because of the short time-lines shareholders would tolerate, “implementation” began to take the form of putting short-term appearance before long-term growth (as with Hanesbrands) and showing profits by eliminating staff positions, mainly at lower ranks but also at high ones.

The problem.  Succinctly, the lady Sara Lee indeed is in distress.  Internal streamlining solutions have not been effective and given the overall dismal state of the economy, external opportunities appear limited.

Alternatives and Solutions

The “unthaw” solution.  This alternative is named in honor of our leader’s response to the economy in general: “This thaw – took a while to thaw, it’s going to take a while to unthaw” (Associated Press, 2008).  Relating what essentially is a suggestion to do nothing to Sara Lee in particular, we must ask why attempted revival is in order.  First, it is easy to forget that the point of spending time and money on a company is not for the company but for the people affected by its well-being.  Given its past record, it is hard to conclude that help in the form of a financial bail-out would prevent the past history of eliminating lower-level jobs.  Barnes and others at high levels, even if one cared, will inevitably suffer no financial losses, and shareholders, regrettably including small ones, were foolish if they counted on dividends for any major part of their support.

Bail them out.  By tossing Sara Lee more money, shareholders probably will insist that Barnes leave in her lovely golden parachute and another supposedly magic person will prosper as he or she fails to perform miracles.  Suppose a restriction was included putting a freeze on firing those below middle-management level?  Of course, suddenly unemployed people have every reason to be frightened and, obviously, there must be changes in their normal spending habits.  But hard questions must be asked:  Are we redefining the word “poor.”  What does it actually mean?  Poor people are homeless or manage to find sporadic accommodations at shelters one step up from the street in colder climates.  Poor children have swollen bellies and little access to medical care.  So, has the current economy actually increased the number of poor people?

Fantasy.  Based on finding no logical reason for coming to the aid of our damsel, let’s pretend there’s freedom to redistribute whatever money is left and then have an auction.

Implementation Plan

First, all remaining funds should be distributed between those below middle management who remain unemployed after previous “streamlining” and those currently employed at the same levels.  Next, a number of the brand names owned by Sara Lee probably have value in themselves, so perhaps an auction would provide opportunities for those not enticed by ridiculous mortgages beyond their means to gain potentially profitable ventures.  Third, all money from the auction should go – without ever passing the hands of any government or other bureaucrat – to those who genuinely are poor, either in the United States or elsewhere.

References

1. Associated Press (2008).  Releases retrieved Jan. 7, 2009, from www.thestreet.com.
2. Berner, R. (2005).  A crash diet for Sara Lee.  Business Week on Line, 1-3.  Retrieved Jan. 7,2009, from Academic Source Premier.
3. Coolidge, C. La Belle Cuisine Americaine. Forbes, 181, 240.
4. Hunt, R.E., & Ellis, R.R. (2004).  Cognitive Psychology.  New York: McGraw-Hill.
5. Jargon, J. (2006).  Can anybody fix Sara Lee?  Crain Chicago Business, 29, 3,9.
6. Jargon, J., & Ryan, K. (2005).  Welcome, Brenda.  Now hurry up.   Crain’s Chicago Business,1, 8.
7. Levenstein, H. (2004).  We’ll always have Paris: American Tourists in France since 1930.  Chicago: University of Chicago Press.
8. Lorenzen, J. (2005).  Global consumption: McDonaldization or multi-cultural hybridization? American Sociological Association Conference Paper, 1-21.
9. Sasseen, J. (2006). How Sara Lee left Hanes in it skivvies. Business Week, issue 4001, 40.
10. Scardino, E. (2005).  Sara Lee slims down portfolio.  DSNRetailing Today, 4, 57.
11. Sterrett, D. (2007). Sara Lee’s Barnes faces tough crowd.  Crain’s Chicago Business, 30, 2, 10.
12. Sterrett, D. (2008).  Barnes shakes up Sara Lee exec Suite. Crain’s Chicago Business, 31, 1, 14-15.
13. Steinriede, K. (2007).  Branding together: Sara Lee’s integrated innovation. New Products Magazine, 34-38.  Retrieved Jan. 7, 2009, from www.NewProductsOnline.com.
14. Thompson, A.A., & Gamble, J.E. (2007).  Chapter 21: Sara Lee Corporation: Retrenching to a
15. Narrower Range of Operations.  In A.A. Thompson, A.J. Strickland, & J.E. Gamble    (Eds.).  Crafting and executing strategy: The quest for competitive advantage (16th ed.) (pp. C-305-C317).