TO: Mrs. Sabine Turnley
FROM: Team 5 (Jamie Briscoe, Bradley Veenendaal, Jessica Kolb, Rebecca Christie, Kody Lynn)
SUBJ: Sara Lee Corporation in 2011: Has Its Retrenchment Strategy Been Successful?
In 2005, Sara Lee placed a strategic plan in action to transform the business into a more tightly focused food, beverage and household products company. This involved the divestiture of weak-performing business and product categories, which included eight business units. Although the divestiture would decrease Sara Lee’s revenues, it was believed that concentrating their financial and managerial resources on a smaller number of ...view middle of the document...
The second was category management and leverage through size and operating excellence was the last strategy.
The retrenchment strategy has changed the nature of the business lineup by exiting eight businesses that had been targeted as nonstrategic. The company sold seven of these businesses then performed a spin-off with the Sara Lee branded apparel business. This strategy was performed because these businesses were competitively weak and unattractive. They also lacked adequate strategic and resource fit. The company then focused their resources on fewer businesses and attractive markets. The combined net sales for the divested businesses decreased from 2004-2006, resulting in net sales of $2,595 million in 2006 compared to $3,675 million in 2004. Although the retrenchment strategy affected Sara Lee’s revenues, it was believed that it would strengthen their overall business mission and increase the competitiveness among their well positioned businesses.
Sara Lee completed a spin off with their Sara Lee branded apparel with an independent company named Hanesbrands Inc. The spin off was performed because of the eroding sales and weak returns on its equity investments. It was also performed because Sara Lee believed that the shareholders would be better served by the spin off. With the spin off came some unusual financial features. Hanesbrands had to make a one-time “dividend” payment of $2.4 billion to Sara Lee immediately following the commencement of independent operations. In order for Hanesbrands to do this, they had to borrow $2.6 billion, therefore starting the company with a huge debt. With a high debt-to-equity ratio questions arose to whether or not the company would be able to invest in revitalizing its brands and growing the business. A BusinessWeek reporter thought the unusual outsized dividend payment was performed because the sale from the divested units fell far short of what Sara Lee hoped, $3 billion, which was a vital part of the retrenchment strategy.
The industries represented in Sara Lee Corporation’s portfolio are moderately attractive according to our analysis. We used many measures to calculate industry attractiveness; the most weighted being projected growth rate, then market size, and intensity of competition. Using our measures, weights, and the importance of the weight, we found that the five industries that Sara Lee occupies are fairly similar in attractiveness. The food retail industry is the most attractive and the international refrigerated bread industry is the least attractive.
The food retail industry is the most attractive primarily because it has an extremely high market size. This industry is benefiting from the economic downturn because less people are eating at restaurants. Instead they are making more meals at home. Although this industry is benefiting from the economic downturn, there is a high risk of uncertainty. This is because of the competitiveness of the industry, economic factors,...