"Nobody doesn't like Sara Lee." That was the jingle I still remember from my youth. For years we heard this on the TV, as we were coaxed to buy the delictable productss, frozen, refrigerated and fresh, offered by Sara Lee. But today, unfortunately, almost nobody likes Sara Lee anymore. Oh – the products are great – it's the company, primarily its leadership, that's a disaster.
It's tough to make money on food. After all, everyone has the same cost for the ingredients. And in the developed world, there's more than enough food to go around. For the last 50 years, to make money on food required adding to the product so it had more value. Such as freezing frozen potatoe slices rather than selling whole potatoes so french fries are more convenient - raising price and margin. Or adding preservatives and vitamins so the bread lasts longer than the other guy's, and may be a touch better for you. Or the biggest addition, advertising so you imbue the food with all kinds of personality elements urging customers to identify with the product. If you want to make money selling food, you have to taste better, prepare faster, sell cheaper and hopefully give me more value in myself — or else I'll by the generic product and kill your margin. And for a number of years, Sara Lee knew how to do this fairly well.
But then, Sara Lee stumbled. It quit launching new products and new brands. It's quality and branding was matched by competitors from Entenmann's to Little Debbie. Without innovation, the frozen, refrigerated and fresh pies, sausage and other products saw margins shrink. So Sara Lee hired a bright exec from PepsiCo to fix up the company named Brenda Barnes. Since then, the story has really gone downhill.
Ms. Barnes focused on her "problem," a low stock price, rather the market challenges Sara Lee faced. She built a 5 year plan to turn around Sara Lee. But his plan had no innovation involved. No plans for growth. Just the opposite, she intended to sell many assets to raise cash. And then use that cash to buy shares. And through this process, she would "prop up" the company stock to the benefit of shareholders. The company would be smaller – but she said it would be worth more – in some kind of weird economics. But, this stock ploy had worked for other industrial companies, she said, so it would work for Sara Lee. Since then, according to the chart at Marketwatch.com, Sara Lee stock has gone from 21 to 7! While the CEO wants to blame the tough economy for her performance, the chart shows that this "strategy" has been a dead loser since the day it was announced. Things have been downhill since long before banks trimmed their lending.
Now, in her latest move, the CEO wants to sell some more businesses. But in an FT.com article "Sara Lee Searches for Sell-off Suitor" there aren't any buyers for remaining businesses. As one analyst commented "it's a rather tired portfolio." That's a polite way of saying "when you don't innovate your business, why would someone want to buy it?" As another analyst said "it's not a very good business." Increasingly, instead of buying these product lines competitors realize they would prefer to compete against them, growing sales organically and profitably — without the headaches and cost of acquisition.
So, because the sale side of the strategy isn't working, we read in Crains ChicagoBusiness.com "Sara Lee to put stock repurchases on hold." After buying shares at $20, $18, $15, the CEO has decided not to buy shares when they are $7 – in order to conserve cash! Maybe if she had spent money on growing the business, expanding products and new business lines, using White Space to innovate new profitable opportunities the stock wouldn't be down to $7 with little interest on the part of any buyers.
Ms. Barnes tried to implement an industrial strategy when it can no longer work. Sara Lee brands aren't some kind of asset that will always go up in value. You can't just expect sales and profits to rise because you do more of the same, and cut costs. The world is highly competitive, and you have to prove the value of your business every day. Customers are demanding, and competitors are ready to steal them away in a heartbeat. You can't prop up the stock by trying to reduce the number of shares, unless you're ready to get down to $1 of revenue and 1 share left valued at $1. What good is that?
Sara Lee could have behaved very differently in 2005 – and CAN behave very differently now. The company clearly needs a new CEO that is ready to develop scenarios of the future which indicate what innovations could have high value. Instead of talking about what Sara Lee used to be, the CEO and management team needs to define what Sara Lee will be in 2015. And by obsessing about competitors, describe how Sara Lee can be a big winner. Then there needs to be Disruption in order to allow the company to consider the new business opportunities, and White Space with permission and resources to rebuild the Success Formula into one that can make above-average rates of return and grow! If Sara Lee will take these actions the company still has time to meet market challenges. But if it doesn't act fast, after 4 years of decline and a very shifted market, nobody's going to have any Sara Lee to nibble on sooner than Ms. Barnes is admitting.
