Bread remains work in progress at Sara Lee

By Emily Bryson York
Posted Sep. 14, 2010 at 5:09 p.m.

At its annual Meet the Management Analyst Day in New York Tuesday, Sara Lee presented itself as holding company-turned operating company with a string of successes in growing, high-margin businesses and a handful of struggling ones in need of work.
 The maker of Hillshire Farm sausage and Senseo coffee touted them its biggest successes — North American meats and European coffee — and laid out cases for fixing its problem areas, including International Bakery, North American Bakery and North American Foodservice.

Rumors swirled in July that the Downers Grove-based company was shopping its bread business, but North American CEO C.J. Fraleigh underscored that Sara Lee is committed to fixing it.

“We’re gaining share in almost all regions,” he said, adding that the company won a private label account with a “strategic customer,” likely Wal-Mart, which will result in additional shelf space for its Sara Lee-branded breads as well. The bread business has “improved from a money-losing proposition six to seven years ago to where it is today,” Fraleigh said, alluding to the fact it’s making money now. Still, Sara Lee isn’t satisfied, and it moved the North American bakery under Fraleigh’s direct supervision in the fourth fiscal quarter ended July to improve its results.

North American Fresh Bakery sales fell 3 percent during the last fiscal year, to $2.13 billion. North American Foodservice sales, meanwhile, fell 10 percent during fiscal 2010, to $1.87 billion. However, operating margins are increasing in both business units.

In foodservice side, Fraleigh explained that Sara Lee is shifting resources to areas where it has a competitive advantage, such as meat, bakery and coffee.

Sara Lee has also identified other opportunities to grow, including convenience stores. Consumers don’t always trust the sandwiches they see in a convenience store, Fraleigh said. But when they see a Hillshire Farm or Ballpark franks logo, they’re more likely to trust the product, and sales go up, he said.

The company’s International Bakery business has also been under pressure, said Frank van Oers, CEO of International Beverage and Bakery, noting the weak economy in Spain. Sara Lee cut jobs by 30 percent in the region, which given Spain’s 20 percent unemployment rate, “was not easy,” van Oers said. But the cuts helped reduced Sara Lee’s price gap with private label, he said.

International Bakery sales fell 1 percent during fiscal 2010, to $785 million.

International Beverage meantime has been strong. Sales grew 5 percent during fiscal 2010 to $3.22 billion. Marleen Vaesen, senior vice president of international beverage, highlighted a number of initiatives that are paying off in Europe, including the launch of L’Or espresso capsules, a premium, single-serve product.

Back in North America, the retail division continues to perform. Sales in the segment, which includes Hillshire Farm sausage and Sara Lee cheesecake, increased 2 percent during fiscal 2010. Sales would have been flat, however, without an extra week in the year.

Monty Pooley, president of retail for Sara Lee North America, said the company’s increased investments in marketing and innovation have paid off, as Sara Lee has number-one market position in every major grocery category in which it competes, with the exception of bread, which is number two. On the innovation front, he underscored recent success in premium deli meats, and a recently-launched low-sodium option, likely to be a no-brainer for many moms, he said.

The company is still working to replace Brenda Barnes, the charismatic chief executive who stepped down in August after suffering a stroke in May. Sara Lee’s board is considering internal and external candidates. Fraleigh and Interim CEO Marcel Smits are both widely considered to be under consideration.

Sara Lee announced it is cutting 390 jobs in Europe over the next few years. The company said Tuesday that the positions have become redundant as it sells off its household and body care businesses.

The Associated Press contributed to this article.

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