Sara Lee not craving U.S. coffee deals

By Reuters
Posted Nov. 16, 2010 at 5:55 a.m.

Sara Lee Corp. will not rush to make acquisitions in the U.S. coffee market, even as it revamps its business to focus on coffee and meat, its interim chief executive said.

Speculation about deals in the U.S. coffee business has circulated since earlier this month when Starbucks Corp said it wanted to end its distribution deal with Kraft Foods Inc, which has sold bagged Starbucks coffee at supermarkets for the past 12 years.

“It’s very easy to buy something just because it’s for sale. But just because something is for sale doesn’t necessarily mean we have to buy it,” interim CEO Marcel Smits said in an interview on Monday.

Starbucks also makes coffee pods for Kraft’s one-cup Tassimo coffee brewer, a competitor to Sara Lee’s Senseo coffee system. The spectre of increased competition between Sara Lee and Starbucks, the world’s biggest coffee company, arose last week with media reports that Starbucks was going to launch its own one-cup brewer.

A Starbucks spokesman said on Monday that the company has no plans to launch its own one-cup brewer at this time.

In addition, analysts have suggested that if Kraft lost the Starbucks business, it could seek to unload its Maxwell House business, especially since Kraft is focusing on candy with its recent acquisition of British confectioner Cadbury. In that case, Sara Lee would be an obvious potential suitor.

Smits said he did not have the impression that Starbucks was looking for a new distribution partner for bagged coffee. He said Sara Lee would look “long and hard” at any potential acquisition, and that would include Maxwell House.

“We will only do acquisitions if we think we can make a combination that the current owner cannot make, and therefore we are a better owner,” Smits said.

Smits said Wall Street assumes a deal in U.S. coffee is now a top priority for Sara Lee since it agreed last week to sell its North American bakery business, leaving it to focus on brands like Hillshire Farm lunch meat and Senseo, which gets most of its sales from Europe.

“That’s not necessarily where we need to start. If we can make our business in Germany bigger … that may well be the place where we’d want to go next,” Smits said. “Would we like to do something in Brazil tomorrow? Yes, of course. This is the time to move on Brazil, if ever.” He said Sara Lee is already successful in Brazil with its market-leading Pilao coffee brand.

“We do not have a burning desire to make a move on the American coffee market,” he added. “Would we think about it? Is there an opportunity? Yes, of course we would.”

Smits has led Sara Lee since May, when former CEO Brenda Barnes suffered a stroke. He is widely considered to be a top contender for the job, along with Christopher J. (CJ) Fraleigh, the head of Sara Lee’s North American retail and food service business.


Rather than buying a new brand, Fraleigh said in the same interview that Sara Lee’s “biggest single opportunity” in coffee will be in developing new products.

“As we have a technology that we believe offers a real sustainable point of difference for the U.S. consumer, we’ll look at getting into the U.S. retail market more significantly than we are right now,” Fraleigh said.

Most of Sara Lee’s U.S. coffee business is selling to food service customers like restaurants. For Senseo, which makes single-cup coffee brewers and coffee pods to go with it, the U.S. only accounts for some $20 million in annual sales of $550 million.

One way Sara Lee expects to fuel Senseo sales in the United States is by letting the machines vary cup size, since the current machines cater to smaller European cups.

The one-cup coffee market is now dominated by Green Mountain Coffee Roasters Inc, whose Keurig products have a roughly 80 percent market share.

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