"It's Hard to Like Sara Lee" was the Barrons headline this week. And how could you, after the company reported its third straight quarter with sales and earnings below expectation. Check out this quote "Failed expansion has become a hallmark of Sara Lee in recent years, as
the company entered and exited businesses more frequently than tourists
passing through Grand Central station."
Meanwhile, over at Businessweek the headline is "Sara Lee, Why Investors Won't Bite." The company keeps focusing on cost cutting. "Sara Lee Chairman and Chief Executive Brenda Barnes
said on Aug. 12 that she expects annual cost savings of $350 million to
$400 million by 2012." I wonder how far revenues will fall during that same period? Since Ms. Barnes took the helm 5 years ago, Sara Lee's value has shrunk 54% (chart here). Yet, her biggest plan remains more sales of existing businesses – now focused on selling the "houesehold and body care segments." Although after all the sales the last 4 years the takers keep getting thinner and thinner, and the prices lower and lower. Buyers recognize when a business has been stripped of its value and is nothing more than a shell of its previous self – no longer able to grow and produce cash flow.
Meanwhile at Sara Lee there are no real plans to sell any new products or services, so the P/E just keeps falling. Now at 11, it's one of the industry's lowest. But when you expect revenues and profits to keep getting smaller, you can't justify much of a P/E now can you? It takes growth to increase your P/E multiple.
Forbes tried putting lipstick on the pig with its headline "Sara Lee Sees Meaty Growth." The writer tried to focus on hopes the company has for selling more sausage and lunch meat. But there's no innovation. Just a hope that low commodity prices will improve the margins on these products – and the commodities will stay low so the margins don't dip. Sara Lee hasn't launched a new product since Ms. Barnes took the helm. Crain's summarized the situation more bluntly "Investors Find Little Tasty in Sara Lee."
Business is about creating shareholder value, not destroying it. And Ms. Barnes has been going the wrong way her entire tenure leading Sara Lee. As I pointed out in her first year of leadership in this blog, and have repeated often, Ms. Barnes has not developed any new products for the future, she has not identified competitive opportunities for growth, nor has she been willing to Disrupt old patterns and use White Space to develop and launch new revenue opportunities. Instead, she has slowly and painfully sold off one asset after another – and none of that money has come back to shareholders. Today all shareholders have as a result of her leadership is a smaller and less profitable declining company. And no cash to compensate for the shrinkage.
If we want to come out of this recession we have to replace leaders who are so wrong headed. There's no value in quarter after quarter of cost cutting. There's no value in selling off assets for one time gains to cover ongoing losses. There's no value in shrinking a company without distributing proceeds to the owners for investing elsewhere. Thus, there's no value to the leadership at Sara Lee. What's needed is someone at the helm willing to look to the marketplace for new product ideas and then use White Space to innovate those new solutions. Someone who will put energy and resources behind growth.
The employees, shareholders and vendors at Sara Lee have a lot of scars for waiting – and nothing good. Even the suburban Chicago town of Downer's Grove, IL is hurt by the loss of jobs. To get America going again we have to start growing – and there's no better place to start than Sara Lee. Before it disappears into oblivion – like the onetime Chicago retailer Montgomery Wards!
Great article Adam,
From Sara Lee’s fourth quarter results, it seems like they lost a lot of ground to
private label and hard discounters. Perhaps Sarah Lee got stuck in the middle of what Dave Randell calls the Freak Factor – embrace your weakness as a strength. Be more different, unique instead of trying to fit into the massive middle. But Sarah Lee is in many ways a middle market brand group. As their fourth quarter results show, Sara Lee cannot compete on the deep discounters nor can it compete with the private label. This leaves them fighting for shelf space in the middle. As companies like Wal Mart, Tesco, and Carrefour grow stronger, it is harder to compete in this space. Nobody is fighting for them. There is no tribe (community) behind the product, nothing truly special about them. If a loaf of bread by Sara Lee or a hot dog by Hillshire Farm (a sub-brand) is nearly the same as a discounter brand, how can they compete?
SARA LEE REPORTS FOURTH QUARTER AND FISCAL 2009 RESULTS
http://www.saralee.com/~/media/75B08634F40044A2819BF6361B8AA496.ashx
“Unit volumes, excluding acquisitions/divestitures, decreased 1.8% in the fourth quarter, as strong roast and ground coffee volumes in Brazil and instant coffee volumes in the United Kingdom, Australia and Thailand could not fully offset lower unit volumes in Europe due to competition from private label and hard discounters. International beverage unit volumes were down 2.8% for the year.”
“Unit volumes decreased 11.3% in the fourth quarter, primarily resulting from significantly lower unit
volumes in the Spanish fresh bakery business as consumers continued to trade down to private label breads in the very challenging economy, as well as from loss of business from a large customer and lower
refrigerated dough exports. Unit volumes for the year were down 11.6%.”
Very valid, I would not have survived (was CEO of Public Co 2003-2006)…no CEO should!
It is truly Innovate or Die, she should be the Innovation Champion, besides in tough times food product typically do better than average…
Adam…great stuff…thanks much for this review of Sara Lee. I worked briefly with Sara Lee in an advisory role during their development of their “Innovation Center.” Something which they don’t seem to have capitalized upon. Not surprising, now that we better understand the leadership direction, but it was a significant investment that will indeed be wasted unless someone can “right the ship.”
This is not a one-company question.
Wouldn’t it be refreshing if CEOs, instead of playing games with the numbers, created a system that addressed the issues described in “The Elephant in the Room: Corporate Performance Management Issues and its Reinvention” ( http://www.smartersolutions.com/pdfs/online_database/article115.htm
Great article Adam, which explains the fallacy of cost cutting your way to profit. It will not work and is a sign that the CEO has nothing to offer the company anymore.
Only new ideas and products will bring revenue to Sara Lee, now is the time to spend on research and marketing to ensure future growth.
I am amazed that in current times when the average term of CEO has shrunk( and is still shrinking) there is this instance. Nothing can be more powerful than growth – in real terms(volume and value). However, Sara Lee is probably not the onlu company. There are many more. Even Coca-Cola, for which I have lot of respect(I have spent a significant career time with the co.) has been challenged to grow – especially beyond carbonated drinks space.
In my opinion, large companies are very poor nurturing grounds for innovations. Leadership in these companies is too short term focussed – due to their personal career & bonus aspirations they tend to work more for short term gains with so predictable and CYA measures like cost cutting, increased mktg spends behind same activities and minor tweaking of existing products.
In the beverage space its been Red Bull, Glaceau type companies who have brought in innovations and succeeded. Biggies have only first ingnored them and later made efforts to acquire them. Lazy and expensive stuff! Also a little cowboyish.
So Sara Lee is not an exception… but the CEO of theirs is certainly one.
actually they should give her a good $2.3 mil bonus and pat her on the back. and tell her to keep up the good work. isn’t that what pretty much every big corporation in the us does: reward failure? and while we’re on the subject any reason the oil companies couldn’t bail out the car companies? after all who were the car companies building autos for in the first place? go hummer, go excalade. quick somebody get me my bonus.
Hi Adam, Great blog post. As a marketer I found it interesting and started to think…why cannot I think of any Sara Lee products that I have purchases in say – the last decade? I firs t had Sara Lee growing up in Canada (pastries and cakes) to a child’s tastebuds I’m sure they were great. But as an adult I did not associate Sara Lee with quality or healthy. When I moved to the USA and was exposed to a whole new world of brands and better Food Facts labelling – I dismissed Sara Lee as it never seemed to provide anything worth while. The taste did not warrant the choice of eating something with a lot of crap added. The prices did not beat our competitors. The “healthy” products didn’t seem to offer anything really concretely HEALTHY. I’ll give you an example. I just looked at the Sara Lee website and was surprised at some of the brands on offer. Maison du Café is something I see in the supermarket. Side by side poor quality robusta and higher quality arabica turned me right off. How is it believable to sell low quality and then have me believe your arabica coffee is one of the better coffees on the market? I remember in the US seeing the Sara Lee deli meats – they did not look like they were high quality, did not provide great nutrition (in my books) and in some cases seemed highly over-packaged. What is makes any of Sara Lee’s products stand out. While looking on the website I found a section to help you choose the “right bread”. I selected bread to help maintain weight. Laughingly I was recommended “Sara Lee 45 Calories of Delightful”. And I quote, “You’ll be amazed how just 45 calories and 9 grams of carbohydrates per slice can still deliver all the taste, texture and aroma of our regular breads. What it doesn’t have are artificial colors or flavors. Best of all, there are no trans fats. For all these reasons, this bread is 45 Calories and Delightful. And it’s only from Sara Lee.” There is no mention of serving size or even “per slice”. Alas, when the competition is providing a better value-add proposition (health benefit, taste, price, etc.) why would you choose Sara Lee? If you look on their website – much of the packaging looks just the same as when I was a kid in the 80s, but we consumers have changed quite a bit haven’t we?
Say I WAS a majority stock holder a business that was underperforming like Sara Lee has. I doubt very much that I would allow any senior leader to “monitor” substandard performance and do nothing to improve it. If pay for performance is good enough for the worker bees of any organization, then why shouldn’t it be good enough for the most accountable people in the organization? And while some business may not lend well to better controls over sales performance, their leaders ALWAYS have the ability to innovate and create new ways to improve parts of the business that WILL lead to possibly better business performance. So much blatant sloth in the senior ranks of so many American companies. No wonder we suffer the standing we have on the global economy.
Amazing that she’s still there in this age of impatient investors. Perhaps more to the point, what’s wrong with the Sara Lee board?
Well said folks…and this is the kind of nonsense that allows the media the opportunity to sensationalize dips in the economy, yet the result of commerce retardation (meaning it is stepping backward from a politically correct standpoint) is the enabling factor for economic recession, lining the pockets of incompetents. I know of an oil and gas company here in Calgary that pays their secratary close to $100,000 per year and their CEO close to $200,000 per year, yet the CEO has not grown the company AT ALL since its inception and the secretary?? Come now, why does she need that kind of salary? Then they wonder why the board of directors is selling the company, well at least they will lose their jobs and rightfully so, which is the way it should be defined for all of these muck-luck presidents and CEOs who accomplish nothing and spend company money. An ounce of prevention is worth a pound of cure…what happened to that?!?
Adam, she knows what to say to the Board, plain and simple.
She’s probably very skilled at blaming the economy, her industry, her direct reports and her unmotivated staff.
The real questions are:
– Why is the Board not holding her accountable?
– If they plan to do so, what exactly are they waiting for?
– What’s the point of board oversight, if it isn’t used to ensure the long-term value of an organization?
Good idea, Frank… why shouldn’t the oil companies bail out the car companies? Your bonus check is in the mail… 🙂
Recessions are quite healthy in the sense that it’s an opportunity to cut out the dead wood and reduce fat in the organisation. But Brenda Barnes has been cost-cutting for 5 years – since way before anyone had even heard of toxic assets. If you keep on cost-cutting and stripping out assets soon there becomes nothing left to cut – and nothing left to build upon.
No new products since she took the helm says that the company lacks vision, lacks inspiration, lacks the ability to make the tough choices that innovation requires. All of this has to come from the top. Brenda Barnes has failed in her responsibilities to the shareholders. I cannot see Sara Lee surviving in its current state.