Sara Lee's Smits discusses company activities

by Bryan Salvage
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BOSTON – On June 14 at the Deutsche Bank Global Consumer Conference in Paris, France, Sara Lee Corp. Executive Chairman Jan Bennink said a decision was reached for Sara Lee to spin off its International Coffee and Tea business instead of its North American business, which includes meat products under the Ball Park, Hillshire Farm, Jimmy Dean and Sara Lee brands. Earlier this year, Sara Lee decided to separate into two publicly-traded, pure-play companies.

“One company is Sara Lee, which will consist of our North American Retail [Jimmy Dean, Ball Park, Hillshire Farm, Sara Lee Frozen Desserts] and North American Foodservice [minus the North American Beverage business]. The other is what we’re calling CoffeeCo, which will consist of the International Coffee and Tea business plus the North American Foodservice beverage business,” a Sara Lee spokesman told MEATPOULTRY.com at that time.

On Sept. 8, Marcel Smits, Sara Lee Corp. CEO, told attendees of Barclays Capital Back to School Consumer Conference, “As we execute the spin, fiscal 2012 is really a year of transition.”

Sara Lee activities in fiscal 2012 are focused on providing solid foundations, “so that the companies we are creating are going to outperform their peers in their respective markets,” he added. “And as the year progresses, we are increasingly confident we are creating to outperformance in their respective industries.”

During fiscal 2011, Sara Lee has made tremendous progress with the separation of its company,” Smits said. “In the last two years, we have completed a massive transformation of the business, a massive transformation of our portfolio; and that has helped to unlock shareholder value. And we've generated a return of more than 100 percent over two years.”

During fiscal 2011, Sara Lee announced the closings of its air care, body care, shoe care and cleaning business divestitures; and 98 percent of its household and body care divestitures are now largely completed.

In November of 2010, Sara Lee announced the disposition of its fresh bakery business in North America. It is aiming to close that deal before the end of September. The company is also progressing well in its intent to sell its French refrigerated dough business and its Spanish bakery business. But the company is also adding promising new businesses to its portfolio.

“In May, we announced the acquisition of Aidells Sausage Company,” Smits said. “Aidells is well known for its small-batch and all-natural sausage products. And they are produced with fresh ingredients. Interestingly enough, we sell Aidells now in our company shop, the product line next to our existing products. And I can say we have had to increase shelf space, and we still sell out.”

Sara Lee bought this business because it is a premium brand. “It's an indication of where we'd like to go,” Smits said. “It gives us exposure to new customer groups, new distribution channels. And the company actually has a very innovative way of reaching customers with trials generated in stores. This acquisition has closed, and it’s performing ahead of the expectations.”

Sara Lee is making progress in defining the leadership teams for the new organization, which remains a work in progress. “You may have seen the announcement of the CFO of the meat company, Maria Henry,” Smits said.

Sara Lee intends to accelerate both top- and bottom-line growth by creating two strong innovative and nimble pure-play companies, Smits iterated. And the desire is to make sure that they're closer to consumers and customers and markets, and they'll respond to opportunities faster than conglomerate competitors.

“In a pure-play company, there's actually nothing between the customer and the highest level of management,” Smits said. “We are confident that will give us better results, faster decisions, better innovation and a better company. We expect top-line growth and margin improvements in each of these businesses. We're making every effort to put both companies in a position where they can really outperform.

“We're eliminating as much as we can what I would call ‘the buckets behind the [boats]’, in a spring of dispositions,” he added. “We took some pain in fiscal 2011, where we had lots of headwind from a commodity cost point of view. We increased our margins. We took pricing that led us to shortened volume declines, but we felt that that was the right thing to do to ensure the long-term health of the business.

“We're eliminating as much cost as we can prior to the spin moment in order to make room for marketing investments and bottom-line improvements,” he continued. “Last but not least, we'll heavily incentivize the management teams to really outperform. So what we've told the people that we're hiring is – you'll get below-average pay for average performance. For above-average performance, you can expect to be rewarded very well. We want people to do really well relative to other companies in which you can invest.”

Sara Lee’s Foodservice includes Foodservice beverage and retail.

“The business portfolio is built to satisfy consumer needs throughout the day,” Smits said. “We have breakfast, lunch and dinner and snack offerings. Our Jimmy Dean products are included in the breakfast offering. And Hillshire Farm, Ball Park and our Sara Lee brand play in the lunch and dinner areas.

“Our four key brands comprise over 60 percent of the North American business sales,” he added. “Jimmy Dean, Hillshire Farm, Ball Park and Sara Lee are the bulk of our business. These brands are extremely well recognized, trusted by our consumers and they provide a very strong base on which to build a new stand-alone meats company.

“A couple of years ago, we decided we were going to push very hard behind those four brands,” he said. “We're rationalizing the less attractive parts of the portfolio away. We've had great success with those four brands, and we project that into the future.”

Jimmy Dean is a nice example of how Sara Lee has proven its capabilities of driving brands and products up the value chain, Smits said. “We started with a basic commodity product, or a staple,” he added. “Jimmy Dean used to be a sausage proposition, and now it's a breakfast proposition. So we have launched a whole range of products under the Jimmy Dean brand. We now have [lower-calorie], better-for-you offerings, as represented in the D-Lights brand. We have Jimmy D's products, which are tailored to children. They provide a nutritionally balanced breakfast in line with the USDA recommendations. And the Jimmy Dean Sausage Crumbles, and they focus on convenience and preparation speed.”

As a result, profitability has gone very well for these products, he adds. “We're now in the process of applying similar strategies to other brands,” Smits said. “You'll shortly see some innovation coming out under the Hillshire Farm brand. It will be in stores later this month -- Grilled [Essential] Chicken Breast, Deli Carver's, [Thicker Meat Slices] and Gourmet Creations; sausage products with fresh ingredients and new flavor combinations. So what we've done in Jimmy Dean -- we're going to do the same thing in Hillshire Farm. We're going to do the same thing in Ball Park. And we have actually good plans in place to drive that.”

Accelerating top-line growth, with continuous investment in innovation, is a key focus for Sara Lee. “We'll also continue to look for opportunities to augment our portfolio with premium and [artisanal] brands,” he said. High-quality, value-added products that taste great. I've already spoken to Aidells. There's other plans that we have in the pipeline to expand the portfolio with products and brands, which are at the cutting edge of evolving consumer preferences.

“To make a long story short – the spin is in full execution mode. And setting the companies up for outperformance is in planning mode. But we are getting increasingly confident that both of these companies will do very, very well,” Smits concluded.

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