FORE SCHOOL OF MANAGEMENT

Sara Lee Corporation in 2011: Has Retrenchment Strategy been successful? GE 9 Cell Matrix
Taranjit Singh Bhasin FMG 21C 211150

Industry Attractiveness
No. of competitors:
Sara Lee had a large number of competitors for each of its strategic business units. This can be deduced from the fact that there were a lot of investors and rival companies who readily bought out various divisions of Sara Lee. Sara Lee retained its strategic business units in the food & beverage industry because it faced lesser competition in these divisions and hence they have been assigned a higher rating.

Bargaining power of suppliers / buyers:

Depending on the nature of industry, the various business units in Sara Lee had varying degrees of bargaining power with its suppliers. For example, in the food industry the customers (Super stores) were the owners of scarce shelf space, so players like Sara Lee had less bargaining power then these buyers. Having said that, Sara Lee had relatively more bargaining power with the buyers compared to its competitors.

Economic Conditions:
The economic conditions in a country are a big factor which influences the profitability of a company and the success of its operations. For example, recession in US economy in 2007 changed the preferences of consumers and owing to this all the major players in the market had to fight hard to sustain their market share.

Industry size & growth:

The growth in an industry tells a company how well it is fairing compared to the industry standards. Sara Lee divested many of its units because of low or negative growth rate in the particular industry the SBUs were operating in. The biggest jumps in growth rate were expected to be in retail and beverage industry and hence Sara Lee projected its North American Retail and International Beverage division to maintain leadership position in the industry. For example, the espresso segment was expected to grow from $4.3 billion in 2009 to $9.9 billion in 2013.

Business Strength
Innovation & New Products:
Innovation and differentiation of its products was one of the biggest strengths for Sara Lee. Major innovations took place in Sara Lees North American Food Service division which helped the company to sustain its position in the market in recessionary times. For example, new clientele in the form of restaurant employees was found for products like pre sliced deli meats. Also new products were introduced by the International Bakery division to tackle declining sales in Spain.

Sales Growth:
Retained SBUs:
Out of the five retained SBUs only two i.e. North American Retail and International Beverage witnessed growth in net sales in 2010. The rest of the divisions witnessed a slight decline compared to the 2009 figures. The income from operations before taxes had increased for all the segments compared to the 2009 figures.

Divested SBUs:
All the divested business units had a negative sales growth rate at the time of divestiture in 2006. The biggest decrease in sales can be observed in Direct Selling and European branded apparel divisions in 2006. No division other than Direct Selling had a positive income figure before the divestiture.

Pricing:
Key to Sara Lees success even in recessionary times was following a disciplined approach to pricing, especially in divisions like North American fresh Bakery which were worst affected by the economic conditions. Also the company planned to improve sales in the International Bakery division by adopting an everyday low pricing strategy.

Financial Strength:
Sara Lee generated a total of $10,793 million from the sales of its retained divisions in 2010 and more than 50 % of this sales was contributed by two divisions alone i.e. North American Retail and International Beverage. The biggest financial strength for the company was the International Beverage division with $3221 millions of net sales. The lowest financial contribution to sales was made by the International Bakery division.

Public Approval:
Sara Lees North American Fresh Bakery, North American Food service & International Beverage

divisions were the leaders in their respective markets and this is proof enough that Sara Lee as a brand was trusted and accepted by its customers.

Relative Market Share:

Sara Lee had divested most of its business divisions in which it had a relatively low market share compared to competitors. In the retained divisions most of the SBUs enjoyed a healthy market share, with the North American Food service & International Beverage divisions enjoying the no.1 position in market.

GE 9 Cell Matrix
Industry Weights A Attractiveness (wi) No. of Competitors Bargaining power of Economic Conditions Industry size & growth 1.00 0.3 0.2 0.2 0.3 9 7 8 8 8.1 B C D E F G H I J K L M N

8 6 6 9 7.5

7 8 6 6 6.7

9 9 9 9 9

7 7 6 7 6.8

4 6 2 3 3.7

3 4 3 3 3.2

4 4 2 4 3.6

2 5 3 4 3.4

3 5 4 2 3.3

4 4 4 3 3.7

2 3 3 3 2.7

3 4 4 2 3.1

2 2 3 3 2.5

Business Strength Sales Growth Financial Strength Pricing Innovation & New products Public Approval Relative Share

Weights 0.3 0.15 0.15 0.1 0.15 0.15 1

A 7 7 7 6 8 7 7.0 5

B 8 7 7 7 7 6 7.1 5

C 7 7 6 8 8 7 7.1

D 8 7 5 7 7 6 6.8 5

E 5 4 4 5 6 3 4.5 5

F 7 7 6 7 8 7 7

G 6 6 5 7 6 4 5.6 5

H 3 5 4 5 5 4 4.1

I 4 3 4 3 2 3 3.3

J 7 7 7 8 7 6 6.9 5

K 4 3 3 2 3 3 3.2

L 4 5 3 2 3 2 3.3 5

M 3 4 3 2 3 3 3.0 5

N 3 4 4 5 6 4 4.1

Key:
A: North American Retail B: North American Fresh Bakery C: North American Foodservice D: International Beverage E: International Bakery F: International Household & Body Care G: Direct Selling H: U.S. Retail Coffee I: European Apparel J: European Nuts and Snacks K: European Rice L: U.S. Meat Snacks M: European Meats N: Sara Lee Branded Apparel

SBU A B C D E F G H I J K L M N Industry Attractive ness 6.0 A

Industry Attractiveness
8.1 7.5 6.7 9 6.8 3.7 3.2 3.6 3.4 3.3 3.7 2.7 3.1 2.5

Business Strength
7.05 7.15 7.1 6.85 4.55 7 5.6 4.1 3.3 6.95 3.2 3.35 3.05 4.1

D C B

E I

3.0

H N G 6.5 3.5

Business Strengths

Comment
From the above GE 9 cell matrix we can observe that the company has been right in divesting SBUs N,K,M & L, while the SBUs A,B,C & D lie in the premium-invest for growth cell. SBUs E & I lie in the Selective-Invest for growth cell SBUs J & F lie in Challenge-Invest for growth cell SBUs G & H lie in Opportunistic-preserve for harvest cell. From the above results we can observe that Sara Lee has been right in retaining the SBUs A,B,C,D & E.