Sara Lee sees upside in fresh bakery operations

by Eric Schroeder
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NEW YORK — A more disciplined approach to simplify its business and standardize pricing and LEAN efforts is under way within the North American Fresh Bakery unit at Sara Lee Corp., company executives said Sept. 14 at the annual “Meet the Management” analyst day in New York.

Christopher J. (C.J.) Fraleigh, chief executive officer for North America at Sara Lee, said the North American retail, food service and fresh bakery segments all are driving value creation though sustainable competitive advantage. Specific to baking, though, Mr. Fraleigh said Sara Lee’s additional investment in marketing, people and price competitiveness started in the fourth quarter of fiscal 2010 and continues through the first quarter of fiscal 2011. He indicated that the first quarter of fiscal 2011 should be a strong investment quarter for fresh bakery, and overall fiscal 2011 should show improvement over fiscal 2010.

“Our fresh bakery business has been relatively flat on income the past few years,” Mr. Fraleigh said. “And this segment has had many marketplace successes around products and customers, but our profit growth has been less than its potential and less than our shareholders need. While the fresh bakery business isn’t going to significantly influence total Sara Lee’s results, given its relative size and its current contribution, we still believe there is upside there that we have to capture for our shareholders.”

He noted that Sara Lee’s fresh bakery is a leading player in the category with 41 dedicated bakeries, 4,500 routes and 13,100 employees.

“The performance of the segment has been flat,” he said. “We don’t find this acceptable, and we moved this segment starting in the fourth quarter of last year into our North American group reporting directly to me. We’ve taken a fresh look at this business and we see some clear opportunity to drive sustained growth over time. And while the competitive environment has been really intense, we see a lot of prospects for improvement by leveraging some of the simple elements that we’ve put in place and been consistent with in our retail business in our other segments around Sara Lee.

“Starting at the end of the fourth quarter of last year we brought some disciplined capabilities specifically around strategy, pricing and innovation. And this more disciplined approach already is starting to pay dividends. We’re gaining share again for the first time in almost all of our regions in a year. We’ve won significant private label bids with key strategic customers and we’ve added additional shelf space that will start showing up next month with a number of key large retailers. We’ve also successfully improved the formula of what we call our ‘core products’ and relaunched them.”

Mr. Fraleigh said that business has improved profitability over time, but not as much the past two years and not nearly up to its potential.

“But it has improved, from a money-losing proposition six to seven years ago to where it is today,” he said.
Also during the meeting, company executives outlined ways in which Sara Lee hopes to fix some of its more challenged units, including International Bakery and North American Foodservice.

In order to maintain the necessary competitive position for the International Beverage and Bakery business and as a result of its sale of the Household and Body Care business, Marcel Smits, interim c.e.o., said Sara Lee will cut 390 jobs in Europe over the next three years. The move is expected to lead to a total labor cost reduction of approximately €30 million by fiscal 2013.

International Bakery sales fell 1% during fiscal 2010, to $785 million. And while the refrigerated business is doing well and the frozen business is improving, company executives said Sara Lee is fixing the fresh business by focusing on cost structure and pricing as well as innovation.

Within North American Foodservice, Sara Lee has rebounded recently due in part to focusing on brand building, increasing its focus on wellness and nutrition, and stepping up its marketing to Hispanic and African-American audiences.
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