The announcement last week that Ralcorp Holdings will be acquiring the refrigerated dough business of Sara Lee Corp. presents a different perspective for reflecting on what has transpired in the 10 years since Sara Lee acquired The Earthgrains Co. The Ralcorp deal prompts questions about the principal strategic initiative pursued at Sara Lee over the past decade — the building of the Sara Lee brand in the bread aisle. This focus was anything but a foregone conclusion when Earthgrains was acquired.

Announcing the deal in July 2001, C. Steven McMillan, then Sara Lee chairman and chief executive officer, spoke at some length about the potential to turn Earthgrains’ profitable private label refrigerated dough business into a worthy competitor of the dominant brand in the category — Pillsbury. Mr. McMillan said he was confident Sara Lee could succeed in refrigerated dough.

“When we do focus groups and ask people what categories we should participate in, people already assume we’re in the refrigerated dough business,” he said at the time. “…This is not like Earthgrains having to go out and try to build a brand from scratch.”

Despite these musings, Sara Lee never entered the branded frozen dough business in the United States, focusing instead on the bread and rolls category. At first blush, the decision seems to have been sound. In very short order, Sara Lee was catapulted into the top-selling bread brand in the United States.

A difficult achievement in any category, this meteoric rise, built on the strength of the Sara Lee name in baked foods and product innovation, was especially impressive in a category as mature and established as bread. Still, in hindsight, it is difficult to see what this achievement produced in terms of shareholder return. In part by design, Sara Lee bread and roll sales cannibalized sales of its existing company brands. Overall company bread sales were flat, at best, in the years Sara Lee has owned the business.

The growth of the Sara Lee brand appears to have done little to build value, given that Sara Lee agreed to accept $959 million for the business that generates $2.1 billion in annual sales, versus the $2.8 billion it paid for $2.8 billion overall in Earthgrains sales. The $545 million Ralcorp has agreed to pay for a refrigerated dough business with $300 million in sales begs the question of whether Sara Lee would have been able to build the profitability of this smaller division with a branded strategy.

Even with the benefit of hindsight, it is impossible to imagine Sara Lee would have neglected the opportunity to attempt growing the Earthgrains fresh baking business. The sales multiple to be paid by Ralcorp suggests Sara Lee managed the business well, but one wonders what may have been possible had Mr. McMillan’s comments been pursued in the years that followed.