Reference no: EM131485986

Case Study: Sara Lee's Retrenchment Strategy

Introduction

Sara Lee started out as a small company in wholesale distribution that gradually grew to a series of related and unrelated businesses. For the next 40 years, the company expanded to food processing, retail food, and household products to more than 40 countries. Their broad differentiation strategy and geographically spread operations has management struggling to operate efficiently. Even with the vast company's portfolio, it did not help with building shareholder value. With the declining profits worldwide, Sara Lee's retrenchment initiatives is divest eight of its business units to raise profitability through operating profit and sales.

Strategies
Sara Lee's retrenchment strategy is required in order to focus its resources on more profitable industries such as the beverage, food, and household products company. Their plan on separating themselves from weak performing business units and product categories will put the company in a better financial position. Management will be able to focus their resources to boost their profitability, sales, and market shares on the remaining products. The spin-off of Hanes brands was a smart move even though the operating profit margin was still a moneymaker. The cash payment needed to eliminate the note payable to Hanes brand from Sara Lee and it did not strategically fit with their new core businesses. However, their retrenchment plan fell short for their bottom line in 2010. There is still not enough cash flow for the company to expand and grow through acquisitions of rapidly emergent of new food and beverage trends from other companies.

Attractiveness
The company's retrenchment strategy placed it in moderately attractive industries at best. Sara Lee has developed into a well-known name within the retail industry, as a value-conscious brand with quality products. The food service industry will no doubt continue to be attractive, as consumers will turn to purchasing meats and other foods rather than eating out in this slumping economy. As for the retail meats, bakery, frozen desserts, and coffee are all just around the average attractiveness range. The growth potentials are very strong, but it does have a lot of competition following suit.

Strength

The competitive strength of Sara Lee business units is rather strong in their particular segments. Strength includes brand recognition and the ability to offer a wide range of products in the marketplace. The potential for skills transfer and cost saving in the production process due to the similarity of the products, and will be advantageous for the operating profit margin. The shipping logistics and production technology when focusing in the food industry will result in high-quality products with great value. The other strength is their aggressive approach to educating the public on the nutritional value of their products through their advertisement.

Resource fit

It does appear that Sara Lee does have adequate strategic and resource to fit contribute increase shareholder value. The product line does relate to one another and support each other that suggest substantial cost sharing opportunities. The production, distribution, and purchasing processed frozen desserts, meat, and bakery segment are other related items. The retail and bakery division is strategically in line with their growing foodservice division resulting in significant saving in operations activities and purchasing. There will be skills transfer, cost sharing, and brand sharing opportunities in store for each business units causing decent increase in shareholder value. It does appear that the company did divest the least strategically important business units such as Hanes brand. It did not fall in line with their food industry segment even though it was making a good profit for the company.

Profit

Sara Lee revenue as been on the decline since the retrenchment in 2005 and is finally showing a little bit of coming back alive in 2010. According to the company's latest financial reports, the gross profits continue to decline from $1,239M in July 2010 to $1,197M in July 2011, and 1,113M in June 2012. The net sales on the North American Retail in 2011 were at $2,868M (increase of 1.8% from 2010). North American Foodservice increased 1.2% from 2010 to $1,566M in 2011. The International Beverage segment grew 10.2% from previous year to $3,548 in 2011. The International Bakery continued on its declining slope in losing 7.5% resulting in $726M. The concept of having fresh bread compare to package bread is still a dominating factor in the European market.

Required Tasks:

In this portfolio you need to do the following tasks:

1. Write an introductory insight citing the related theoretical background and organisation of thoughts of the essay as well as its objectives.

2. Critically evaluate the strategic retrenchment aspect of Sara Lee.

3. Analyse critically the implications of Sara Lee's macro-environment using PESTEL framework.

4. Recommend a Strategic Planning Cycle for the company's financial and market performance in Oman

5. Write an in-depth conclusion that is reasonably and clearly developed from the preceding thoughts.

6. Provide a list of reference reflected from the in-text citations that are used to support the arguments.

Structure of this Portfolio:

I. Introduction:
Should include the following:
- Brief overview of the company featured in the case situation.
- Objectives of the portfolio (refer to the tasks)

II. Content and Analysis:

Should include the following:
1. Critical evaluation of the strategic retrenchment aspect of Sara Lee.
2. Critical analyses of the implications of Sara Lee's macro-environment using PESTEL framework.
3. Recommendation of a Strategic Plan Cycle for the company's financial and market performance in Oman

III. Conclusion:

Provide summary and emphases of the key points of discussion. It should be drawn according to the objectives of the portfolio mentioned in the introduction.

N. References:

The required appropriate and varied range of references must be 10-20 sources with accurate application of Harvard Referencing System