At work yesterday someone left a Chicago Tribune by the water cooler. One of the headlines caught my eye, so I photocopied the article so I could read it. They also have it online: New menu at Sara Lee
Sara Lee is selling or spinning off businesses that account for about 40% of sales. Quite a bit, although looking at what they're getting out of, they're not going to see much drop in profit. Most of it is very low margin stuff or stuff that was managed poorly to begin with:
They're getting out of Branded Apparel (Hanes, L'eggs, Champion, Bali, Playtex, Wonderbra, Barely There --okay, some of those had money in them) US Retail coffee (Hills Bros, Chock full o'Nuts, Chase & Sanborn, MJB), Meats in Europe and a direct selling division that wasn't a good idea to begin with.
Their portfolio summary had at one point been "packaged consumer goods," which was at least a useful definition, even if it's just consumerism.
Getting out of retail coffee, that one I get. Most of it's canned crap anyway. There's much less profit in there, and it's a harder market to play in. Price is a big enough market driver there that it's not necessarily worth competing there.
Getting out of apparel at first glance seems like a bad idea. There's some good brands there, some good products, and they're recently worked pretty hard to be innovative. Tagless t-shirts will be an industry norm pretty soon, probably, and they're the ones that started it.
On the other hand, the whole apparel group was managed poorly. Here's a little insider perspective from about a year ago:
Much of my job there (in the coffee end of things) was managing inventory for merchandising. That included a lot of shirts. When possible we used Sara Lee products for that. We had a lot of logos printed on Hanes t-shirts, for example.
Now, I could order shirts through a contact at the apparel group, and I could get them at cost. Then I just needed to get them printed, for which I was supposed to use a printer that the apparel group used. It was a preferred vendor kind of thing, and was supposed to leverage the large-scale purchasing power. But I had a local printer I used, because him buying the shirts, printing them, and selling them to me was still cheaper. Why? He was able to buy them below cost. And that makes sense how?
Yep, there were a few preferred-vendor things that didn't make sense. There was an official approved printer for all the paper stuff, business cards, letterhead, sales brochures, all that stuff. The theory was that every Sara Lee division all did their printing through that one source for a massive bulk discount.
Except it never worked. We were supposed to send all the printing there. Instead we gave them the chance to bid on every print job. They were never once the better deal. In ever case we had someone else who could do the same quality at less cost.
The trick is, the approved printer gave a rebate back to Sara Lee corporate for all the volume. So the individual branches paid more so that corporate would get this big rebate. The corporate bottom line won out. Steve McMillan got his multi-million dollar bonusses every year while the individual divisions had to freeze wages and hiring and lay people off to make their numbers every year.
The beverage division made solid profit every year I was there. And yet somehow the whole time we had raises frozen because we weren't quite making the numbers corporate targeted for us. How much of it was because we were carrying the burden so that corporate could get the benefit.
The good news is that Steve McMillan is stepping down. About damn time. I can't say enough good things about him. Okay, I can't say any. But I doubt the new CEO will be much different. She's the one starting this current round of restructuring. And it isn't to streamline the brand portfolio. It isn't to weed out brands and businesses that don't fit the corporate mission. No, it's because they considered underperforming on paper. It's the bottom line of the balance sheet. It's Corporate America.
Posted by fictionman at February 12, 2005 11:37 AM | TrackBack (0)