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Sara Lee Corporation is a leading global manufacturer and marketer of brand-name consumer packaged goods within four major business areas: packaged meats and bakery, coffee and grocery, household and personal care, and personal products. Within packaged meats and bakery, a predominantly U.S.-oriented operation, Sara Lee holds a leading position in the U.S. retail packaged meat market through such brands as Hillshire Farm, Ball Park, and Jimmy Dean; is number one in U.S. retail frozen baked goods (the flagship Sara Lee brand); and operates the third-largest full-line foodservice company in the country. The primarily European coffee and grocery operations are led by the Douwe Egberts coffee brand and Pickwick tea, and enjoy number one or number two positions in retail roasted coffee in several European countries. The household and personal care area includes shoe care and body care products and insecticides and is Sara Lee's most global business. Active mainly in Europe and North America, Sara Lee's personal products businesses include leading brands of hosiery, bras, panties, activewear, and underwear under such brands as Bali, Champion, Dim, Hanes, Hanes Her Way, L'eggs, Playtex undergarments, and the Wonderbra. Although seemingly disparate, most Sara Lee products would be considered staples, helping insulate the company from the effects of economic cycles. Sara Lee has manufacturing operations in nearly 40 countries and sells its products in more than 140 countries.
Formally organized in 1939, what is now the Sara Lee Corporation spent the next three decades under the direction of founder Nathan Cummings. Although he retired from active management of the company in 1968, Cummings remained the largest stockholder until his death in 1985, when Sara Lee bought back 1.8 million common shares from his estate.
Born in Canada in 1896, Cummings began his career in his father's shoe store. By 1917 he had built his own shoe manufacturing firm. Cummings's enterprise eventually expanded into a successful importer of general merchandise. This venture allowed him to purchase a small biscuit and candy company, which he later sold at a profit.
In 1939, at the age of 43, Cummings borrowed $5.2 million to buy the C.D. Kenny Company, a wholesale distributor of sugar, coffee, and tea established in 1870. The Baltimore-based company represented Cummings's first entry into U.S. markets, and he sought to increase the number of Kenny-label products.
Cummings broadened his geographic scope in 1942 with the purchase of Sprague, Warner & Company, a distributor of canned and packaged food nationwide. Under the established Richelieu label, sales came to $19 million that year, allowing Cummings to begin a significant expansion through acquisition, a strategy the company has consistently pursued.
After several smaller acquisitions, in 1945 Cummings acquired Reid, Murdoch and Company, the producer of the nationally recognized Monarch label. After this acquisition, the C.D. Kenny Company changed its name to the Consolidated Grocers Corporation, and in 1946 Consolidated made its first public stock offering. The Monarch purchase boosted sales to $123 million in 1946.
Smaller food companies struggled through a difficult period in the late 1950s and early 1960s as operational expenses and competition increased--continual development of new products and large promotional budgets were typically the only way to keep shelf space in supermarkets. But small companies offered their already-established brands to a large company like Consolidated, saving the cost of internal development. By 1970, Cummings had supervised the purchase of more than 90 companies by pursuing family-owned businesses who consented to mergers.
In 1951 Consolidated consisted of more than a dozen companies, and in 1953 sales passed $200 million. They did not remain that high for very long, however. Sales in 1954, the year Consolidated Grocers changed its name to Consolidated Foods, dropped to $133 million. Sales fell another $15 million the following year, when after-tax profits were only slightly above $1 million and earnings per common share fell almost 40 percent.
Cummings met these losses with further diversification. The Kitchens of Sara Lee, a five-year-old maker of frozen baked goods with annual sales of $9 million, was acquired in 1956 for 164,890 shares--not Consolidated's biggest purchase to date, but eventually a significant one. A slightly larger purchase of 34 Piggly Wiggly supermarkets marked Consolidated's first venture into food retailing. An even larger purchase, of the Omaha Cold Store Company, demonstrated Consolidated's preference for distribution and marketing operations rather than direct-to-consumer sales.
Consolidated continued a rapid acquisition pace into the 1960s with Shasta beverages and the Eagle Supermarket chain in 1961. L.H. Parke Company, Michigan Fruit Canners, and Monarch Food Ltd. of Toronto together added $35 million in sales for 1962. The corporation first went international in 1960 by buying a controlling interest in a Venezuelan vinegar company; a second foreign investment came in 1962, with the purchase of Jonker Fris, a Dutch canner. Although growth was rapid, analysts considered Consolidated stock a risk since dividend increases depended on purchases.
During the 1960s recently acquired Booth Fisheries reported a 16 percent rise in sales volume for 1962, up to $56.6 million. By following the industry trend toward packaging seafood for the convenience market, Booth Fisheries fought off fish shortages and normally unstable prices, raising division earnings from $2.35 per share to $3.22.
In 1966 Consolidated agreed to a Federal Trade Commission (FTC) order to spin off its supermarket division within three years, principally its Piggly Wiggly and Eagle supermarket chains. This agreement came as a surprise to analysts, because the industry expected leniency from the FTC due to the high cost of small-scale food production and distribution. But Consolidated Foods President William Howlett publicly welcomed the agreement, stating that Consolidated no longer wished to compete at the retail level with its other customers. And Consolidated still kept its convenience retail outlets such as Lawson Milk, purchased in 1960.
As Cummings prepared for retirement, Consolidated searched for a larger share of European and American markets. New production facilities were planned for Shasta and Sara Lee in 1964, tripling the latter's output, and sales that year topped $600 million. In 1966, Consolidated made two more important food purchases: Kahn's Meats and Idaho Frozen Foods.
Between 1964 and 1967, Consolidated made eight of its first nonfood acquisitions, including Oxford Chemical Corporation, a maker of cleaning products; Abbey Rents, a home furnishings company; Electrolux vacuum cleaners; and the Fuller Brush Company. Consolidated also entered the apparel industry when it purchased Gant shirts and several other clothing makers during this period. Within five years, nonfood businesses comprised 50 percent of the company's profits. William Howlett became Cummings's successor in 1968, but Cummings remained a director, and the largest shareholder, until his death. Howlett left two years later due to disagreements with the founding director. Despite the turbulence of the decade, sales tripled and after-tax earnings increased fivefold.
William A. Buzick Jr. became president in 1970, beginning a difficult decade for the corporation; by 1980, the selling price for a common share was almost 40 percent lower than 1970's purchase price. Although sales continued to rise, as the leader in the trend toward diversification, Consolidated soon discovered the drawbacks of the strategy as well. Consolidated's profits rose only 4 percent from 1972 to 1973--the year sales hit $2 billion--compared to an industry average of 17 percent. Sales continued to rise in 1974, but earnings dropped for the first time in 19 years as nonfood business did poorly.
During Buzick's five-year reign, Consolidated sold many of its food distribution businesses and production facilities. Buzick also increased the company's commitment to nonfood products with the purchase of Max Klein, Inc., a Philadelphia-based clothing company and Erdal (later Intradal), a Dutch personal care products company.
Nonfood activity peaked in 1975 as durable goods provided almost two-thirds of corporate profits. The diversification was prompted in part by the company's belief that federal restraints on the food industry would continue. In addition, economic constraints made Consolidated's growth goals difficult to achieve as only a food company. Under President Richard Nixon's economic-stabilization program of 1973, for instance, Sara Lee was allowed to raise prices on frozen baked goods only 6.35 percent; Consolidated had requested a 7.52 percent hike. Moving into nonfood businesses would make the corporation less dependent on federal decisions and less vulnerable to the antitrust suits that had impeded competitors.
Buzick left in 1975 and John H. Bryan became president. Bryan's family-owned business, Bryan Brothers Packing, was a 1968 Consolidated purchase. Bryan quickly sold more than 50 companies, most of which were smaller acquisitions made in the early 1970s. Fuller Brush and four furniture companies were singled out as problem units and divested. Earnings recovered the following year to $77.5 million, and Consolidated's operating margin returned to 7.6 percent.
Bryan continued to value nonfood sales, however. For the next ten years, nonfood products continued to make up more than 50 percent of corporate income but only 30 percent of total sales. Purchases during the 1980s continued the trend toward solidifying durable goods production.
Bryan's acquisition portfolio represented a more aggressive stance in all of its markets. Before the 1978 purchase of Douwe Egberts, a Dutch coffee, tea, and tobacco producer, only 11 percent of Consolidated's income came from abroad; by 1989 it made up nearly 30 percent. In 1979 Consolidated completed a hostile takeover of the Hanes Corporation, a family-owned undergarment manufacturer.
Despite difficulties--poor performance of some nonfood companies led to earnings losses in 1974 and 1975--Consolidated's performance excelled by the end of the 1970s. Between 1967 and 1973, sales doubled to $2 billion and total assets topped $1 billion. These figures allowed the company to set a goal of doubling sales volume by 1980; the actual amount achieved exceeded $5 billion.
Bryan's initial management goals were to keep the company diversified and decentralized, while keeping the corporate office responsible for financial control and strategic planning. Acquisition targets would be brands with leading market shares in new areas and "integrating acquisitions"--large companies with established brands in Consolidated's markets. Hillshire Farm meats and Chef Pierre pies fell into the latter category, and were purchased in the late 1970s, building on Consolidated's meat and pastry market shares.
In 1985 Consolidated announced that it would change its name to Sara Lee Corporation. The name was chosen because it was the corporation's most prominent brand name, and as a corporate name would give the company higher visibility and make advertising efforts more cost effective.
The first of two major foreign acquisitions came in 1985 when Nicholas Kiwi Ltd.'s foreign subsidiaries were purchased for $330 million, in addition to 14 percent of its Australian domestic operations. Kiwi--seller of a variety of shoe care products, medicines, cleaners, and cosmetics--complemented Intradal, Sara Lee's Dutch subsidiary. Akzo, a Dutch conglomerate with annual sales of $720 million, was acquired in 1987 for approximately $600 million, the company's largest purchase ever. Another producer of household goods, Akzo was absorbed into Douwe Egberts and Kiwi. By mid-1987, just nine years since its first international venture, Sara Lee was among the largest U.S. multinationals, with foreign revenue reaching almost $2 billion, making up 24.1 percent of total sales, 26.8 percent of profits, and 40.5 percent of total corporate assets.
Although still very active in acquisitions, Bryan also drew praise for stressing internal product development. Return on total investment typically decreases in the wake of large purchases, but Bryan kept return on equity above 20 percent in nearly every year since 1985. This was especially unusual for a company whose growth was almost entirely through acquisition--96 percent of Sara Lee's 141 entries into new businesses were through acquisition between 1950 and 1986.
Bryan was responsible for easing the uncertainty of the 1970s, shifting the company's focus to the marketing of consumer products only. He also improved manufacturing efficiency and product development. In 1986 sales dropped from $8.1 billion to $7.9 billion, yet income increased $17 million. Domestic consumer and institutional food divisions reported the largest sales drop, as Shasta, Idaho Frozen Foods, and Union Sugar were divested and Popsicle was restructured and eventually divested. Bryan also introduced lower-priced items to complement the corporation's premium Sara Lee and Hanes labels. Bryan hoped, with this tactic, to improve total sales volume as successfully as the meat division had done in the past. In 1989 the company began the divestiture of its food-service operations, then its poorest-performing division.
During the early 1990s Sara Lee continued to grow through acquisition and increased its market presence abroad. During the first three years of the decade, it spent more than $1.7 billion in adding a variety of properties to the Sara Lee stable, including Playtex undergarments; Brylcreem; Mark Cross leather goods; hosiery companies in France (Dim S.A.), Spain (Sans, S.A.), Italy (Filodoro) and the United Kingdom (Pretty Polly Limited); the consumer food group of BP Nutrition; and SmithKline Beecham's European bath and body care business.
Perhaps most significant among these purchases was Playtex. Coupled with such existing holdings as Bali, the acquisition of Playtex gave Sara Lee a commanding presence in the intimate apparel market in the United States, with overall market share of more than 31 percent and market share in some niche areas surpassing 65 percent. Although some competitors expressed concerns about the monopolistic nature of the combination, they made little headway with the free marketers of the Bush administration.
Ironically, Sara Lee's spending spree within another area--hosiery--quickly came back to haunt the company. A combination of several factors converged to lead to declining hosiery sales starting in late 1992. In the midst of a recession in Europe, the newly acquired hosiery units in France, Spain, and the United Kingdom experienced increasing competitive pressure. Sara Lee also erred in replacing the managers of the firms with U.S. personnel not as familiar with the local markets. Most importantly, both in Europe and the United States, the company failed to recognize quickly enough the trend toward more casual attire both at the office and for social events, and, therefore, the resultant decreased demand for formal hosiery. Since hosiery comprised 25 percent of overall apparel sales, the decrease in hosiery sales presented a significant challenge. In response, Sara Lee quickly moved to decrease hosiery capacity by closing two U.S. plants, cutting capacity at a third, and closing a plant in France. Sara Lee's apparel division was also realigned into a more flattened organizational structure.
Leading the way in these efforts was newly appointed president Cornelius Boonstra. A 20-year Sara Lee veteran with a strong background in operations, Boonstra provoked some disenchantment with his aggressive cost-cutting measures, which included reducing staff in the Chicago headquarters by ten percent. Although praised by Wall Street for the cuts, several senior managers left Sara Lee soon after his appointment and continuing friction with other executives led to his resignation in early 1994 after only six months in the job. No one was immediately appointed to succeed him.
In another irony, in June 1994 Sara Lee announced a major restructuring of its European personal products operations, which included cuts much more severe than those imposed by Boonstra. The company took a $732 million charge mainly to reduce capacity in its hosiery operations. Several more plants were closed and more than 8,000 jobs were cut.
Rebounding from the difficult restructuring year of 1994, Sara Lee enjoyed record sales of $17.71 billion (a 14 percent increase over 1994) and record operating income of $1.6 billion in fiscal 1995, with 12 Sara Lee brands racking up sales in excess of $250 million. For the year, 40 percent of Sara Lee's sales and 45 percent of its operating income were generated from its operations abroad.
Under Bryan's leadership, Sara Lee had enjoyed tremendous growth fueled by aggressive and targeted acquisitions, which were integrated into a highly decentralized organizational structure. When faced with difficulties, the company was able to respond quickly enough to prevent lasting damage to the firm's reputation or financial health. The potential for growth of this well-managed company into the next century seemed promising, and Bryan intended to base it on five strategies: building brands; lowering production costs and keeping them low; making further strategic and complementary acquisitions; investing in high-margin, value-added products; and increasing non-U.S. operations, particularly those in developing countries.
Principal Subsidiaries: Sara Lee Holdings (Australia); Canadelle, Inc. (Canada); Giltex Hosiery (Canada); Merrild Kaffe (Denmark); Dim S.A. (France); Sara Lee Personal Products Europe (France); Vatter (Germany); Sara Lee Corp.-Asia (Hong Kong); Compack Douwe Egberts RT (Hungary); Filodoro (Italy); Maglificio Bellia S.p.A. (Italy); Playtex - Europe (Italy); Nihon Sara Lee K.K. (Japan); Upxon, Inc. (Japan); Estelar SA de CV (Mexico); House of Fuller, S.A. de C.V. (Mexico); Kir Alimentos, S.A. de C.V. (Mexico; joint venture); Manufacturas Mallorca S.A. (Mexico); Rinbros, S.A. (Mexico); Sara Lee Knit Products-Mexico; Kortman Intradal (Netherlands); Sara Lee/DE (Netherlands); Sara Lee Processed Meats-Europe (Netherlands); Intercon Garments, Inc. (Philippines); Sara Lee/DA Asia (Singapore); Avroy Shlain Cosmetics (Pty.) Ltd. (South Africa); Kiwi Brands South Africa Playtex - South Africa; South African Hosiery Company Ltd.; Cruz Verde-Legrain (Spain); Sans, S.A. (Spain); Kitchens of Sara Lee - U.K.; Pretty Polly Limited (U.K.); Sara Lee Household & Personal Care-U.K.; Nuvo (Uruguay).
Principal Divisions: Adams-Millis; Aris Isotoner; Bali Company; Bessin; Bil Mar Foods; Bryan Foods; Champion Products; Coach; Douwe Egberts Coffee Systems Americas; Gallo/Galileo Salame; Hanes Hosiery; Hillshire Farm & Kahn's; Hygrade Food Products; International Baking Co.; Jimmy Dean Foods; Jogbra, Inc.; King Cotten Foods; Kiwi Brands North America; L'eggs Products; Mark Cross; Playtex Apparel; PYA/Monarch; Sara Lee Bakery North America; Sara Lee Bakery Worldwide; Sara Lee Direct; Sara Lee Hosiery; Sara Lee Intimates; Sara Lee Knit Products; Sara Lee Meats; Sara Lee Personal Products; Scotch Maid; Seitz Foods; Spring City Knitting; State Fair Foods; Superior Coffee and Foods; Sweet Sue Kitchens; Wolferman's, Inc.
Principal Operating Units: Sara Lee Packaged Meats and Bakery; Sara Lee Coffee and Grocery; Sara Lee Household and Personal Care; Sara Lee Personal Products.
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