The folks who have decided that Hillshire Brands Co. will be the new name for Sara Lee -- the old conglomerate we knew and were conditioned by a cloying jingle to “like” -- discovered a while back what was not to like about baked goods: low margins. Now bearing the banner of its leading remaining brand, which it purchased in 1971, it’s promising to beef up its marketing and promotion of its processed meats.
At an investors meeting in New York yesterday executives revealed plans for increased marketing for the slumping Hillshire Farm and other packaged-meat products that will be the core of the North American company when it spins off its European coffee and tea business at the end of the month. That company, dubbed D.E. Master Blenders 1753 in March, will be based in the Netherlands. Last month, Sara Lee announced a 1-for-5 reverse stock split and a special dividend after the spinoff is complete, Dow Jones reported.
“The trademark and the brand equity [of Hillshire] is incredibly strong," Sean Connolly, who is currently CEO of Sara Lee North American Retail & Foodservice and will become chief executive of Hillshire Brands, told investors. "You don't get to be a billion-dollar franchise by accident."
But, writes Marshall Eckblad in the Wall Street Journal, Connolly also observed “the current Hillshire Farm product line, from lunch meat to sausages, has fallen behind competitors.” Other labels owned by the Downers Grove, Ill. company, which will relocate to Chicago next year, include Ball Park, State Fair and Jimmy Dean.
"Some of our franchises have been under-managed and have under-delivered," he admitted. "We will fix that."
Connelly pointed out that “the company has a ‘basically entirely new management team with fresh eyes on the business,’ who will be focused on growing the business while ‘shoring up weak spots,’ such as innovation and new products,” writes Emily York in the Chicago Tribune. “Though new products comprise about 9% of sales for the last four years, Connolly expects them to be 13 to 15% by fiscal 2015.”
The company will move away from the less profitable commodity meat business, Connelly said. “He also promised increased marketing investment to stave off sales volume declines that have plagued Sara Lee after price increases in recent years,” York reports.
When the company sold its North American bakery unit to Mexico’s Grupo Bimbo for $959 million in November 2010, the Wall Street Journal’s Ilan Brat and Anjali Cordeiro observed that “the move continues the sprawling U.S. food company's strategy of offloading non-food and other lines to focus on top brands such as Jimmy Dean and Hillshire Farm refrigerated and frozen meat products.” Last October, the company also sold its Iberian bakery unit to Grupo Bimbo, and was looking to unload flour-based businesses that served the French, Swedish, Italian, Australian and New Zealand markets.
There are skeptics about the company’s prospects, and WSJ’s Eckblad cites one who is now an analyst but was an executive at the company a decade ago. "There is furious rearrangement of deck chairs at Sara Lee," wrote D.A. Davidson’s Tim Ramey in a research note last month. "The company is shrinking and doesn't have a great strategy for reversing that trend."
“This stands to be the last major breakup for a company that once made everything from pantyhose to golf carts,” writes Brad Prigmore on Seeking Alpha, channeling the Tribune’s York. But “other than investor enthusiasm, there is nothing in key statistics or fundamentals that would warrant the relative valuation in the shares,” he feels. “In fact, a weaker ROE and lower profit margin when compared to peers suggest that the stock should be relatively cheaper than the industry average.”
Butler Shine Stern won the Hillshire Farms advertising business that had formerly been handled by Omnicom Group's TBWA in April. The latter did not participate in the review. Ad Age’s Rupal Parekh reported at the time that Sara Lee spent $82.5 million on domestic measured media in 2011 with about $18 million devoted to the Hillshire Farms brand. The overall spend was down from $123.3 million in 2010.
“The Sara Lee name won't be on the company's letterhead, but aficionados will still be able to find it in restaurants it sells to, as well as the grocery aisle,” points out Consumerist blogger Mark Beth Quirk. “However, those retail dessert products are now made by other companies.”
One question remains for folks of a certain age: Will we ever get that “Everybody doesn’t like something/But nobody doesn’t like Sara Lee jingle” out of the recesses of our primal minds? (Just what constitutes “a certain age” may be deduced from the initial price of a cab drive –- 45 cents for 1/6 mile -– in this classic clip.)