Sara Lee bolstering International Bakery business

by Josh Sosland
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CHICAGO — A raft of steps aimed at bolstering the International Bakery business of Sara Lee Corp. have been taken in recent months, said a top Sara Lee executive.

Speaking June 12 at the Deutsche Bank Securities Global Consumer & Food Retail Conference, Frank van Oers, chief executive officer of Sara Lee Coffee & Tea, offered details into what the company has done to bolster sagging International Bakery results.

Mr. van Oers noted that Sara Lee’s International Bakery business accounts for 7% of total Sara Lee Corp. sales (totaling $742 million) in fiscal year 2006, ended July 1, versus 16% for Sara Lee bakery sales in North America ($1.9 billion).

The International Bakery business includes the company’s leading market presence in the packaged bread market in Spain and Portugal, the No. 1 position in Australian frozen desserts and a leading refrigerated dough business in Europe.

Through the third quarter ended March 31, operating income of International Bakery was down 21%, on an adjusted basis.

While the largest portion of his presentation revolved around beverages, Mr. van Oers offered a substantive discussion of the International Bakery business. He drilled down into the various difficulties the division has faced and reviewed steps the company has taken to counter the problems.

Noting that Spain and Portugal account for the majority of Sara Lee’s bakery business in Europe, he said a Spanish bakery about a year ago "lost a large chunk of their private label business to one of the largest retailers in Spain and moved to a different supplier."

The difficulties were compounded when the retailer launched its own private label variant of crustless bread, a product Mr. van Oers described as Sara Lee’s "bread and butter in the Spanish bakery business."

"Needless to say, this double whammy really hit us big time and was felt clearly as lower volumes in the bakery business immediately create unfavorable plants at capacity utilization rates and is also detrimental to our direct-store delivery route dynamics," he said. "The good news, though, is that over the past year, management has moved aggressively to turn the business around."

To bolster sales, International Bakery introduced new products, including Bimbo wide crust bread; the company took pricing actions; and bolstered point-of-sale activity.

To improve profitability, the company reduced the headcount at its 11 plants and took steps to cut waste and increase productivity and quality.

"I’m happy to note that the hard work is starting to pay off with the operating margins starting to show improvement in the third quarter," Mr. van Oers said. Noting that he personally will be responsible for this business under a new corporate structure, he said he is "more than happy to report" the improved results.

Looking forward, Mr. van Oers said profit growth in International Bakery will be driven by making sure the company offers a sufficient number of products with qualities built around key demand drivers — convenience, health and wellness, and indulgence.

He said the company will need to strengthen its brand leadership, and enter new categories and markets.

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