Following Jimmy

by Editorial Staff
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PARIS — A commitment to four key meat brands and pursuit of a strategy that has successfully expanded sales of the Jimmy Dean brand will help drive growth in coming years for the meat business of Sara Lee Corp., said Marcel Smits, chief executive officer.

Mr. Smits participated in a Sara Lee presentation June 14 during the Deutsche Bank Securities Inc. Global Consumer Conference in Paris.

Describing how Sara Lee has transformed the Jimmy Dean brand from a traditional sausage line to a far broader range of value-added products, Mr. Smits said this process is ongoing at the company and also will include the Hillshire Farm, Ballpark and Sara Lee meat brands.

“We have a continued commitment to the key four brands, and I think you should assume that what we have done in Jimmy Dean we are going to be doing in other brands as well,” he said. “We have been doing it in Hillshire Farm.”

The remarks about the meat business were part of a broader discussion of the monumental changes under way at Sara Lee.

Jan Bennink, executive chairman of the company, began the presentation with an announcement Sara Lee has decided to effect its break-up by spinning off the international coffee and tea business and retaining the meats unit. Previously, the plan for Downers Grove, Ill.-based Sara Lee had been to spin off both businesses to create two publicly-traded companies.

“This transaction is more than a spin-off of one business segment,” Mr. Bennink said. “We are really separating a global company into two independent pure-play companies, which adds complexity as well as opportunity. As we began to get into the details of separating the two businesses, we determined there are greater efficiencies to be gained from spinning off the international coffee business.”

Expanding on the complexities, Mr. Bennink said operating two divisions is very different than operating two distinct publicly-traded companies.

“In terms of management structure, (whether) the people who are currently running the divisions are capable of running a public company, we are assessing that,” he said.

Mr. Bennink said prospective leaders for the meat business have been identified and that the process is under way for the coffee and tea business.

“The easiest way of looking at the business is we will create two pure plays, two approximately $4 billion companies, and we will make them as healthy and clean as possible,” he said. “That is the objective, and that is what we are doing.”

An additional issue under review is the company’s North American headquarters and whether it should be either “somewhere else or something different,” he said.

The presentation also featured an update on the sale of the North American Fresh Bakery business to Grupo Bimbo S.A.B. de C.V. Mr. Bennink said Bimbo has had discussions with the U.S. Department of Justice and is working to come to an agreement on remedies.

Mr. Bennink defined the current stage of negotiations with the D.O.J. as “the final kind of roundup of where and when things are going to happen.” He predicted the transactions would be completed in the first half of fiscal 2012, beginning July 1.

The international bakery business and North American refrigerated dough business have been and remain under strategic review, Mr. Bennink said. He said an update may be anticipated in August.

In his discussion of the meat business, Mr. Smits said the company’s top four brands currently account for 60% of meat sales. Jimmy Dean and Hillshire Farm each have annual sales approaching $1 billion with Ball Park and Sara Lee at $400 million combined.

Over the last few years, Sara Lee meat sales overall have risen only slightly, with core brands growing rapidly and rationalization of less profitable parts of the business, described by Mr. Smits as “commodity parts.” The shift has helped boost margins to 10.6% from only 6.5%.

“Gradually, the rationalization of commodity products is coming to an end,” Mr. Smits said.

Elaborating on the success achieved with Jimmy Dean, Mr. Smits said it has “evolved from a traditional bulk sausage” into a “value-added breakfast platform.”

“We have taken it into a whole range of new products,” he said.

At the same time, he said the company gradually has ratcheted up marketing, advertising and promotion spending as a percentage of sales.

“We would like to do more of that because we have good, tangible evidence that if we increase our MAP, we actually have a very good investment proposition,” he said.

Beyond finding a way to build value-added product portfolios for the Hillshire, Sara Lee and Ball Park brands, Mr. Smits said the company is committed to making headway in the artisan product segment.

“That is where ultimately the market is going,” he said. “We have a strong belief there are large opportunities, good growth opportunities, and our Aidells acquisition actually plays very nicely to that.”

Discussing the Sara Lee coffee and tea business, Mr. Bennink said the rapid growth of new products such as single-serve K-cups should not lead Sara Lee from finding a way to build its traditional roast and ground business.

“(People) think about Nespresso, Senseo, the Keurig systems,” he said. “Everything is about the new thing, which is logical. However, do not forget that a big part of your profit and a big part of the consumers are completely in roast and ground.”

The company has the No. 1 coffee brand in The Netherlands, Brazil, Belgium, Denmark and Hungary, No. 2 in Australia and No. 3 in France and Spain.

In Benelux, Mr. Bennink said basic packaging for coffee has not changed in 40 or 50 years.

“When I was a small kid, this pack was exactly the same as it is now,” he said, noting great additional opportunities in, fragrance varieties.

Beyond basic roast and ground, Mr. Bennink said the company is continuing to innovate in single serve and also taking advantage of what he described as “the most advanced liquid technology in coffee.”

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