Markets & Finance

Sara Lee's Recipe for Revival


There's little doubt Sara Lee (SLE) wanted to take its tired Jimmy Dean sausage brand in a different direction when it forked over $25 million last year to hot Los Angeles ad agency TBWA/Chiat/Day, the force behind Apple's (AAPL) eye-catching iPod campaign. The result: a fresh, quirky ad campaign launched in late 2005 that goes a long way to updating the image of the brand with soccer moms who buy the product. And the new push for the processed-meat mainstay is also one of the first tangible signs that recently arrived Chairman and CEO Brenda Barnes is trying to take Sara Lee in a new direction and transform the beleaguered company into a marketing powerhouse and leading innovator.

FATHER AND SUN. Indeed, the latest campaign is a complete break with tradition for Sara Lee. Gone are the old spots, which largely featured the brand's namesake, folksy crooner Jimmy Dean -- best known for his 1960s variety show -- peddling sausage rolls. (His role as spokesman ended in early 2004.) The latest Jimmy Dean commercials follow a regular family through its breakfast routine. But there's a twist: Dear ol' dad is portrayed by an actor in a sun costume, a working stiff who just happens to be the incandescent orb at the center of the solar system.

Even with the fanciful premise, management felt it was important that consumers to relate to the characters. So the ad team paid close attention to the details to ensure the commercials didn't feel entirely artificial. For example, the kitchen has high-end appliances such as a stainless-steel refrigerator, giving the commercials a modern, aspirational look.

The ads also cover everyday problems. In the next set, due out in August, one potential spot includes the sun counseling his co-workers, one standing in for the moon and another in a cloud getup. "We had to come up with a way to grow the brand without the man," says Rob Schwartz, executive creative director of Chiat/Day, which also handles the Ball Park hot dogs and State Fair corn dog accounts for Sara Lee. "We had to bring Jimmy Dean into the 21st century."

"CLOCK STOPPED." Unfortunately for Sara Lee, that challenge extends to many of its brands. For years the conglomerate, which has a vast portfolio of food and apparel brands such as Senseo, Hanes, and Champion, focused on financial maneuvers like acquisitions to grow profits, largely ignoring marketing and innovation, the lifeblood of any consumer products company. Of Sara Lee's 28 major food and consumer groups tracked by the consulting group Euromonitor International, only four -- Hillshire Farm chilled processed meats and foods, Kiwi shoe polish, and Sara Lee frozen desserts -- rank No. 1 or No. 2 in their respective categories.

In a retail environment where only the top brands can hope to stave off generic competition and lure consumers to pay up, that lack of attention caught up to them. In the latest fiscal year ending July, earnings per share were down 41%, to 92 cents on sales of $19.2 billion. Meanwhile, margins have been eroding for years. "Sara Lee was an exceptional company with compounded earnings-per-share growth exceeding 12% a year for 25 years," says Morgan Stanley analyst David Adelman. "But I think the clock stopped for Sara Lee in 1995."

Now, it's up to Barnes to clean up a mess left by others. The 52-year-old mother of three, who made headlines in 1997 when she left a high-powered position at PepsiCo (PEP) to spend more time with her family, joined Sara Lee in mid-2004 and was tapped for the top spot in February, 2005.

Since then she's stocked the executive suite with consumer-product heavyweights. Jim Nolan, CEO of Sara Lee Foodservice, cut his teeth at Procter & Gamble (PG) and Pepsi. Another Pepsi alum, CJ Fraleigh, head of Sara Lee Food & Beverage, spent four years at General Motors (GM) in a top marketing spot.

SLIMMING DOWN. Now Barnes and her team are knee deep in an ambitious restructuring plan, designed to spark earnings growth and get the stock out of its five-year rut. "I recognize we have a tough road ahead of us," says Fraleigh, an enthusiastic 42-year-old who talks excitedly about how to tackle Sara Lee's challenges in the company's soon-to-be headquarters in Downer's Grove, Ill. "But I know we're going to get where we want to go, we're going to get there the right way, and we're going to have some fun along the way even when we hit a bump." Barnes declined to comment for this story.

The team has already encountered its fair share of potholes. Barnes' plans to shed some 40% of the company's revenue base to focus on such core growth areas as U.S. retail food, food services, and international household goods have given it a small case of indigestion. Sara Lee had problems offloading less desirable units like the clothing business overseas.

And since Barnes's predecessors talked for years about selling assets, retooling brands, and getting smart about marketing and innovation, all to no avail, Wall Street is highly skeptical. The stock has dropped by roughly 25%, to $17.65, since Barnes unveiled the grand plan last February.

NEW BALL GAME. But if Barnes can apply the lessons from Jimmy Dean, the pay off for Sara Lee will be huge. So far, the "Happy Breakfast" spots seem to be resonating with critics and consumers. The commercials got a nod from Adweek. More importantly, says Scott Lucas, managing director of the consulting firm Interbrand, they introduced the idea that Jimmy Dean is a breakfast brand, and not just a sausage brand -- making way for the expansion of the line into new products such as Jimmy Dean Breakfast Skillets, a pre-chopped medley of meat, potatoes, and vegetables ready for the frying pan.

Revamping Jimmy Dean, though, goes beyond a new pitchman and a new product line. Additionally, Sara Lee has retooled its sales force in the packaged-meat division, which also includes the Ball Park and Hillshire Farm brands. Before, both outside brokers and Sara Lee folks dealt with big customers like supermarkets Albertson's (ABS) and Safeway (SWY), and there may have been several different sales people knocking on their doors. Now there is a single point person and a single dedicated team for each major account in house.

Sara Lee has integrated that group into a 500-person sales team for the entire food and beverage group. "This was about taking really good practices that were well entrenched at larger, more contemporary manufacturers like Procter & Gamble and bringing that approach to a business that wasn't run that way," says Monty Pooley, chief customer officer for Sara Lee Food & Beverage.

INVESTING IN IMAGE. Now, Barnes must get the portfolio cooking. The deck seems stacked against her. For one, Sara Lee needs a lot of work, and the industry remains under pressure from rising commodity costs and global generic competition. Some naysayers doubt that Barnes can hit her financial targets of 12% operating margins by 2010, when Sara Lee is currently around 7%. And the recent reports from the company haven't inspired much confidence; income from continuing operations fell by 38% in the most recent quarter to $193 million.

Barnes, however, doesn't seem shaken by the critics. And she's putting her money where her mouth is: Sara Lee plans to devote an additional $250 million by fiscal 2010 to its total media, advertising and promotion, and R&D budget. The company is also in the early stages of developing an innovation center to institutionalize product development so that hits like Hillshire Farm Deli Selects become the norm rather than a lucky break. If such moves take root, that'll make Sara Lee tastier than a piece of, well, its own pound cake.


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