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Sara Lee: Innovation is the answer to commodity price hike challenge

By Elaine Watson , 11-Aug-2011
Last updated on 11-Aug-2011 at 17:50 GMT

A steady stream of new products scheduled to hit the market in 2012 will help packaged goods giant Sara Lee grow sales volumes and protect margins in 2012, bosses have promised.

In a conference call with analysts and investors to discuss the firm's fourth quarter figures this morning, chief executive Marcel Smits said "unprecedented" hikes in commodity costs had forced the company to repeatedly raise prices, which had in turn dented volumes.

But an acceleration in innovation would help tackle the problem, he said. "We were willing to take short-term risks on the volume side by putting up prices to protect margins and the health of our business.

"But as the year progresses you will increasingly see a range of new products hit the market. We feel good about the innovation we have in the pipeline for 2012."

It's our task to innovate in the market

While not all competitors had raised prices to the same extent, as market leader, Sara Lee's job had been to "guide the market to where we think is right", he claimed. "In some categories, some of our competition took a different perspective, and others saw an opportunity to regain some ground."

But more innovative new products would enable Sara Lee to charge higher prices without taking a volume hit, he said. "If you have products with an added benefit, you can keep up or even increase prices. It's our task to innovate in the market."

The price increases in 2011 helped the firm post a 4 percent rise in net sales in its North American retail business in the fourth quarter, he said. However, volumes were down for the third quarter in a row.

Bennink: Solid results … in the circumstances

Full year adjusted operating income dipped 2 percent to $809m on adjusted net sales up 5 percent to $8.64bn, which executive chairman Jan Bennink said was "not a bad outcome" given difficult commodity conditions and the internal challenges of preparing to split the company into two.

The Chicago-based firm, which has just struck a $545m deal to sell its North American refrigerated dough business to Ralcorp, plans to split itself down the middle next year, with one company focused on coffee and tea, and the other on retail meats and foodservice.

The company, which has been steadily shedding businesses ahead of the split as part of a “streamlining” exercise, said the sale of its North American fresh bakery to Grupo Bimbo was expected to close next month while it was fielding several bids for its Spanish bakery and French refrigerated dough businesses.

The Australian frozen desserts business remained under review, said Bennink.

Faster, simpler, more entrepreneurial

He added: “Our objective of building two simpler, faster and more entrepreneurial businesses is being realized. We have defined the organizational framework for our new companies and are continuing to build and restructure our teams for the future.”

Under the proposed split, announced in January, the North American retail and foodservice businesses (excluding North American beverages) will be spun off into a new $4.1bn revenue company retaining the Sara Lee name with a brand stable including Sara Lee, Jimmy Dean sausages, Ball Park hot dogs and Hillshire Farm lunch meats.

The yet-to-be-named other company will comprise the international beverage and bakery businesses, plus its North American beverages unit, with a brand stable including Douwe Egberts, Senseo, Pickwick, Maison du Café, L’OR, Café Pilão, Marcilla and Bimbo and revenues of $4.6bn.

Full details of the new companies - including the new name of the international business - will be announced in February, said Bennink.

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