St. Louis-based Sara Lee Bakery Group’s (SLBG) chief executive officer, Richard Noll, candidly described his future vision of the baking industry in an October analyst meeting in Chicago. As part of his vision, Noll commented that the upcoming year will be known as the “year of the whole grain” due to changing consumer preferences and pending Dietary Guidelines that stress the importance of whole grain intake.
To capitalize on this trend, the company has launched various new whole wheat/whole grain products in the last five months, including 100% whole wheat bagels, and 100% multi grain and whole wheat Delightful branded breads. The company also outlined its upcoming launch of whole wheat and multi grain breads under the Sara Lee and Earth Grains brand names. These products are not finalized, but will be launched to coincide with the official release of the Dietary Guidelines for Americans.
These new product launches represent one part of SLBG’s strategy to improve the performance of its U.S. fresh business. “We’re capitalizing on the strong wheat/grain market by making sure we’re introducing products in those areas,” Noll said.
During the conference, Noll showed the analysts in attendance a slide that highlighted the changing bread market in the United States. In 2003, SLBG’s product mix consisted of 50% white bread, 30% wheat/grain bread and 20% other. A year later, the company’s product mix is 45% white bread, 40% wheat/grain bread and 15% other.
Beside improving its product mix toward premium whole wheat/whole grain products, the company also is continuing its strategy to focus on branded sales and exit unprofitable non-branded sales, which includes private label, foodservice and institutional sales. In the next couple of years, the company expects its non-branded sales to decline by at least 8%.
To grow branded sales, the company said it will continue transforming the Sara Lee brand name into a “megabrand,” spanning several categories in a supermarket. “I have consistently, totally underestimated the strength of the Sara Lee Brand in these categories (breads and buns),” Noll said. “I knew it was going to be strong, but it has been unbelievably strong.”
By focusing on premium whole grain breads and branded business, SLBG has almost doubled its operating margins compared to the previous year. Although improving its product mix weighed heavily on this result, the company also gained significant margin improvements by rationalizing its operations. “By reducing our complexity and improving our focus, it has allowed us to reduce our infrastructure costs,” Noll said. Since March 2003 the company closed nine bakeries, eliminated 59 brands and reduced the number of its stock-keeping-units (skus) from 8,000 to 4,500. According to Noll, this represented a “major reason for our improved performance.”
To keep its solid performance going, the company announced plans to expand beyond the 60% of the country it currently serves. It started this expansion in June 2003 in Florida, where the company added the Jacksonville area to its direct-store-delivery routes coming from the company’s South Carolina bakery. In August 2004, the company increased its Florida coverage by servicing the Gainsville and Daytona areas. In the coming year, the company said it expects to begin supplying the Tampa area. Besides Florida, the company also said opportunities for expansion exist in the Northeastern United States.