Sara Lee puffs up baked-goods unit

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Sara Lee Corp.'s namesake baked goods will become a larger piece of the company pie with a bevy of proposed acquisitions as well new products and increased ad support.

With the acquisition last year of St. Louis-based Earthgrains Co., Sara Lee nearly quadrupled the size of its bakery division from $900 million to $3.5 billion. Now, the ailing marketer plans to grow the portfolio of products the company was built on even more via purchases of frozen, refrigerated and fresh products as well as innovating within existing businesses.

"Baking has gone up considerably as a percentage of company sales, moving from roughly 5% of the company in 2001 to between 15% and 20% in 2002," said Prudential Securities analyst John McMillin. The move, he said, is a result of Sara Lee "trying to be more of a food company" as profits have dwindled from unsuccessful forays into various other categories, including apparel.

Earthgrains, Mr. McMillin said, provides a new innovation model for Sara Lee. According to Gary Jensen, senior VP-marketing formerly for Earthgrains and now for the renamed Sara Lee Bakery Group, new products at Earthgrains had risen from 3% to 10% of sales in recent years, and that performance is not slowing under Sara Lee.

Already, the enlarged bakery division has introduced Sara Lee

Fresh Pound Cake and a line of 17 Sara Lee Bagels that will be supported beginning March 15 with spot TV, radio, coupons and in-store efforts. Sara Lee will also begin next month to test a line of Ball Park Hot Dog Buns (playing off its successful Ball Park hot dog brand) and plans to take advantage of the fast growth in super-premium baked goods by parlaying the Sara Lee brand into fresh specialty breads and buns. "People are used to finding Sara Lee sweet goods in the frozen section, but we want to move the brand to other locations in the store," Mr. Jensen said.

The Bakery group recently consolidated its estimated $30 million account with longtime Earthgrains agency Publicis in Mid America, Dallas, a unit of Publicis Groupe, and is committed to investing more in marketing dollars in line with Sara Lee's corporate mandate to up spending 25% this year.

Although he said the company is eyeing eight or 10 categories to extend into, Mr. Jensen acknowledged that moving into all of them imminently "wouldn't be strategically smart." The company, for example, recently pulled a line of Sara Lee Calzones it launched in 2000 and supported with roughly $13 million in advertising last year as a result of lower-than-expected sales.

Fast Facts

Company name: Sara Lee Corp.

Bakery division size: $3.5 billion

Bakery division's share of co. sales: 15% to 20%

Bakery division ad spending: $30 million

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