As John Bryan, Sara Lee's chairman-CEO, put it: "The business of Sara Lee Corp. has been and will continue to be the building of branded leadership positions." And you don't have to have brick and mortar to do that.
What Sara Lee is doing, in essence, is "segregating marketing from manufacturing," an analyst with Donaldson, Lufkin & Jenrette told The Wall Street Journal. Sara Lee's shares jumped $6 on the news of its restructuring.
Its move comes after a bunch of companies announced they were putting some of their own brands on the block. Dow Chemical Co. wants to sell Saran Wrap and Zip-loc bags. Campbell Soup Co. is spinning off Swanson frozen foods and Vlasic pickles, and Procter & Gamble Co. wants to shed Duncan Hines cake mixes.
You can make a strong argument that these companies are doing the right thing. Dow wants to concentrate on chemical and industrial businesses; Campbell's lines earmarked for spinoff are low-margin entries; and P&G's cake mix operation is too small for Procter to worry about.
Maybe so, but I also think the brands were caught in a self-perpetuating downward spiral. The companies didn't invest enough money to advertise them, their sales declined, and their costs got too high because they no longer generated the manufacturing and distribution efficiencies of bigger brands. So maybe they were forced to raise prices to make up the difference-and sales declined further.
Granted, it's a lot of hard work to maintain strong brands. And it can get a little tiresome! I don't know if there are still proponents of the "life cycle" theory of management, but probably some companies cling to the belief that there comes a time to start "milking" a brand-cutting costs and reaping the increased profits.
David Aaker, in his book "Building Strong Brands," lists eight reasons it is difficult to build-and maintain, I might add-strong brands: (1) pressure to compete on price; (2) proliferation of competitors; (3) fragmenting markets and media; (4) complex brand strategies and relationships; (5) bias toward changing strategies; (6) bias against innovation; (7) pressure to invest elsewhere; and (8) short-term pressures.
"The fifth reason," Mr. Aaker writes, "the pressure to change a sound brand strategy, is particularly insidious because it is the management equivalent of shooting yourself in the foot."
The irony of allowing brands to deteriorate, he says, "is that many of the formidable problems facing brand builders today are caused by internal forces and biases under the control of the organization."
Once a company has ruined a brand, whether by neglect or implementing the wrong strategy, there's nothing left to do except sell it. And, as Mr. Aaker told USA Today, new management is more willing to spend the bucks needed to revive somebody else's sagging brand. "Brands can be a lot like baseball players," Mr. Aaker said. "All they need is a change of scenery to bust out of a slump."
Sara Lee's strategy of farming out the manufacturing process to concentrate on marketing makes a certain amount of sense. After all, our company doesn't own any printing presses so we don't need to allocate huge capital spending on high-tech equipment.
Outsourcing its manufacturing will allow Sara Lee to lower its cost structure to make its brands price competitive and to allow more money for marketing. But it won't solve the problem of keeping a brand on an even keel.
For my money, though, it beats the alternative of giving managers an exit