This Marketing Effort Has L'eggsLois Therrien
Mention Sara Lee Corp. and visions of cheesecake and chocolate brownies immediately spring to mind. But the Sara Lee of the 1990s is as much about pantyhose and purses as it is about pies. Just look at the nonfood brands in the Chicago conglomerate's shopping bag: Hanes men's underwear, L'eggs nylons, Bali bras, Coach leather goods, to name a few.
With lessons learned from peddling pound cakes and pork sausages, Sara Lee has transformed itself into a consumer-products powerhouse with increasingly global ambitions. The metamorphosis is all the more remarkable because most of Sara Lee's food-industry sisters have seen many of their diversification gambits flop. Quaker Oats Co. and General Mills Inc. spent the 1970s moving into trendy consumer businesses -- everything from toys to golf shirts -- only to retreat when they found themselves unable to cope with such fickle markets.
Sara Lee Chairman John H. Bryan took a less glamorous path. He plowed profits from the company's signature bakery business into prosaic markets such as hosiery, socks, and underwear -- markets where competition was spotty, demand extremely predictable, and tastes less fleeting. Sara Lee then used some deft marketing to turn near-commodity items into lucrative franchises with powerful brand images.
Over the years, Sara Lee has refined the approach -- and it has proved a profitable one. The company's earnings growth has averaged a brisk 19.1% over the past five years. And during its 1991 fiscal year ended June 30, net income climbed 13.8%, to $535 million, on $12.4 billion in sales.
Now, Bryan has global aspirations for Sara Lee. He has already quietly built up a $3.2 billion business in Europe through acquisitions. Sara Lee now ranks No. 4 among U. S.-based consumer-products companies with operations there, trailing Philip Morris, Coca-Cola, and Procter & Gamble. And it's growing fast. On Nov. 18, Sara Lee acquired Playtex Apparel Inc. -- the U. S. brassiere maker with a strong position in Europe -- in a deal valued at $590 million. Says Bryan, who's also eyeing markets in Asia and Mexico: "Our mission is to be a premier global, branded consumer packaged-goods company."
To get there, Bryan will rely on the same marketing recipe that Sara Lee has used to such great effect back at home. Here's how it works: The company zeroes in on a fragmented consumer market, typically dominated by sleepy private-label manufacturers. Bryan buys an existing player or two for quick economies of scale. Next, he works to improve manufacturing productivity. And Sara Lee pours on the advertising to develop a powerful brand image -- but prices its offerings competitively.
CASUAL EMPIRE. Sara Lee's push into sweatclothes, T-shirts, and other casual apparel is a case in point. It had a small retail position in the category in the early 1980s. But in 1988, Bryan saw an opportunity to expand dramatically and pounced. That year, Sara Lee acquired a 50% stake in rival Pannill Knitting Co., and a year later it snapped up the rest.
Bryan then quickly converted most of Pannill's products to the powerful Hanes label, the underwear brand the company acquired in 1979. The move significantly broadened the reach of Hanes' product line -- and its clout with retailers. Next, Bryan bought Champion Products Inc., whose upscale brand of sweatclothes and T-shirts extended Sara Lee's presence into department stores. After another deal moved it into jersey-knit items sold through mass merchandisers, Bryan had assembled a full line of casual wear with a broad retail network.
Competitive pricing is key to Bryan's strategy, so manufacturing must be razor-sharp. He's reorganizing plant floors so that stitchers work in teams to turn out finished products -- rather than using the old assembly-line approach in which each worker does the same job on garment after garment. On average, the switch reduces defects by 75% while increasing productivity by up to 30%, the company says.
Bryan's tactics are gaining Sara Lee a growing position in apparel markets. The five-year-old Hanes Her Way brand has captured 21% of the $1 billion U. S. women's and girls' underwear market, vs. Fruit of the Loom's 19%. Farley Industries Inc., maker of Fruit of the Loom and BVD products, still leads in the $2 billion men's and boys' underwear category, with a combined 41% share, but Sara Lee is closing in. Its share has jumped to 28% from 17% in 1987, even though Hanes's retail price is about 10% more. "I have great respect for Sara Lee and what they've accomplished," says William F. Farley, chairman of Farley Industries.
Small wonder. By the end of its fiscal year in June, 1992, nonfood units will kick in 58% of $1.1 billion in operating income and 46% of $13.3 billion in sales, figures investment house Dain Bosworth Inc. That compares with 47% in operating profits and 30% in sales from nonfood businesses just five years ago (chart). The shift away from food is having a big impact on Sara Lee's profit margins, too, because returns from nonedibles are 62% higher than those of food. In fact, Sara Lee's operating margin should reach 8.9% in fiscal 1992, says Dain Bosworth, up from 7.2% in 1989.
MEGABRANDS. One reason the margins are better in nonfood businesses is that, on average, marketing costs are lower than in food -- even as Bryan steps up the spending. Although Sara Lee's $1.1 billion marketing budget is now 8.6% of sales, up from 7.3% in 1985, it's still less than half the average for the packaged-food industry.
Much of the credit for those lower costs goes to Bryan's efficient marketing tactics. Once he has latched onto a winning brand, he extends the name to numerous related products. The idea is to make sure that as many items as possible share the glow cast by a strong brand name. For example, since buying Dim, France's leading hosiery maker, in 1990, Sara Lee has sewn the label on men's underwear and T-shirts.
This megabrand strategy doesn't apply to every market, of course. In order to achieve broad distribution of pantyhose, for example, the company had to develop different brands for different retailers. The L'eggs and Just My Size lines found at the drugstore aren't exactly uptown products. So Sara Lee has its Hanes and premium Donna Karan brands for the department-store crowd.
Even unrelated brands get some marketing benefit from being in the Sara Lee stable. Cross-promotions are the key. For instance, a package of L'eggs hosiery may contain a $1-off coupon for a Hanes sweatshirt. And Sara Lee has customized similar programs for big customers such as Kmart Corp. "I think it makes a lot of sense because the products complement each other," notes Joe Tripoli, Kmart's senior menswear buyer. Overseas, Bryan wants to expand his underwear and hosiery lines into worldwide franchises. Take Playtex. By combining Playtex with Bali, Sara Lee controls 25% of the $1.4 billion U. S. bra market and is a major force in Europe. Now, Sara Lee is negotiating to buy several Asian hosiery makers and aims to double Far East sales, to $1 billion, by 1995.
Surprisingly enough, the architect of Sara Lee's shift toward packaged goods is a food marketer from way back. Bryan joined Sara Lee, then called Consolidated Foods Corp., in 1968, when it bought his family's Mississippi-based meat company. In 1975, the 39-year-old Bryan took over as Consolidated's chief executive -- and he quickly started reshaping the company.
LESS FAT. Bryan, now 55, isn't letting his food operations languish. In the U. S., he is squeezing more profits out of the bakery and meat lines through improved operating efficiencies. And catering to the health-conscious, Sara Lee has rolled out a new line of low-fat desserts. But Bryan still covets the European market. His $2 billion European food operation, which sells coffee, tea, nuts, and snack foods, should see relatively rapid growth thanks to budding local appetites for branded packaged foods. Sara Lee is already Europe's No. 2 coffee company with such brands as Douwe Egberts and Van Nelle.
Despite such efforts, Sara Lee's opportunities in food may well remain more limited than in pantyhose and underwear. But Bryan isn't complaining: With plans to stretch the likes of Hanes and Playtex around the world, he's got more than a full plate.