Sara Lee's Strategic Retrenchment: A PESTEL and Financial Impact

This case study critically evaluates Sara Lee's strategic retrenchment, examining its reasons for divesting eight business units to focus on food and beverage, aiming to increase operating profit and sales. It analyzes the implications of Sara Lee’s macro-environment using the PESTEL framework, considering political, economic, social, technological, environmental, and legal factors affecting the company. The report also provides recommendations for a strategic planning cycle to improve Sara Lee’s market and financial performance, suggesting engagement with employees, target setting, and exploration of alternatives to retrenchment. It highlights the need for Sara Lee to address cash flow issues, adapt to changing consumer preferences, and leverage technology to enhance product quality and efficiency. The analysis concludes that while retrenchment was necessary, continuous innovation and strategic alignment with market demands are crucial for Sara Lee's long-term success.

Introduction
Strategic management is the process in which an organization develops and implements
plans for achieving the organizational goals and objectives. A successful strategic management
process must involve managers and employees. The context of strategic management is
concerned with the character and direction of the enterprise. This case study discusses Sara Lee’s
retrenchment strategy concept. This strategy is adopted when an organization aims to minimize
its cost by reducing one or a few business operations for achieving a stable financial position. In
the given case study, Sara Lee started a small company of wholesale distribution that became
larger with time, geographically and operationally. However, it was analysed that the shareholder
value did not increase. Therefore, Sara Lee decided to divest eight business units for increasing
operating profit and sales. It divested the less profitable industries and shifted its focus on food
and beverage. This report shall critically evaluate the strategic retrenchment aspects of the
company. Moreover, an analysis about the implications of Sara Lee’s macro-environment using
PESTEL framework shall be made. At the end of the section, a set of recommendations of the
strategic planning cycle regarding the organization’s market and financial performance in Oman
shall be determined.
Critical Evaluation of Strategic Retrenchment Aspect
Retrenchment Strategy is required by a company to reduce their expenditure in order to
be more profitably stable. The financial stability is always the goal of a company and
retrenchment strategy helps in achieving the same. This involves withdrawal of certain products
or pulling out from a precise market and also sometimes discontinuing from the whole market.

This is done to make a financial turnaround. Sara Lee Corporation also used these retrenchment
strategies for stabilising their financial issues (Gamble and Thompson 2014).
Sara Lee developed these strategies to make sure that the companies focus is primarily on
the optimum utilization of its resources to make it more profitably stable. They wanted to focus
on the products which have been more profitable and would provide strength to the company’s
financial status. Few years ago, the operating quality of the company was not as progressive as it
was supposed to be. Sara Lee’s management then came up with the policy to support Sara Lee’s
overall performance financially. Sara Lee divested some of their units from the market which
included direct sales, meats in Europe and The United States, US retail coffee, Nuts and snacks
(European) and other European products. The expected revenue to be obtained from the divested
business was around $3 Bn. The net profit margins and operating margins from five out of eight
businesses were negative. Four out of these five businesses had margin greater than negative
10%. Rest of the businesses also kept on declining and that is why the divestment strategy was
developed. Sara Lee’s goal was to increase the profit margin, so they had to prioritise the sale of
their beverages and goods used in households which were the areas where profit was marginally
more.
They also did something very innovative and it was really influential in 2008. They
launched “Project Accelerate”, a program framed for reduction of cost and increase their
productivity. Sara Lee started focussing on their overhead cost, reframing their supply chain and
outsourcing. This program was planned to save approximately $400 million by the end of 2012
and in 2010 only, this project saved approximately $180 million. Then the management decided
to buy back shares worth $3 billion within a three year period. Sara Lee’s revenue at the end of

year 2010 was around $10.8 billion and then they decided to disassociate their international body
care and household business (Tangpong, Abebe, and Li 2015).
Their spinoff with Hanes brand Inc. was also a very bold move but eventually it was not
as successful as it was projected by Sara Lee. The operating profit was still the support system of
the company. This step could not strategically be called a deal breaker. The retrenchment plans
was also a major part of their financial decisions. The company still lacked a lot of cash flow for
their expansion programs and other projects. Other companies are also trying to compete with
Sara Lee Corporation because they have been renewing the trends as far as the beverages and
food products are concerned and Sara Lee has been struggling with the cash flow issues.
Implications of Macro-Environment
Sara Lee’s business units are affected by the external factors that can be analysed using
the PESTEL framework:
Political Forces- Political forces can be defined as the regulatory forces and legislations
that affect the company. Sara Lee has a vast portfolio of companies from different industries.
They deal in food and beverage, food processing, household products and multiple other
categories that are governed by different regulatory bodies. Moreover, Sara Lee has business in
over 40 countries such as Europe, America, Oman and others. Due to increased globalization, the
business pattern and revenue is dependent on the taxation system of different countries.
Economic Forces- The economic forces include the factors such as recession,
unemployment, exchange rate fluctuations and other economic factors. It is analysed that the
world is affected by global recession. The disposable income of the consumers has declined due

to increased expenses. It is not pocket-friendly for the public to eat out which is why the
consumers are turning to purchase food and grocery products. There is a need for more cash flow
in the company for acquiring new trends from the food and beverage departments of other
companies. However, there is economic slump experienced by Sara Lee that restricts growth.
Social Forces- The social factors include the change in attitude, market trends, social
trends, lifestyle and other socio-cultural factors. The people across the globe have changing
demands and choices. In the current times, the people are switching to healthy and economical
consumption of food that makes them purchase meet and other foods rather than eating out.
Moreover, there is a need for products like frozen desserts, meats, bakery and coffee to make the
range attractive. The consumers have high demand for the above mentioned food range as it is
organic and suits the taste of consumers. The International Bakery experienced decline resulting
in a loss of $726 million. This is because the consumers prefer having fresh bread in comparison
to package bread. The demand for fresh bread is dominant in the European market. Further, the
International Beverage segment grew that increases scope of opportunity for the beverages.
Technological Forces- The technological factors refer to the recent developments and
innovations in the technological field for improving the products and services. In the
technologically advancing field, there is a huge opportunity for Sara Lee to conduct its business
operations through e-commerce. Moreover, Sara Lee can focus on the logistics and production
technology in the food industry for delivering high quality products. Such technological
advancement shall increase the efficiency and quality of the products. Moreover, the cost may be
decreased by the application of latest technology thereby giving room to Sara Lee for increasing
operating profits (Johnston and Marshall 2016).

Environmental Forces- There is increasing trend towards environmental sustainability.
There is a wide scope for Sara Lee to create Corporate Social Responsibility or CSR products.
The consumers prefer to consumer products that are sourced ethically or promote Corporate
Social Responsibility. The eco-friendly products can help in increasing environmental
sustainability in the organization.
Legal Forces- The legal forces include the compliance procedures that can guide the
legality of the company. The legal bodies make Sara Lee vulnerable as retrenchment shall
increase unemployment level among the workers. The Workers Union, Remuneration Act and
Fair Wage acts may apply to ensure satisfaction among the unemployed workers. Therefore,
there is threat for Sara Lee if the legal compliances are not met with (Grant 2016).
Recommendations of Strategic Planning Cycle
The strategic planning cycle is defined as a set of formal planning procedures that are
necessary to overcome operational problems. Before implementing a strategic decision, there is a
number of decisions to be resolved. Sara Lee must select an external consultant who shall act as
a strategic planning facilitator. The first step is to propose a mission. This shall align with the
organizational competitive interests and advantages. It should also be noted that the need to
review objectives arises from signals that may be different from, and independent of, the signals
that cause a review of strategy. Each of the two cycles may take place at different times and over
different periods of time (Fisher and Oberholzer-Gee 2013).
First, Sara Lee on the go as any other company and it was a minor company that is doing
extensive supply that slowly raised to a sequence of connected and unconnected commercial.
The Sara Lee Corporation was an American purchaser stock association arranged in Downers

Grove, Illinois. It had operations in more than 40 countries and sold its things in more than180
nations around the globe. The company after several years as mentioned earlier expanded into a
food processing, retail food and household products to more than forty countries as mentioned
earlier. For conducting the retrenchment strategy effectively, the employees must be chosen so
that they are laid off strategically in a cost-efficient manner. Sara Lee must choose an appropriate
timing to make the announcement (Frynas and Mellahi 2015). Firms may pursue a divestment
strategy by spinning off a portion of the business and allowing it to operate as an independent
business entity. But those that affect strategic decisions may be examined before, during or after
the determination of objectives, the diagram is neutral on that point. It does show that strategic
decisions cannot be taken until both the objectives and the factors affecting strategic decisions
have been determined (Abebe and Tangpong 2018).
The first stage is start engagement and commitment in which the employees must be
engaged and commitment must be generated. Purpose and target setting involves setting of target
mainly for the purpose of retrenchment. In the next step, analyzing and generating options,
alternatives to retrenchment shall be determined. The issue that is confronting Sara Lee is that
level board separation system and geologically spread operations has administration attempting
to work viably. Declining benefits around the world, Sara Lee's Retrenchment is strip eight of its
specialty units to raise productivity through working benefits and deals (Harrison and John
2013).
Sara Lee has several positions that it can take that can strategically grow its profitability.
The company currently has limited margins on its bakery line, especially from its dessert items.
Since Sara Lee has significant market share with its packaged bread in North America, the
company should eliminate its dessert sales and the sale of single-serving coffeemakers. Growth

in this segment is very slow, and is not growing within the foodservice industry either. By selling
off its dessert brands, Sara Lee can invest the profits of the sale into other innovations in its other
business units. Sara Lee International should expand its household and body care brands into the
Oman (Tangpong, Abebe, and Li 2015).
Conclusion
Sara Lee started a small company of wholesale distribution that became larger with time,
geographically and operationally. Retrenchment Strategy is required by a company to reduce
their expenditure in order to be more profitably stable. They wanted to focus on the products
which have been more profitable and would provide strength to the company’s financial status.
Sara Lee’s goal was to increase the profit margin, so they had to prioritise the sale of their
beverages and goods used in households which were the areas where profit was marginally more.
The retrenchment plans was also a major part of their financial decisions. The company still
lacked a lot of cash flow for their expansion programs and other projects. There is a need for
more cash flow in the company for acquiring new trends from the food and beverage
departments of other companies. Sara Lee can focus on the logistics and production technology
in the food industry for delivering high quality products.

References
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Tangpong, C., Abebe, M. and Li, Z., 2015. A temporal approach to retrenchment and successful
turnaround in declining firms. Journal of Management Studies, 52(5), pp.647-677.