Elegant and self-assured, Sara Lee Corp.`s chief executive, John H. Bryan, once said he owed almost everything to the unyielding confidence his parents inspired during his boyhood in Mississippi. That might explain how, at the tender age of 38, he became the handpicked successor to Nathan Cummings, head of what was then called Consolidated Foods.
That was more than 16 years ago. Since then, Bryan, 55, has guided Sara Lee through its transformation into a diversified, $12.4 billion consumer packaged-goods giant. Once associated primarily with bakery goods, only 42 percent of its operating income now comes from food. The rest is from its burgeoning personal-care and apparel businesses such as Hanes, L`eggs, Champion activewear, Kiwi shoe polish and Playtex.
In an interview last week with Tribune consumer-products writer Nancy Ryan, Bryan discussed the company`s rapid overseas expansion as well as the unified European market and the frustrations of introducing capitalism to Eastern and Central Europe. He also talked about business in the former Soviet Union and the changing consumer.
Q-About 35 percent of your sales are in Europe. The emerging single European market is a marvelous opportunity. What has Sara Lee been doing in the last few years to ready itself for that change?
A-From our standpoint, 1992 happened in about 1988. There have been no country barriers within Europe that substantially inhibited our business from going across borders for many years. But Lord Cockfield`s paper in 1985 on the Common Market (which helped lay the groundwork for the 1992 program) became the catalyst for all kinds of restructuring activity all over Europe. It caused all of us to start doing things. The conclusion of 1992 only has symbolic significance for Sara Lee.
Q-Sara Lee responded quicker than most, wouldn`t you agree? After all, you rank fourth among U.S. consumer-goods companies who do business in Europe (after Philip Morris Cos. Inc., Coca-Cola Co. and Procter & Gamble Co.).
A-That really goes back to the `70s, a time when we were looking to put together a strategy for old Consolidated Foods. We wanted to build our business around a limited number of large, consumer packaged-goods positions. And they were very difficult to find in the United States. Europe was very unfashionable at the time, but we had no geographic aspect to our strategy. So we acquired a major European-based consumer packaged-goods company called Douwe Egberts (the Dutch coffee and tea company) in 1978.
Q-Did that move pay off?
That gave us a really superb base. Most American companies have gone to Europe and acquired little companies and then shuffled them around and then sold them off. This was a large, important company that we acquired. From that base, we built the largest part of our European business. Somewhere in the mid-80s, we decided the time had come for us to try to replicate in Europe some of the positions in the packaged-apparel business that we had in the United States.
Q-There seems to be some debate in the U.S. on how to market to European consumers. Is there such a thing as the ”Euroconsumer?” Do you think it`s easier to market within specific countries or more broadly?
A-Those borders in Europe will exist for at least a few more generations. So it will remain a much more regionalized marketplace than the United States is. It`s more difficult to develop pan-European brands than it is to have national brands in the United States. There are many variables that decide which brands will be national/pan-European or regional.
Q-What factors determine whether a brand will be regional or pan-European in Europe?
A-One, whether someone ever tried to establish a pan-European brand. Second, whether well-known brands already exist in that category. Coffee is an interesting category because it is an old-line, well-established branded category on a country basis. The product tastes demonstrably different in Italy, France and Holland. We have standardized the packaging down to everything except one thing-the brand. The color`s the same. Douwe Egberts is on all of them, but in France, for example, it says ”Maison du Cafe,” and in Spain, it says ”Marcilla.”
You can manufacture anywhere in Europe because you can ship across borders. You can have the same packaging. But when you get ready to market, you really must have a totally different advertising appeal to the French than you do to the Dutch.
Q-You`ve been to Central Europe several times in the last couple of years. You expressed frustrations about the bureaucracy and misunderstandings there after a visit in the fall of 1990. Have you noticed improvements since that visit?
A-Well, some improvements, some declines. At the conclusion of the trip in 1990, we decided that we were going to enter three countries-Hungary, Czechoslovakia and Poland. Those are three countries where we think the political risks are pretty moderate and the economic risks are pretty high. Hungary was certainly the most liberal of the three. So after that visit, we acquired fairly quickly the third-largest food company and largest coffee company in Hungary (Compack Trading and Packing).
Q-How was Hungary different from the others?
A-Hungary was moving towards privatization much faster than in Czechoslovakia. In Hungary, it took a few months for the acquisition. In Czechoslovakia, it took a year and a half (to acquire the largest coffee company in Prague). Poland hasn`t figured out its privatization approach as quickly as the others have. So we`re still studying the Polish market. We`ve been looking principally to Poland for a base in hosiery.
Q-And in the former Soviet Union?
A-We had no interest in the Soviet Union prior to the aborted coup last August. After that time, we decided that since the political risks had moderated, we ought to take a look at the marketplace. We`ve had people in there looking for the right approach. The economic situation is just awful. The ruble is of so little value. They cannot bring in raw materials from outside. Now that they`ve fragmented into several countries, if they didn`t have a nylon plant, or coffee beans or whatever in a particular area, then they just don`t have it now.
Q-In the long term, could you produce goods in Central or Eastern Europe and then ship them to the former Soviet Union?
A-You cannot do anything in the West, or even in those countries, and then move products to a place where people are making 10 cents an hour. If you make that little money, you can`t afford to buy anything Western.
Q-But in the long run, assuming the situation improves?
A-Some of the factories over there have very modern equipment and people with skills. If we can figure out a way to get some raw materials in and actually let them do some manufacturing and bring products back out for the Western European market, then it will give us experience in the Soviet Union and will give us some product that . . . we can start selling. . . .
We are going to establish our brands in the old Soviet Union and a few other key markets. It`s not at all likely that the Commonwealth of Independent States is going to be around for very long. But St. Petersburg and Moscow will always be there. These are going to be different countries and maybe even different markets within different countries. And what we`ve got to do is get some brand awareness of our products in some fashion that`s not prohibitive from a cost standpoint.
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Q-How long before Sara Lee sees any payoff?
A-We`re betting that sometime within a reasonable period of time, 10 or 15 years, they are going to see enough economic development to allow them to come to us. The investment that we`re making in Eastern Europe and the Soviet Union will not produce meaningful amounts of returns for us in this decade. But we could establish ourselves very inexpensively for the next century because it doesn`t take much to get brand awareness. A TV commercial or billboard costs next to nothing and these people are brand-hungry. It`s a window of opportunity that just hasn`t existed before.
Q-Will the channels of distribution in Central Europe require more sales reps?
A-In Central Europe, we are working largely with local management teams. We`ve been putting in what we call shadow management in Hungary and to some extent in Czechoslovakia, people who bring skills that maybe didn`t exist there before. In Hungary, for example, you don`t buy a company. You buy a factory. Traditionally, somebody sent them the raw materials and said ”make 5,000 orders.” And they made them. They were a factory and a pretty good factory.
But this business that we acquired in Hungary had 400 or 500 people in the administrative department, and they had too many salespeople. And they didn`t sell. So we had to build a sales force and we had to build a marketing force. We had to develop distribution. They didn`t particularly know how to do that. So we brought in Western people to be production managers, distribution manager, marketing manager, the finance manager.
Q-Initially then, this is more management-intensive than in Western businesses?
A-Certainly as you`re developing people to our accounting and our marketing and so on. We have to take very strong people out of our Western management to do that. It`s not easy getting somebody to move to Budapest or to move to a province out in China. Nor is it easy to find someone who will move who also speaks Chinese. It`s very difficult to supply the management in these countries.
Q-What types of acquisitions will you be looking at overseas?
A-It is quite true that the non-food part of our business offers us the best opportunities today, both in the U.S. and overseas. It is totally consistent with our mission of building brands.
Q-Besides Europe, what overseas areas have top priority?
A-I`d almost give second priority to Mexico because it is a market that is going to be economically integrated with the United States. Mexico`s free trade may or may not happen this year, but Mexico has already lowered its barriers. The mindsets are there. Business people are moving on that assumption.
Q-What products are you thinking of marketing there?
A-We`re thinking of almost our whole range of products. We`ve got a nice base in Mexico. We`ve got aggressive initiatives there. It`s an additional market of 83 million that`s going to grow a lot faster than the market here. Plus, it`s not going to be a political risk.
Q-Haven`t food companies experienced only spotty successes with marketing their products in Mexico? Aren`t those successes mainly through local acquisitions?
A-It varies. I`ve heard Coca-Cola makes more money in Mexico than it does in the United States. All I`m saying is that I see the economic integration of North America as a great opportunity.
Q-Your next priority after Mexico?
A-Southeast Asia. We opened an office in Singapore and we`ve got a lot of initiatives there. We are getting much more serious about Japan and have employed a country manager there.
Q-How about the U.S? You said in your annual speech last fall that the American consumer of the `90s will be very different from the one in the `80s. How so? And is that also true for Europeans?
A-The consumer is likely to be a lot more value-oriented. And you can see that with the growth of value channels of distribution such as club stores. The consumer is going to be older. Plus, the consumer has been burned in the
`80s with excessive spending and borrowing. The combination of that means that it`ll probably be harder to get them to go deep into debt to buy your products.
Q-Many consumers in their 20s and 30s in this recession have lost a job for the first time. That memory will stick with them for the rest of their lives and it`ll be reflected in their spending. Do you see that happening?
A-When I think about myself starting out in the `60s as a young adult with Depression-trained parents, I never would (borrow money). But by the time the `70s came along, the rewards were going to those who were borrowing money. American society in the `70s and `80s just went wild on consumer credit, and I think you`ll see that abate somewhat. Now they want to maintain their standard of living, and these new formats that offer more value orientation have got to thrive.