Sara Lee Sells U.S. Tea & Coffee Operations


Sara Lee Corp. announced the $350 million sale this week of a majority interest in its North American Foodservice Coffee Operations to The J.M. Smucker Company in a deal that will tie together the firms in a strategic partnership.

Smucker will assume control of new venture CoffeeCo in December once it is spun off. Last January Sara Lee decided to divide itself into two pure play publicly-traded companies. Sara Lee tea and coffee brands include Douwe Egberts, Piazza D’Oro, Pickwick teas, Moccona freeze dried coffee, Harris Coffee and Maison du Café.

The assets acquired by Smucker generate about $285 of the $530 million in sales from Sara Lee.

On Tuesday Sara Lee announced Michel M.G. Cup will serve as executive vice president and chief financial officer of its International Beverage business. He will also serve as chief financial officer of 'CoffeeCo' beginning Dec. 1.

The deal is likely to invigorate tea brands like foodservice mainstay Pickwick Tea and Smucker’s Santa Cruz Organic, makers of RTD juice and tea, but marks an end for Senseo coffee as of March 31 with the exception of select online channels.

Sara Lee announced it will sell or close the remaining assets of the North American coffee business, and expects to provide an update on the process before the end of calendar year 2011.

The partnership envisions a long-term collaboration on liquid coffee innovation, a signal that the business will pursue fast-growth single-serve and instant brew categories. Senseo is a weak competitor in the single-serve coffee brewer segment dominated by Keurig, a subsidiary of Green Mountain Coffee Roasters. Sara Lee has a thriving coffee system division as part of its Douwe Egberts holdings.

Sales of Sara Lee’s espresso coffee capsules reached $100 million in August. The capsules, compatible with Nespresso® coffee appliances, are the first to be sold at mainstream retail outlets in Europe. Distribution increased to more than 15,000 European stores since its April 2010 launch in France. Capsules are sold in the Netherlands, Belgium and Spain.

“In recent years, our North American coffee business has been Foodservice-based and largely unbranded, which is a challenge in a highly competitive marketplace,” said Sara Lee’s Jan Bennink, executive chairman of the board. “Our decision to sell a major part of this business to Smucker is an example of Sara Lee Coffee and Tea's renewed focus on sustainable, profitable growth and part of our mandate to create the strongest possible pure-play company.”

Smucker owns leading U.S. coffee brand Folgers® and Dunkin Donuts and recently purchased Café Bustelo and Café Pilon. Smucker's coffee business is the company’s largest by sales.

As a result of the licensing and support agreement, Sara Lee will receive a ten-year income stream totaling approximately $50 million, plus growth-related royalties, which will help cover its research and development and other support expenses.

“This transaction further strengthens our position as a leading North American coffee company,” said Richard Smucker, chief executive officer of The J.M. Smucker Company. “The addition of liquid coffee concentrate to the Smucker portfolio aligns with our desire to compete in all forms of coffee, adding to our roast and ground, single serve, instant, and ready-to-drink platforms. The innovation partnership further allows us to collaborate on new technologies in the liquid coffee category for the foodservice market.”

The North American foodservice beverage business currently employs approximately 690 people. Following the execution of the agreement, approximately 450 people will transfer to The J.M. Smucker Company.

Smucker Natural Foods, Inc., formerly Smucker Quality Beverage, Inc., offers Santa Cruz Organics under its R.W. Knudsen Family of brands. The company’s organic ready-to-drink, Fair Trade Certified™ teas in Raspberry, Peppermint, Lemon, and Mango flavors, sold in 32-oz. bottles, were introduced in 2009.

Financial officer Cup, 42, joins Sara Lee from Dutch-based Provimi, a leader in international animal nutrition. He currently serves as chief financial officer and Board Member of the company where he oversees the global finance function, including M&A, Corporate Communications, Tax, Legal, IT, Treasury, Risk and Credit Management, as well as all finance related to Procurement.

"CoffeeCo business has tremendous potential and I'm delighted to join the company at this critical time. Jan Bennink has set an ambitious vision for the company and I'm looking forward enormously to the challenge."

Source: Sara Lee Corp.