Sara Lee Aims to Surpass Kraft in Coffee Sales, Bennink Says

Sara Lee Corp. (SLE) Executive Chairman Jan Bennink says the maker of Senseo and Douwe Egberts coffee aims to become the world’s second-biggest seller of the beverage, leapfrogging rival Kraft Foods Inc. (KFT)

The company may seek to expand through acquisitions, Bennink, 55, said in an interview. He became chairman in January after Downers Grove, Illinois-based Sara Lee disclosed plans to split the meat business from coffee.

“Can we be the biggest? No. Number two? Yes,” Bennink said, declining to give a time frame for that goal. “We need the right investments and the right vision.”

To do that, Sara Lee will have to more than double its share of the global coffee market, according to data tracker Euromonitor International. Nestle SA (NESN) is the largest coffee seller in the world. Bennink, a Dutchman who ran Royal Numico NV before selling the baby-food maker to Danone (BN) SA in 2007, plans to focus on Sara Lee’s Senseo single-cup coffee machine, which debuted a decade ago.

The foodmaker decided to split itself up after rebuffing advances from suitors including Apollo Global Management LP, JBS SA (JBSS3) and KKR & Co. Bennink told investors today that Sara Lee will spin off the coffee business, reversing an earlier plan to do so with the meat operations. Bennink said that business may not retain the Sara Lee name after the split, contrary to its previous statements on Jan. 28, the day of the announcement.

Logical Targets

There are “logical” purchases for Sara Lee’s coffee operations, Bennink said in the June 9 interview, without mentioning specific targets. Sara Lee had $2.13 billion in cash and cash equivalents as of April 2. Possible targets include Cafe Bom Dia Ltda of Brazil and Swiss-based Ethical Coffee Co., both closely held, said John Baumgartner, an analyst at Telsey Advisory Group in New York. Mike Cummins, a spokesman for Sara Lee, declined to comment on possible targets.

Bennink also has formed a team of Senseo managers dedicated to pushing out new flavors and models. Last year, the company debuted a lower-priced version of the Senseo machine, made by Hamilton Beach Brands Inc., a unit of NACCO Industries Inc. The first Senseo is made by a unit of Royal Philips Electronics N.V.

“Jan is the first person who has actually talked about shaking up Senseo -- that was a pleasant surprise for me,” said Baumgartner. “If he’s going to pound the table to get people fired up for new innovations, that’s a good thing.”

Switzerland’s Nestle leads in fresh and instant coffee sales with 22 percent of the global market, according to Euromonitor. The company sells Nescafe instant coffee, as well as single-serve Nespresso espresso capsules, Nestle’s fastest- growing business.

Coffee Prices

Coffee makers such as Sara Lee, Kraft and Starbucks Corp. (SBUX) have all raised prices this year to cope with soaring costs for coffee beans, which have doubled over the past twelve months due to poor growing weather in countries like Colombia.

Northfield, Illinois-based Kraft has 13 percent of the market and Sara Lee has 5.5 percent. Kraft’s coffee brands include Jacobs, Carte Noire, and the Tassimo beverage machine.

Coffee is a “core category” for Kraft, which generates about $5 billion in global coffee sales, said spokesman Mike Mitchell. The company will keep competing “aggressively,” he said.

“To gain that market share, Sara Lee has to take it from Nestle or from Kraft, and I don’t think they will take it from Nestle,” Baumgartner said. “It’s possible, but it will be a Herculean task.”

Stock Performance

Sara Lee rose 43 cents, or 2.3 percent, to $19.12 at 4:15 p.m. in New York Stock Exchange composite trading. Kraft advanced 14 cents to $34.26.

Tim Ramey, an analyst at D.A. Davidson & Co., said Sara Lee will likely debut new versions of both the Senseo machine and the coffee containers, which are called “pods.” The Lake Oswego, Oregon-based analyst rates the shares “neutral.”

Ramey said Bennink is “angling” for the CEO role at the coffee and tea business after the split. Current CEO Marcel Smits, who took the top job in January after filling in on an interim basis for seven months, would be the other potential leader, Ramey said.

Bennink said he would “likely not” run the beverage business as CEO but would be involved in some way, perhaps as a director. He said he wouldn’t seek a CEO job at another company after the split.

“I am glad I did this, but I would not do it again,” said Bennink, who began his career at Procter & Gamble Co., where he worked under former CEO A.G. Lafley and alongside current chief Robert McDonald. “If someone calls me I can say no, however big it is.”

From: Bloomberg.Com