This group, acquired in February 2016, experienced a fourth quarter seasonal surge of retail shipments, said CEO Sam K. Reed during the company’s Q4 earnings call.
“After acquiring over a dozen companies over the last 11 years, we truly are in a unique position in the food and beverage industry, to lead the growth of private label,” added new CFO Matthew J. Foulston, who joined the company in November 2016.
Because of the big acquisition, year-over-year net sales increased by 105.3% to $1.8 billion, the company announced.
Private label still a promising business in the US
Despite the pick-up, the company’s sales and profits still fell “a bit short” of expectations for 2016, said president Dennis F. Riordan, citing a general sag in the US private label sector despite companies upping their games.
TreeHouse Foods’ executives remain optimistic about their strategy. “In measured channels, we have an unparalleled portfolio of private label food and beverage products where we believe we are a leading scale manufacturer in nearly all of our 32 core categories,” Foulston said.
He added that “the fundamentals for private label growth in the U.S. are solid and the opportunity is great.” He cited numbers from Nielsen, which show that private label penetration in the U.S. is at 18% of total brand share, a very slight uptick from the past few years, and at roughly half that of some Western European countries, where private labels boom.
Store brand ‘better-for-you’
Part of the company’s strategy is to conduct more clean-label reformulations. “We'll do both more R&D time and effort on better-for-you formulations,” said Riordan.
“We are working with our customers to develop more clean label products and increase our emphasis on natural and organic ingredients. Clearly, this is where consumers are going and it's reflected in our business,” he added.
The strategy may attract new buyers, especially those with an unfavorable view of store brands. According to Nielsen Retail Insights data published last summer, stagnation in the private label sector is to some degree a marketing and image issue.
Name brands can advertise with cute characters or associate themselves with a popular cause in commercials or social media, thus increasing recall and likeability, a heavy handicap to store brands' competitiveness. This could potentially be offset by focusing on in-demand clean label products.
“Approximately 20% of our legacy products are now in the premium and better-for-you categories. We see this growing substantially in the years ahead,” Riordan said.
“We firmly believe that increasing private label offerings of products that span the range of value to premium is the best way for retailers to grow profitably and that sentiment is shared by nearly all retail grocery senior leaders.”