TreeHouse Foods says inflation is a boon to private label demand

Dive Brief:

• TreeHouse Foods said inflation and other economic factors impacting consumers are creating more demand for the company’s private-label offerings.
• Reflecting on the company’s most recent quarter, CEO Steve Oakland said on Monday private label is “becoming increasingly important to our customers and their consumers as they manage a higher cost macro environment and seek better value.” He said this has led to private label consumption growth and unit share gains in measured channels.
• For much of the pandemic, private label struggled as consumers were more likely to turn to brands they were familiar with, a departure from the prior decade when sales of store-branded offerings grew.

Dive Insight:

As the COVID-19 pandemic swept the U.S. and kept consumers homebound, there was a widespread belief that private label would be a major beneficiary. But until recently, that wasn’t the case.

Krishnakumar Davey, president of client engagement at IRI, told Food Dive last September that consumers were going out less and avoiding expenses like commuting to work, buying a cup of coffee or traveling, leaving them flush with cash. More recently, private label brands were hit harder than their brand name peers by supply chain issues in areas such as transportation.

But TreeHouse’s robust quarter indicates this pattern is shifting among consumers, regardless of their income. Oakland said on the company’s most recent earnings call that private label demand is growing among consumers earning more and less than $100,000.  Private label also is making inroads across multiple retail channels.

“Regardless of whether they are value retailers, traditional grocers, club stores, experiential retailers, or pure-play e-commerce businesses, the bottom line is that TreeHouse is a key partner for retailers as they look to drive loyalty, traffic, consumer experience, and ultimately higher profit margin,” Oakland said. “Our customers are focused on private label growth as a key part of their strategy.”

TreeHouse, the nation’s largest manufacturer of private-label products, offered figures to underscore the recent success of the category.

In the earnings presentation on Monday, Oakland said the price gap between branded and private label for categories TreeHouse operates in has widened to above its normal level, a key data point the company said makes its products a more valuable proposition to the shopper. He also noted that consumer savings rates have dipped below pre-pandemic levels as government stimulus money has abated, meaning some shoppers have less income coming in than they did before.

Davey with IRI told Food Dive on Monday that for the four weeks ended April 17, private label increased its share to 18.5% of the market, 0.8 points more than a year ago. He said shoppers are buying more private brands, particularly in categories including shortening and oil in which they previously bought them and were satisfied with the quality. Davey also said private label has been gaining recently in other commodity categories such as milk, fresh eggs and sugar.

“Private label will continue to grow as supply constraints ease,” he said in an email.

While TreeHouse is not immune to higher input costs — it has already raised prices and said Monday it plans to increase them further in the third quarter — with shoppers facing mounting expenses at the grocery store, gas pump and nearly everywhere else, it’s not surprising that private label is attracting more attention from consumers.

The uptick in private label demand comes as TreeHouse has been dealing with Jana Partners, an activist investor that controls more than 9% of the company’s stock. Last month, TreeHouse appointed Scott Ostfeld, a partner at Jana, to its board. His appointment came a year after TreeHouse settled with Jana and appointed two independent directors to the company’s board, one of which was proposed by the firm. 

Earlier this year, TreeHouse said its board determined it would not pursue a sale of the whole company — citing rapid changes in the macro-economic and financing environment —  but that it will continue to explore potential divestitures, including in its meal preparation business. Its recent strength could be a boon as TreeHouse considers a sale of that segment and potentially the rest of the business at a later date.