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Treehouse Foods Idea Proposal (THS)

Treehouse Foods Idea Proposal (THS)
 

Can Treehouse Foods overcome retailers pushing down prices and competitors looking to take share?

Report Available: February 1, 2018

 

Blueshift’s initial research shows THS fighting to overcome a difficult year. The company is still struggling to integrate its CAG acquisition as the company’s business was in worse shape than expected. THS also must contend with retailers pressuring prices even in private label as they look to stay competitive amid slowing consumer packaged goods sales. The good news is the growing popularity, acceptance, and demand for private label as retailers use it to differentiate themselves, including in more premium items. The flip side is private label growth is leading to increased competition from producers, and retailers like KR turning in-house for some of their private label needs. THS’s leading position across 22 of the 32 categories it offers gives it an opportunity to overcome these challenges, but it must be up to the task with its strategy and execution.

 

Observations

  1. THS’s Q3 experienced a decline in the top and bottom line year to year amid pressure in the consumer packaged goods industry. Earnings missed expectations, though revenue beat consensus. Sales dropped 2.4% and gross margin fell as a result of lower sales. The Baked Goods segment saw sales increase 6.6%, Beverage sales grew 4.3%, Condiments sales climbed 3.4%, Meals sales fell 18.2% including the divestiture of its canned soup and instant feeding business, and Snacks sales declined 5.4%. As part of its Treehouse 2020 initiative, THS will downsize a manufacturing facility and close two others, reduce SKUs, and monitor expenses across the company. THS also lowered full-year guidance.
  2. THS bought CAG’s private-label business nearly two years ago and is still trying to make the acquisition work. CAG acquired the business from Ralcorp and proceeded to lose sales and accounts before unloading it to THS. As a result, success has been slower than expected, profit has been elusive, and the decision was made to close plants and cut jobs as sales losses mount. THS also needs to improve efficiency as the two companies integrate, while overcoming the worse-than-expected missteps it inherited from CAG.
  3. In October, president Robert Aiken left THS after only four months on the job. This comes after the previous president left late in 2016 to become CEO of Advance Foods. Existing CEO Sam Reed left his position to fill the vacant president role, leaving THS now in search of a new CEO.
  4. As attractive as private label is for retailers, they are still squeezing producers on price as they look to keep pace with their peers who are lowering prices. While private label may not feel the same pressure as branded producers given its popularity, its success is also spawning new competitors that retailers can leverage against one another for price concessions.
  5. Private label is growing in packaged food, now accounting for 14% of sales. KR has seen nearly a 50% increase in private label sales since 2012, now boasting 25% of total grocery sales from its more than 30,000 private label products. But it is also cutting prices on these products to protect market share. KR is also opening value-oriented stores carrying 80% store brand products made from its own network of 38 factories.
  6. THS remains the private label leader in 22 of 32 categories across its five segments, including 21 of the 25 healthy categories where it does business. This bodes well for THS as private label is growing its share of the premium and organic market, becoming increasingly valuable to retailers as well. This breadth should give THS an advantage over smaller competitors as it can offer more product combinations across the multitude of categories with potential pricing discounts for volume orders.

 

What does the competitive landscape look like for THS? How hard have suppliers been squeezing private label manufacturers? What are pricing dynamics? What are THS’ competitive advantages? What category does THS excel in? Why would a retailer choose THS over competitors? Which competitors are giving THS the biggest challenge? How sticky are these relationships? To gain insight into these and other trends in the private label food business, Blueshift will gather data and issue a market research report from independent sources in the following areas: Buyers at retailers, Private label competitors, and Industry specialists.

 

Companies: Treehouse Foods Inc. (THS), Dean Foods Co (DF), B&G Foods Inc. (BGS), Lancaster Colony Corp. (LANC), Kroger Co (KR), Walmart Stores Inc. (WMT)

 

Research Begins: January 8, 2018