TreeHouse adjusts to changing consumer landscape

by Eric Schroeder
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BOSTON — TreeHouse Foods, Inc. is locked in on expanding through innovation and improving its internal operations efficiency, said Dennis Riordan, executive vice-president and chief financial officer. Mr. Riordan spoke at the Barclays Back-to-School Conference Sept. 4 in Boston.

On the innovation front, the company’s single-serve coffee program stands out as a success, Mr. Riordan said. The business has benefitted not only from new coffee flavors and profiles, but also from the introduction of teas and other hot drinks.

“Some people don’t know that we’ve actually for about two years have been making a variety of hot drinks in a single-serve format that works in Keurig machines,” he said. “And last year we added filtered products. But we see a great opportunity for expansion in this very fast-growing category as well, and it will be a key focus of ours in the future.”

TreeHouse also has looked to stay atop the shift from powdered beverages to liquid beverage enhancers.

“We are ready to respond,” he said. “We have new products in the marketplace, and I think you are going to see a real push next year as we expand our platform of beverages to include a variety of liquid beverage enhancers as well.”

In addition to new products and categories, TreeHouse is innovating in packaging, Mr. Riordan said.

“The world has seen some shifting,” he explained. “I think the traditional canned soup you are going to see more and more retort, which allows you to have a fresher, better tasting product than the can, maybe a little less shelf life, but we think ultimately a better product. And we will continue to look at package sizes so that we can respond to some of that changing retail landscape.”

TreeHouse also wants to achieve greater operational efficiency. Mr. Riordan said approximately 13% of TreeHouse’s customers represent about 82% of its volume and about 86% of its margin dollars. But the company is only spending about 55% of its R.&D. efforts on those larger customers.

“(This) gives you the sense that we’ve got a lot of smaller customers that are taking up a lot of our time but aren’t necessarily driving the value proposition we need to get from them,” he said. “So we will continue to look at our customer base to see how we can best focus our efforts and best get the return shifting resources into that 13% to 20% that really represents the bulk of the volume to get the maximum return.”

Shifting from its customer base to its product base, Mr. Riordan said TreeHouse is witnessing similar dynamics. Currently, the company has about 11,500 stock-keeping units, and about 80% of TreeHouse’s margin and 89% of its volume comes from about 3,500 s.k.u.s. Digging deeper, about 91% of the company’s margin and 97% of volume comes from about 6,500 s.k.u.s, he said.

“So roughly about half of the s.k.u. count of 11,500 is about 97% of our volume, or maybe better said, only 3% of our volume comes from half our s.k.u.s,” Mr. Riordan said. “And so as we look at our business, not only are we seeing the customer details and how we could better focus on a customer base, but as we look at the s.k.u.s and the operational complexity of private label, we are getting a better handle on exactly what s.k.u.s drive the volume and where we need to focus our business in order to maximize the value opportunity.”

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