TreeHouse Foods eyeing organic, natural category

by Keith Nunes
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TreeHouse said it has watched the dramatic growth of Kroger's Simple Truth brands and wants a piece of the action.

OAK BROOK, ILL. — It has been a busy year for TreeHouse Foods, Inc. This past February the company announced plans to sue Keurig Green Mountain over the development of the Keurig 2.0 system. In April the company acquired Protenergy Natural Foods, in late June, executives announced plans to acquire Flagstone Foods for more than $800 million, and earlier this month the company said it had developed a technology that would allow it to sell unlicensed pods for the Keurig 2.0 system. Lost amid all of the activity are the company’s plans to gain a greater share of the organic and natural segment.

Perhaps one of the biggest stories in the food and beverage category has been the dramatic growth of the Kroger Co.’s Simple Truth and Simple Truth Organic private label brands. TreeHouse has watched that brand’s growth as well as others and wants a piece of the action.

“One trend that is continuing to develop is the reemergence of the traditional grocer,” said Dennis Riordan, chief financial officer, in a conference call with financial analysts on Aug. 7. “Our sales to full-line grocers continue to recover with sales up in the quarter by 3.2% over last year. This contrasts with some weakness we are seeing in a couple of our premium segment accounts. We see more traditional grocers, both large and midsize, placing more emphasis on the better-for-you food segment with premium private label products. This is one of the reasons why we are so focused internally on reformulations and new products that appeal to customers who desire natural or organic products.”

Mr. Riordan placed TreeHouse’s share of products targeted to the private label organic, natural category at less than 10%.

“It is growing, but it is a small segment,” he said. “It is hard to say. This kind of goes back to the coffee types of questions we got two years ago when people asked, ‘what do you think the market share of private label will be.’ We don’t know, but what we do think is we are well-positioned to be a leader in taking advantage of however the consumers move toward those types of products. We have capabilities in nearly every one of our categories to do natural and organic and we’ve got a strong team of R.&D. and food scientists working there. So whether that ever gets to 15% or 20% of food, I am not sure, but we definitely have the capabilities to be right there and we will participate in that.”

Sam Reed, chairman, president and chief executive officer of TreeHouse Foods, said the consumer packaged goods industry is dealing “with the end of the era of mass marketing and everybody understands how that applies to brands, but there is also a direct application to grocery retailers and its suppliers of their customer brands.”

Mr. Riordan said such brands as Simple Truth, Open Nature and Nature’s promise are all resonating with consumers.

“I don’t think this is a fad, but I think it is going to grow over time,” he said. “It is pretty clear from surveys that millennials are much more involved in the quality of their food or the type of food, not to say that processed food does not have good quality, but it is just different.

“I think our retailers are finding that out and as you look at how they are reacting to it, it is no longer just the store brand that is being presented; it is now the corporate brand. And the corporate brands are getting much more focused not only in the product themselves, but the names.”

Food and beverage categories to watch include soups, sauces, marinades and dressings, Mr. Riordan said.

“… All those that were cooked and processed, we are finding great opportunities not just for natural and organic, but some really interesting flavor profiles, and you will see a lot of our products now that are beyond just the salsa being hot, mild and medium into the very fancy bean and corn combinations and fruit combinations and all in an organic offering,” he said.
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