CHICAGO — Private label, once a category geared toward baby boomers looking for generics, has evolved into an innovative opportunity to provide tiers, flavor profiles and brand assortment for Generation X and millennials, said Dennis Riordan, chief financial officer of TreeHouse Foods, Inc.
In a presentation to analysts at the William Blair Growth Stock Conference in Chicago on June 12, Mr. Riordan spoke about the changing face of private label.
“It’s not the same white package,” Mr. Riordan said. “It’s now about tiers and flavor profiles and brand assortment. And what we find are most of our national account grocery chains carry three tiers now. So we’ll have an opening price point, purely of value. We’ll have a national brand equivalent. And, of course, a premium.”
In many cases, consumers are losing track that they are even a private label purchaser, he said. For example, he pointed to Kroger, which offers a Kroger base brand and also has Private Selection, which is the company’s premium offering. Super Value, meanwhile, has the Super Value base brand as well as the Culinary Circle high-end premium brand. The products in all cases are private label, though.
For TreeHouse specifically, the goal is to be in the categories that offer high growth potential as well as high returns on capital employed. Although about 50% of TreeHouse’s business was pickles as recently as 2006, the category is not considered “high-growth,” Mr. Riordan said.
“There’s not a lot you can do to be good, better, best at a hamburger dill chip,” he said. As a result, TreeHouse gradually has diversified its business.
Products such as pasta sauces, jams and jellies fall into the category of items with low return on capital employed but with high growth opportunities. This makes them a good business, Mr. Riordan said.
But the real “sweet spot,” Mr. Riordan said, are areas where a dominant brand owns the category, innovates and differentiates, and has good profit margins. When you have that, he said, it allows private label to play in that same area and get the advantage of that margin halo. He identified coffee as one of those opportunities.
“We have today single-serve products that work in the Keurig machine,” he said. “After Oct. 1, we expect to have ground roast coffee that will work in the machine. It’s going to be a Q4 launch. It’s going to be small.
“We are not looking to try to get a big per cent of a supposed private label portion of that market. We will kind of walk before we run. In fact, we’ll probably crawl this year before we even walk, as we’ve built a small amount of capacity to meet customer demands that we’ve already presented to. We’ll see how this plays out in the future, but for this year, Q4, it will be minor. We hope it’s an important part of 2013.”
Mr. Riordan said the company likes the fact Green Mountain Coffee Roasters is the dominant player in the single-serve category, and he thinks TreeHouse is “going to be able to make an analog product that will be very good and a very good product for our retailers.”
Going forward, TreeHouse will continue to look for ways to differentiate itself in terms of private label, whether it means being in traditional grocers such as Kroger or Wal-Mart Stores, Inc., alternate channels such as Dollar General, or even on-line outlets such as Amazon. Mr. Riordan said Amazon has been a successful outlet for the company’s single-serve cappuccino, ciders and hot cocoa mixes.
“We have to be better at development because all these new customers require new flavors and profile, and, more importantly recently, new packaging with the dollar stores, and then (being able to) adapt to the customer needs,” he said. “We think TreeHouse does that better than anybody in private label.”