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By Dave Fusaro, Editor in Chief | 11/30/2010
Imagine managing 9,000 SKUs. Developing products to meet the needs of 800 customers. Managing 19 manufacturing plants, not a single one of which you built yourself.
Such is the world of TreeHouse Foods Inc. and, to some extent, the lot of many private label manufacturers. But few food processors operate nothing but acquired plants, and none has gone from zero to nearly $2 billion in just five years and just as quickly become No. 1 or 2 in their product categories.
Nor has any other had First Lady Michelle Obama on its board of directors.
The past two years have seen unprecedented growth in store brands. Unprecedented, too, is the impact private label products have had on national brands, as well as on the overall food & beverage manufacturing industry, and, indeed, on the way Americans shop and eat.
"Branded products grow with population growth – maybe 1 to 1.5 percent a year," says Sam Reed, chairman and CEO. "But private label has been growing twice as fast for the past 20 years. And private label is not just growing because of the recession. Europe is still far ahead of the U.S. in store-branded products."
Sources: Private Label Manufacturers Assn. & ACNielsen
Although private label actually flattened a bit at the height of the recession (see table), its 18.8 percent overall market share remains below the 24.2 percent mark across 21 European and North American countries, and well below that of highly developed markets such as the U.K., Germany and Switzerland. That headspace can be interpreted as opportunity.
But this is not a story about private label. TreeHouse Foods, Oak Brook, Ill., has turned in some stellar years by any measure. Sales have grown by a compound annual rate of 21 percent since the company was created in 2005, and net income has risen by 26 percent a year, hitting its highest level last year. With two acquisitions this year, the company should hit $2 billion in sales in 2011.
TreeHouse has the leading private label share in powdered nondairy creamer, soups, dressings, pickles, powdered soft drink mixes and hot cereal; and the No. 2 position in jams & spreads, salsa and dry mix pasta dinners (but No. 1 in the high-volume macaroni & cheese category).
TreeHouse is as adept at producing 39 cents-a-box mac & cheese as it is making deluxe shells and cheese that commands $1.59, and is just as capable at supplying dollar stores with ranch dressing as it is at creating organic lemon ginger sesame dressing.
Private label manufacturing on TreeHouse's scale requires a unique balance of customized product formulations with manufacturing that is both flexible enough to produce all those recipes and efficient enough to undercut the leading brands. So in a stellar year for private label manufacturing, it's especially fitting for Food Processing to honor TreeHouse Foods as our sixth Processor of the Year.
A very brief history
TreeHouse Foods has a history that stretches all the way back to … 2005, or at most 2001. But its key components have longer and more colorful pasts.
At its origin, TreeHouse is Dean Foods Co.'s former Specialty Foods Group. Over the years, Dean had acquired a handful of nondairy businesses, many of them private label or foodservice products, including pickles, dips and dressings. Four years after Dean was acquired by Suiza Foods (although it kept the name Dean), those businesses were deemed non-core, and Dean recruited the TreeHouse executives to spin off the business as a separate public entity.
A few years earlier, Reed and David Vermylen, both with extensive food industry experience, arrived at Keebler Foods in 1996 to help engineer a turnaround and leveraged buyout of the cookie and cracker business from Britain's United Biscuits. Flowers Industries and Artal Luxembourg S.A. also were key investors.
Reed and Vermylen restored Keebler's vigor and also made a number of strategic acquisitions, including Sunshine Biscuit Co. After just two years in charge of newly independent and private Keebler, Reed and Vermylen took the company public again, although Flowers retained more than 50 percent of the stock.
That team had firmly established Keebler as the country's No. 2 cookie and cracker maker, behind Nabisco. Entering the new millennium, Keebler was robust but Flowers opted to sell its interest. In 2001, Kellogg Co. bought Keebler for $4.6 billion (including debt assumption).
In addition to Reed and Vermylen, other key Keebler executives who banded together to pursue another venture were Harry Walsh, Tom O'Neill and Nick McCully. While looking for opportunities, they created TreeHouse LLC, which after the Dean spin-off became the firm's name.
"We still weren't that old. I guess we wanted a last hurrah in packaged foods," says Reed. "We naturally thought about a branded company first, but as we looked around we came to the surprising conclusion that private label foods offered an extraordinary opportunity. We thought we could apply our branded experience to the world of private label."