On October 3, TreeHouse Foods lost $1.6 billion in sales. CEO Steve Oakland couldn’t be happier.
The closing of the sale of most of its meal preparation business for $950 million is probably the last big step toward a smaller, more manageable and hopefully more profitable TreeHouse.
The deal, which has been in the works since at least August, immediately makes the new owner another private label powerhouse. Investindustrial was the buyer, and the divested business has been renamed Winland Foods Inc. (We’ll profile them early next year.)
It also immediately makes TreeHouse significantly smaller, probably around $3.5 billion in sales – half of what it recently was, but that’s according to plan. Oakland inherited a sprawling, complex company when he took over TreeHouse in early 2018. Since then, he has presided over one asset sale after another.
“I came in on the back of several large acquisitions that, in hindsight, it’s fair to say they overwhelmed some of our capabilities,” Oakland said in an exclusive interview with Food Processing. “Since then, we have gotten significantly less complex and a bit smaller.”
But he has largely completed a reshaping of what was the largest private label manufacturer in the country (it had $6.3 billion in sales in 2017). Whether it’s more profitable remains to be seen.
Even in its best years, TreeHouse was marginally profitable. And since its largest acquisition, the private label business of Conagra – which had been the private label business of Ralcorp three years earlier – in early 2016, it has been in the red every year except 2020, when it eked out a $14 million profit.
Is this the end of the tunnel? “That’s a big step forward, but we’re not all the way there yet,” Oakland says of the meal prep sale. “There may be a few steps after that, but they will be smaller. And we will continue to invest in capabilities that make us an even better part of the supply chain, a better partner for the retailers.
“With the current tailwinds for private label -- the economic factors that are driving consumers to a lot of value decisions – [this reorganization] is going to allow us to execute well and take advantage of that opportunity.”
Reshaping a company of TreeHouse’s size and complexity would have a been a challenge in the best of times. Covid made it more challenging, although during the pandemic’s span, TreeHouse found tailwinds, headwinds and again tailwinds.
Private label in general and TreeHouse in particular seem to thrive during economic uncertainty. “The pandemic was a fascinating point in time for private label,” Oakland says. “Before that, private label had 20 years of slow but steady growth. But we’ve seen step changes in private label’s share of market during previous downturns in the economy.” So that meant increases in private label buying at the start of the pandemic.
But with the influx of stimulus money, even lower-income shoppers were trading up, Oakland says. “They bought brands, more expensive products, all kinds of things they didn’t buy before.” As the stimulus money disappeared but the pandemic dragged on, many shoppers came back to private label. Now, with inflation and a recession looking possible, “all the data point to very strong private label trends.”
TreeHouse was created in 2005 by Sam Reed and a few other former Keebler executives (hence the name). It was our Processor of the Year in 2010. While many food & beverage processors are primarily brand managers and marketers, TreeHouse is a manufacturer first and foremost, and a discreet one at that, quietly providing grocery stores with competitive versions of brand-name products, as well as some unique and self-developed ones. The company has 38 plants, all in North America.
Today, “private label’s position is fundamentally different than it was in 2008-2009 [the previous recession],” Oakland says. Private label has “a much broader assortment of natural, organic, better-for-you. You’ve got chains like Aldi with significantly more stores than they had in 2008.
“The retailers view private label as an important message as they know their consumer is looking for value as they navigate this inflation. So private label is getting more focus from the retailers.
“The conversations I’ve had with retailers have been that as that consumer looks for value, private label has to be there. It’s an opportunity for them to build their brand. They’re looking for where they can partner, where can they ramp up, where can we help them build their brand in this unique environment.”