Editor's Plate: Private Label Is Made for Small Firms

Jan. 14, 2016
Time will tell if TreeHouse can succeed as the 500-lb. gorilla in the store brand category.

How many schmaltzy movie plots ask if the small-town boy can succeed in the big, bad world and stay true to his down-to-earth values? I just saw such a movie, however played out not in a theater but in a food and beverage industry trade show.

Read the January 2016 Issue

Food Processing's January 2016 issue provides four looks at the new year. Our cover story names the five most pressing issues you'll deal with in 2016: GMO labeling, the Dietary Guidelines, even-cleaner labels, business consolidation and animal welfare. Read these and more by downloading our January Digital Issue

Being the 500-lb. gorilla in the room usually is an enviable thing. But what if that room has a four-foot ceiling and is full of strong, angry midgets trying to take you down? Remember the story of David and Goliath?

That’s my current take on the world of private label and TreeHouse Foods’ place in it, especially after attending the Private Label Manufacturers Assn. (PLMA) show back in November. It’s remarkable to see the changes, the potential – much of it unattained – the consolidation and now the disparity in private label. And it all leads me to believe this is a game for small players, companies that put manufacturing efficiency above all else except the humility that goes with working for someone else.

Size may be a liability; and if so, what does the future hold for TreeHouse? It’s a company I’ve been fascinated with since its creation in 2005 – by a couple of former Keebler executives (hence the company name) who believed private label was the future of food.

I’ve been going to the Private Label Trade Show for many years now. It’s held in a suburban Chicago expo center, not McCormick Place, with ceilings about as low as that metaphor I began with. It’s a collection of smaller companies, many of them with just table-top displays, offering to make their specialties for anyone who will hire them.

I’m a bigger fan of manufacturing than of marketing, so I’m always encouraged by the commitment of these small companies to making stuff, making it better and making it more efficiently. And some exhibit a good share of innovation, not just imitation of the national brands.

For many years, amidst those small booths there were three big displays: Ralcorp, ConAgra and TreeHouse. Back in 2012, Ralcorp dropped out, the result of acquisition by ConAgra. This year ConAgra was still there, but sitting like a lame duck, waiting for its acquisition by TreeHouse to become final. Next year there will only be TreeHouse in the mega-booth category.

Ralcorp wasn’t bought because it was a gold mine. It was a lousy purchase by ConAgra for a lot of reasons, not the least of which was it lost money the year before ConAgra bought it.

ConAgra’s own private label business was so buried or heavily integrated into the rest of the company that it was hard to tell exactly how it performed, but indications were that it was marginal at best. And clearly made worse by its merger with Ralcorp.

The lesson: Private label is not an automatic gold mine, even if you’re big. Maybe especially if you’re big.

TreeHouse has always been pretty frugal, and it certainly got a steal when it bought Ralcorp for $2.7 billion, three years after ConAgra had paid $6.8 billion for the business. Nevertheless, it’s a big bite to digest. And TreeHouse is a company that has grown by acquisitions. It already had $1.5 billion in debt before the ConAgra buy, which will at least double that debt figure.

TreeHouse has solid strategy and a great history of making these things work. Much of its grand plan was shared with Food Processing when we named the company our Processor of the Year in December 2010. But back then it had just hit $2 billion in sales. Do things get easier or harder when you’re a $7 billion company?

If you believe the numbers, the projections, the comparisons to Europe, private label is still on the upswing. Store brands last year grew at twice the pace of national brands … which sounds impressive until you realize “twice as fast” equates to 2.5 percent, according to PLMA. Store brand market share is 53 percent in Switzerland and 52 percent in Spain, and five other countries (United Kingdom, Germany, Austria, Belgium and Portugal) are at 40 percent or more. It’s inevitable the U.S. will catch up, right?

Time will tell if TreeHouse can pull it off. Or pull it all together. If anyone can, it’s that crew.

Sponsored Recommendations

Learn About: Micro Motion™ 4700 Config I/O Coriolis Transmitter

An Advanced Transmitter that Expands Connectivity

Managing and Reducing Methane Emission in Upstream Oil & Gas

Measurement Instrumentation for reducing emissions, improving efficiency and ensuring safety.

Rosemount™ 625IR Fixed Gas Detector (Video)

See how Rosemount™ 625IR Fixed Gas Detector helps keep workers safe with ultra-fast response times to detect hydrocarbon gases before they can create dangerous situations.

Get Hands-On Training in Emerson's Interactive Plant Environment

Enhance the training experience and increase retention by training hands-on in Emerson's Interactive Plant Environment. Build skills here so you have them where and when it matters...