Maybe you saw the news recently: TreeHouse Foods is selling its meal preparation business to an investment fund. Most media played it like any other acquisition/divestiture story. What few took notice of was that this deal represented $1.6 billion in sales, nearly a third of TreeHouse's business, which means it will shrink quite a bit. Before you shed any tears consider: Sometimes smaller is better.
"Imagine creating 9,000 SKUs, developing custom products to the specs of 800 customers, managing 19 manufacturing plants, not a single one of which you built yourself." That was how we began our 2010 story naming TreeHouse Foods our Processor of the Year. The company was built largely upon other companies' castoffs and included such historic names as Keebler, Sunshine Biscuit and Heinz baby foods, but the entire focus became private label.
In our September issue, we also referenced Kellogg's planned split into three companies, one each focusing on cereals, snacks and plant-based analogues. Chairman/CEO Steve Cahillane himself remarked, "An enhanced focus will enable them to better direct their resources toward their distinct strategic priorities." Which to me implies they were not given enough attention under the company's current structure.
Kellogg has put behind it a difficult couple of years. Total company sales last year eclipsed $14 billion for the first time since 2014. Products made in North American plants, which were $9.5 billion in 2014, have declined every year since, now barely above $8 billion. But the company has remained nicely profitable, especially the past two years.
Conagra is the poster child for smaller-is-better. The company added $4 billion in sales when it bought Ralcorp's (remember Ralcorp?) private label business in 2012 for $6.8 billion. Wait – $6.8 billion to buy $4 billion in sales? And no mention of how profitable that business was (or wasn’t).
Conagra’s sales ballooned to $18 billion, but two years of $600 million-plus net losses followed, and Conagra sold the business – to TreeHouse! – in 2015 for a mere $2.7 billion. Conagra shrank as low as $7.8 billion in 2016; today it's $11.5 billion but has recorded two years of billion-dollar profits.
I realize all that is no revelation. It's the circle of life in the food and beverage industry. Bragging rights sometimes are the only asset that comes with being big. Clearly, success is not synonymous with size.