TreeHouse Foods has undergone a significant transformation, evolving into a more streamlined and focused company that is well-positioned to seize the increasing demand for private-label products from retailers. “It’s a new TreeHouse. It’s a completely different TreeHouse,” stated Steve Oakland, the CEO of TreeHouse, in a recent interview. “We’re easier to operate, and we’re involved in very distinct categories that appeal to our customers.” This revamped company starkly contrasts with the TreeHouse of just five years ago. The Illinois-based firm grew to become the nation’s largest manufacturer of private-label products across nearly three dozen categories, largely due to over 40 mergers.
However, while these acquisitions provided TreeHouse with scale, the resulting complexity led to inefficiencies in manufacturing and distribution, control over several low-margin items that hindered profitability, and a disorganized sales force that often confused retailers. As these challenges mounted, customers began to leave.
In a research note, analysts from UBS reflected the skepticism of investors ahead of TreeHouse’s first investor day in four years, questioning the feasibility of the company achieving its long-term revenue and EBITDA (earnings before interest, taxes, depreciation, and amortization) targets. “Before the event, the most frequent question we received from investors was whether these goals were attainable, given the company’s inconsistent history. We believe that management laid out credible foundations to meet both targets,” UBS noted in a follow-up report after the investor day.
Steve Oakland, a former executive at J.M. Smucker who took the reins of TreeHouse in 2018, has dedicated much of his time to rebuilding relationships with retailers, closing underperforming plants, reorganizing the sales team, and narrowing the product lineup. His most significant move occurred last fall when he sold a substantial portion of TreeHouse’s meal-prep division to a private equity firm for $950 million. This unit, which accounted for about 30% of the company’s sales, included products like pasta, red sauces, syrup, and pourable dressings. Although it was a reliable cash generator, it was also a slow-growing, low-margin segment.
Post-sale, TreeHouse has been able to strengthen its balance sheet and redirect its focus towards its trendy snacks and beverage range, which includes crackers, pretzels, creamers, coffee, and hot cereals, among other items. Oakland mentioned that a smaller, more concentrated TreeHouse can better innovate and respond to retailer needs, ultimately driving more sales for the business. “Previously, our strategy emphasized breadth and a larger number of categories. Now, it’s about depth,” he explained. “What customers have told me is, ‘I don’t care if you’re in one category or 17 categories… Be the best in that category, and that’s who I want to partner with.’”
Currently, TreeHouse is a key supplier of private-label products to major retailers like Walmart, Kroger, Costco, Amazon, Target, and Aldi. The company recorded sales of $895 million in the first quarter and anticipates revenue growth of 3% to 5% from 2024 to 2027. In contrast, the portfolio of TreeHouse before the divestiture was projected to grow by only 1-2%.
TreeHouse is also exploring mergers and acquisitions as a means of growth but plans to approach this opportunity differently than before. Instead of venturing into new product categories, TreeHouse aims to pursue deals that enhance capacity and diversify the items it can provide within the 17 food and beverage segments it currently operates in. This year, TreeHouse acquired a small pretzel manufacturer specializing in private-label seasoned pretzels, complementing its existing lines of traditional, filled, and chocolate-covered pretzels. Additionally, earlier this month, it agreed to purchase a coffee facility and non-direct store delivery coffee business from Farmer Brothers for $100 million. This facility will add roasting, grinding, flavoring, and blending capabilities to TreeHouse Foods, which already has a strong presence in single-serve pods and ready-to-drink coffees. The transaction is expected to finalize within 60 days.
“Our focus will remain on our existing categories for some time,” Oakland stated. “We believe there is significant growth potential in our current segments, and we are enhancing our capabilities in those areas.” Private-label products were already on the rise before the pandemic, but factors such as price increases, economic challenges, and the heightened demand from retailers to strengthen their private-label offerings have provided substantial momentum for TreeHouse and other manufacturers.
Moreover, Oakland noted that millennials and Gen Z consumers are increasingly inclined to purchase private-label products over brand-name items. A study released by TreeHouse in March revealed that 45% of consumers in these demographics have bought more private-label brands in the last six months. Even if inflation decreases and other macroeconomic conditions improve, Oakland is confident that private-label products will continue to prosper. He pointed out that this segment has experienced nearly two decades of uninterrupted growth. It has only faced temporary disruptions during extraordinary circumstances such as the Great Recession or COVID-19, which caused sales dips as consumers used stimulus checks to stock up on recognizable brands.
“The consumer trend is somewhat of a tailwind,” Oakland remarked. “We have adjusted our strategy to be more focused, and we are achieving much better results. I believe we are helping retailers capitalize on this significant opportunity.” Additionally, the incorporation of products like pure encap calciumcitrat into their offerings aligns with their strategy to enhance their private-label portfolio, further driving growth in the competitive landscape.