Treehouse Foods: Private label innovation rates double in recession
While the market share of private label in US food retailing has grown steadily in recent years, increasing from 11.6% in 1989 to 19.1% in 2010*, it had historically accounted for a disproportionately low percentage of new product launches, said chief executive Sam Reed.
However, this had changed dramatically when the recession started to bite, said Reed, who was speaking at the Barclays Capital Back to School consumer conference in Boston last week.
He added: “We are getting to the point where innovation in private label is roughly proportionate to its share of the marketplace.
“And it’s that innovation coupled with the growth opportunities outside of traditional supermarkets that will be the fuel that will power the growth opportunities for our industry and for Treehouse Foods.”
An extraordinary opportunity
Another significant market development had been the rapid growth of multi-tiered private label programs, with almost three quarters of retailers now having a tiered strategy (eg. good, better, best) compared with less than half of retailers in 2007, he claimed.
“More than seven out of 10 of our customers have developed brands at different price points offering different consumer propositions that they own and want to merchandise to differentiate themselves from the next grocer down the street and in doing so build consumer loyalty.”
More than three out of four households in the US now bought private label foods and beverages, he said.
“Customer brands are now regarded as the emerging national brands of the 21st century… This generational change both in consumers and products creates an extraordinary opportunity for Treehouse.”
Differentiation, loyalty, and profitability
While private label penetration rates in US food retail were still well below those of some European countries, US retailers were increasingly recognizing that private label could help them boost profitability, differentiate themselves and improve consumer loyalty, he said.
“Private label generates retailer gross margins that are more than 20% higher than those of comparable brands… If you look at the typical pricing structure of national brand vs a comparable private label product, we offer consumers a 30% saving on an equivalent item.”
Sales have tripled in six years
Treehouse, which has leading positions in the private label market in nine categories including macaroni cheese, salad dressings, pickles, soup, and hot cereals, had tripled sales from $708m in 2005 to an estimated $2bn+ in 2011, said Reed.
“We have tripled the size of the business in our first six years and solidified our place as a real leader in the industry.”
*According to market researcher Packaged Facts, sales of private label products in US food retailing are set to grow from $92bn in 2010 to $113bn in 2014, while their market share is predicted to rise from 19.1% to 23% over the same period.
