TreeHouse Foods cashes in as consumers opt for premium private label single serve coffee, tea

Speaking on the firm’s Q3 earnings call, CEO Sam Reed said private label was now driving much of the growth in the single serve hot beverage category.

“Single-serve beverages, which now account for more than 30% of ground coffee category revenues, will continue their rapid growth as retailers welcome a store-brand alternative and product offerings beyond their legacy base.”​

But the opportunity is at the premium end of the private label spectrum, he stressed.

“We provide a private label option that even the most stalwart advocates of the brands would find to be an equally satisfying beverage experience.”​

We’ve got customers with house brand single serve coffee accounting for 20%+ of category volumes​

He added: “We've got customers now in K-Cup categories [where] their house brand is greater than 20% of unit volume across all brands at the store​…. [This] demonstrates to grocers everywhere what the potential is, provided they are willing to invest in their own brands and look at that house brand as a strategic marketing matter as opposed to simply a transactional tool.”​

CFO Dennis F. Riordan said: “As I'm sure you've seen across the food industry, sales volume has been difficult to come by.​ Consumers continue to buy less, shop for values and migrate towards better-for-you foods and beverages.​

“While these issues are generally headwinds for most food companies, we see the shifting dynamics as further opportunity in our private label world.”​

Private label in aggregate will continue its slow and steady advance​

He added: “Private label in aggregate will continue its slow and steady advance as customer brands gain new ground in traditionally branded enclaves such as coffee, hot beverages, snacks and better-for-you products.”​

In 2014, the grocery industry will become “increasingly bifurcated as retailers choose between the strategic segmentation and differentiation of their house brands versus the transactional advantage of national brand discounting”, ​he predicted.

“The principal issue for food manufacturers is whether to opt for the Band-Aid of discounted volume or to invest in strategic capability.”​

Wells Fargo: Private label will likely drive growth to the entire pod category ​

According to a Wells Fargo analysis of the latest Nielsen expanded all-outlet combined channel (XAOC) data (all stores except c-stores), pods now account for more than a third of dollar sales of retail packaged coffee.

And private label pods accounted for 8.7% of dollar sales of pods in October 2013 compared with 0.4% in October 2012.

Senior analyst Bonnie Herzog said: "Private label pods’ pricing increased 2.3%, however PL pods continue to capture unit share of the category."​

She added: "Investors have been asking us what the availability of private label K-Cups could mean to the category and we feel private label will likely drive growth to the entire pod category and should not meaningfully affect premium/super-premium K-Cup brands’ momentum."​

In the third quarter of 2013, TreeHouse’s adjusted EBITDA rose 8.1% to $78m, while net sales were up 5.4% to $567.2m, primarily due to acquisitions.  

Treehouse has leading positions in the private label market in several categories including single serve coffee, powdered drinks, skillet dinners, creamers, macaroni cheese, salad dressings, pickles, soup, and hot cereals.