Treehouse Foods Bets on Innovation For Private Label Growth

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September 20, 2011

Store brands in the U.S. are being driven not by economic choices as much as innovative offers and generational shifts, according to private label manufacturer Treehouse Foods.

Sam Reed

Private label food and beverage is a $92-plus billion sector that is driving strategic change in food retailing. And private label product introductions have nearly doubled in the past year, according to Treehouse CEO Sam Reed, speaking at the recent Barclays Capital Back to School conference in Boston. Store brands are launching new products faster than national brands. It’s a dramatic shift in recent years due to the recession, and reaching the point where new private label products are keeping pace with the category’s overall growth, Reed said.

Retailers are expanding store brands in the good, better, best categories and offering a new generation of shoppers more choice with these tiered strategies. In addition, consolidation among private label manufacturers is helping suppliers achieve better economies of scale, adding to profit margins for retailers. Acquisitions have broadened portfolios, created scale advantages and generated revenue synergies, Reed said.

More than Price
Generational shifts are changing store brands strategies. Whereas Baby Boomers traditionally look to private label as the low-priced alternative to national brands, Generation X and Millennials value store brands for their unique attributes beyond the value equation. Innovative flavors, a broad assortment, quality and a tiered assortment are capturing younger shoppers and inspiring store selection and loyalty, according to Treehouse.

Store brands are growing in all channels of retail. Grocery stores represent the highest penetration rate with private label comprising roughly 21 percent of all SKUs, but smaller niche retailers are aggressively expanding stores brands. Convenience stores, discount stores and warehouse clubs are growing private brands at the fastest clip, as retailers across all categories look to grow market share and profits as a percentage of gross margin, he said.

Treehouse tripled sales in its leading private label product categories since 2005, from $708 million to an estimated $2 billion by the end of 2011.

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