Dive Brief:
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According to a presentation this week to TreeHouse Foods investors by Senior Vice President of Research and Development Jess C. Sweley, the company emphasizes three areas for innovation and growth: Making every ingredient count, platform innovation in growth categories and packaging agility for channel customization, according to Food Business News.
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Sweley said the company's research indicates that premium products with health halos — such as USDA-certified organics, items that are non-GMO verified and those that are gluten-free — drive higher prices in the marketplace. Focusing R&D in these areas offers a chance for TreeHouse to increase its top and bottom lines within existing categories, he told Food Business News.
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The company has focused since 2015 on such products, Sweley noted, increasing their share to the point that 20% of the company's portfolio consists of these kinds of items. "We now have clean label product offerings in 26 of our 32 categories," he told Food Business News. "We're not resting until we get to all 32. And in fact, 25% of all of our pipeline R&D work is focused on developing new, premium, organic, clean label products.”
Dive Insight:
TreeHouse seems to be reemphasizing its R&D program to maximize forward momentum. The Illinois-based private label manufacturer has been struggling this year, so a strategy for successful innovation is undoubtedly a top agenda item.
The company’s president suddenly stepped down last month. Earnings per share, sales and profits were all down in the most recent quarter, and the manufacturer just lowered its financial outlook for 2017. Consequently, its stock price has plunged more than 40% this year, hitting a new low of $40.26 on Wednesday morning before slightly nudging back up. The question is why the company has been performing so poorly recently, especially given consumer preferences for some of its clean label products.
At least one analyst was not impressed with the presentation. Amit Sharma of BMO Capital said the company gave no scope or timeframe of when margin pressures might improve, did not address the impact of the private label giant's size and scale in the current pricing environment, and didn't detail what leadership decisions may be made to defend margins — or if Robert Aiken's abrupt departure represents a strategy reset.
According to Sharma's note on the presentation, the R&D-focused presentation was also somewhat puzzling. The 32 product categories TreeHouse manufactures don't all have favorable margins — including snack nuts. While IRI data show that private label nuts are the slight market leader in the segment, sales are dropping.
Regardless of the nuts market, TreeHouse is no stranger to cutting its product lines to maintain margins. This spring, the manufacturer sold its soup and infant foods business to Insight Equity. The $210-million divestment, CEO Sam Reed said in a written statement, was an effort to "simplify our business and concentrate our efforts toward more dynamic categories."
Aside from trimming product lines, the company has other cost-cutting changes in the pipeline. It is continuing to work toward its TreeHouse 2020 restructuring program, consisting of the closure of two manufacturing facilities and the downsizing of another. About 375 workers were to be laid off as a result of those changes. TreeHouse also plans to complete a company-wide assessment of customer relationships and expenses across all areas to identify savings that can be achieved by the end of next year.
Despite its rosy R&D picture, TreeHouse will have to navigate more choppy waters before it can achieve smoother sailing. Innovations and expansion of clean label items will help, as will positive trends in private label products, which seem to be gaining acceptance among consumers. And when it comes to “premium” private label brands — like the ones TreeHouse is now focusing on — consumers are willing to pay a little more to get a product that more closely aligns with what they want. Whether TreeHouse reaps the benefit of that trend remains to be seen.