Dive Brief:
- Post Holdings said Wednesday it has filed a draft registration with the Securities and Exchange Commission, moving it closer toward a possible initial public offering for its private brands business, according to a company release. The potential price range for the new stock, if the company decides to move forward, has not been disclosed.
- The cereal maker said it is still exploring alternative options for its private brands, which include Golden Boy nut butters, Dakota Growers pasta and Attune Foods non-GMO granolas, cereals and snacks. “Post is continuing to evaluate strategic alternatives for the combined private brands business, including an initial public offering, a placement of private equity, a sale of the business or a strategic combination,” the company said.
- For the fiscal year ended Sept. 30, sales for Post's private brands totaled $791.2 million with net earnings of $43.4 million, according to the St. Louis Post-Dispatch.
Dive Insight:
This filing is an interesting development for the maker of Honey Bunches of Oats, Grape Nuts and Fruity Pebbles — and perhaps one that makes more sense than a sale of its private brands.
In January, Rob Vitale, Post's president and CEO, said "the best structure to support" the business "is likely outside of Post's full ownership." But the segment has flourished recently under the company's watch, climbing 5.2% during its most recent quarter. This strong performance also mirrors the success of private brands in general. In 2016, the private brands market hit $150 billion, and a report by Cadent Consulting predicts the segment will control 25.7% of the market by 2027 — an increase of eight percentage points from its current level.
The segment will likely benefit from fierce competition taking place in the grocery space. As discounters, natural and organic chains, as well as premium players, all battle for industry dominance, many are revamping their private labels as a way to stand out to shoppers and bolster margins. Consumer acceptance and demand for high-quality store brands shows no sign of abating due to the expansion of players such as Aldi and Lidl, which depend almost entirely on private label offerings.
This shifting consumer sentiment is creating lucrative growth opportunities for both retailers and food manufacturers like Post. Kroger gains more than $20 billion each year from its store brand portfolio, which makes up 25.6% of the grocer's sales. So with this positive backdrop, why would Post consider a sale of its private brands? And what could potentially be gained from operating it as a standalone business?
It's possible the manufacturer wants to offload the segment in order to focus on growing newly acquired units, such as Weetabix and Bob Evans. Post closed its $1.53 billion purchase of the frozen food producer in January. Private brands were responsible for about 8% of its total $1.43 billion in sales during its most recent first quarter so the company may view this as a smaller division they are better off running independently in order to focus on their core business.
Post also may be wary of facing the same kind of struggles that have plagued TreeHouse Foods, the largest private-label manufacturer in the U.S. Though it's unclear what sparked the company's sales dip, higher operating costs and growing competition in the space appear to have taken the wind out of it's sales — risks that Post isn't immune to.
Correction: In a previous version of this article, the CEO's first name was incorrect. It has been changed.