Post Holdings announced Thursday that it's looking into several options for its private brands segment, including a sale, according to a company release. The company said "creative alternatives" include an IPO, private equity placement or a strategic combination. Post's stock was up as much as 4% Thursday at $82.46 per share after the announcement, according to Nasdaq.
Post's private brands businesses includes Golden Boy, maker of nut butters, dried fruits and trail mixes; Dakota Growers, a pasta manufacturer; and Attune Foods, maker of non-GMO granolas, cereals and snacks.
The company also noted that after it completes its acquisition of frozen food producer Bob Evans — a deal expected to close Friday — it will create refrigerated retail and foodservice units. These new additions will join Post's five current operational segments: Post Consumer Brands, Michael Foods Group, Active Nutrition, Weetabix and Private Brands.
Post's private brands unit has been performing well of late. In its most recent earnings report, the segment saw a 6.9% sales jump to $114 million, comprising about 8% of total company sales — an uptick the company attributed to strong demand for peanut and other nut butters.
These results reflect the success of private-label brands as a whole. In 2016, private brands claimed 18.4% dollar share and 22.3% unit share, and their total market size was pegged at $150 billion, according to Nielsen. A recent report by Cadent Consulting suggests that private-label dollar share could reach 25.7% by 2027, growing more than eight percentage points from where it is today.
This growth will likely be spurred by a greater number of supermarkets embracing private labels as a way to differentiate from competitors and boost margins. The rapid expansion of stores like Aldi and Lidl, which rely almost exclusively on store brand assortments, has played a role, as has Amazon's plans to leverage Whole Foods' 365 as part of its grocery growth strategy.
Changing consumer attitudes toward private-label offerings are also creating lucrative opportunities. Private brands now rival national brands on both quality and price, luring both high-income and low-income shoppers to products once viewed as "generic." Kroger, for example, generates more than $20 billion a year from its private-label brands, which comprise 25.6% of the retailer's sales and 28% of units sold. The supermarket has also grown its Simple Truth natural and organic label into a $1.6-billion brand in just three years.
So, given this bright future for store brands, Post's announcement is baffling until you consider the cautionary tale of TreeHouse Foods.
The country's largest private-label manufacturer has recently seen its sales slump, its stock price plunge and its president abruptly depart. Higher operating costs, unfavorable pricing and growing competition from rival brands have all hurt the company, and it's unclear if it will be able to recover. TreeHouse is now focusing on cutting costs, developing clean-label products and assessing its operations across all areas to get to more solid footing.
It's uncertain why TreeHouse is struggling, but the company's poor performance is a reminder that private-label businesses aren't always a recipe for success. Post may be looking to shed its private-label unit in order to better innovate in other areas, such as Weetabix or its new Bob Evans unit, which have significantly expanded Post's portfolio and brought millions in potential synergies.