After nearly a year at the helm of TreeHouse Foods, CEO Steve Oakland describes the company he took over in very different terms than the one he now leads.
TreeHouse, the combination of more than 40 mergers that add up to the nation's largest manufacturer of private label products, had too many offerings, several of them saddled with low margins because of the product involved — like nuts, in which the commodity makes up a large percentage of the final product and limits its profitability. (The company's snack nuts and trail mix businesses are under review for a possible divestiture, which could include a sale.)
The Illinois-based company was operating so inefficiently that despite being in the fast-growing private label space, TreeHouse wasn't able to take advantage of its scale to expand distribution. In some cases, it would take too much time for TreeHouse to ramp up sales of a regional company it recently acquired.
Customers would regularly hear from a salesperson at TreeHouse one day about a segment like baked goods, only to get a call from another person the next day on snacks, a process that left customers confused and uncertain about whom to contact. The disjointed process led to missed opportunities to boost efficiencies at TreeHouse, too, as the company would load orders for a customer's retail store or distribution center on different trucks instead of combining them.
As problems mounted, customers started leaving — no small feat in the private label world where it's expensive to change vendors because it can require new product labels, plant verification and the general uncertainty that comes with a new partnership, Oakland said.
"Quite frankly, because of the poor performance during this period of time, we lost some customers. We lost some business. We lost some bids. We probably lost some ties because we hadn’t proven that we could perform,” Oakland told Food Dive on the sidelines of the annual Consumer Analyst Group of New York conference in Florida last week. "I think we didn’t give the customer trust in our ability to execute. We had gotten to the point where the complexity was impossible.”
Now, 11 months into his tenure, Oakland has radically reshaped the company. Customers currently deal with one individual or a small team for the 32 different product categories TreeHouse offers. Managers are assigned to the top 16 accounts to help deal with everything from selling and pricing to developing new products and cultivating the relationship. Just six days after becoming CEO, Oakland picked a senior executive to work with one of TreeHouse's biggest customers, helping improve that relationship.
"Quite frankly, because of the poor performance during this period of time, we lost some customers. ...I think we didn’t give the customer trust in our ability to execute. We had gotten to the point where the complexity was impossible."
CEO, TreeHouse Foods
New presidents were put in place at the four units it currently operates: baked goods, beverages, meals and snacks. The company also reduced its SKUs by 27%, and shuttered or partially closed seven plants with two more announced or ongoing.
In January, TreeHouse Foods announced it will shutter its St. Louis office in June — an office it inherited when it bought Ralcorp from Conagra in 2015 — resulting in 170 employees being laid off. The company also closed 12 warehouses in 2018, and in the last two years has reduced inventory by $138 million — money that has been invested back into the business.
“We’ve rethought the way we look at our operations. We’ve rethought the way we’re organized as a company. We’ve rethought the leaders in that and we’ve rethought, quite frankly, our relationship with the customer,” said Oakland, a former top executive at J.M. Smucker. “I think our strategy is fundamentally different. I think our strategy is about how do we operate ... how do we recognize what this opportunity is and take advantage of it”
After several years of watching sales slide, TreeHouse, whose customers include Walmart, Aldi, Kroger and Ahold Delhaize, is forecasting a slight decline in revenue in 2019 to about $5.55 billion from $5.8 billion a year earlier. Oakland said revenue should start to grow beginning this summer. The company is forecasting annual sales growth of between 1% and 2%.
Oakland estimated TreeHouse could grab another $1 billion in revenue by helping its existing customers grow their private label offerings or winning business from its competitors.
Wells Fargo was optimistic about TreeHouse following the private label food producer's presentation at CAGNY.
"We came away increasingly confident about management's visibility into business stabilization and new business materializing" in the second half of 2019, Wells Fargo said in a note published by Seeking Alpha. "Cost savings execution remains on track ... and much improved service levels are restoring retail customers' willingness to engage."
Private label remains a lucrative business for manufacturers and retailers alike, with U.S. retail sales dramatically increasing in 2017 to $138 billion, according to a report from the the Food Marketing Institute and IRI, a research firm.
The segment also continues to outpace national brand sales, with dollar sales growing 5.8% compared to 1.5%, IRI said in a separate report. Unit sales have grown 3.8% compared to 0.2%. Sixty-eight percent of those polled by the firm said private label offers a better value than national brand.
"The beauty of this business is we wake up in the morning and there is more opportunity than when we went to bed," Oakland said. "We’re fortunate that the categories that we have in front of us have a unique and substantial opportunity for growth.”