By Jennifer Williams

First, shoppers squeezed by inflation began ditching name-brand snacks and drinks in favor of lower-price store brands. But now, with costs for coffee, eggs and other basic grocery items surging, consumers are cutting out many cheaper items as well. That has TreeHouse Foods, one of the country's largest manufacturers of private brands, feeling the pinch.

The maker of cookies, crackers, coffee and other goods for retailers such as Walmart, Whole Foods, Trader Joe's and Target, gained ground in recent quarters as inflation pushed shoppers into cheaper food options. With sales growth now slowing significantly, TreeHouse is working to protect its margins by slashing costs and fine-tuning its list of products, anticipating that shoppers will remain stretched, at least for now.

"We don't have any strong indicators that consumers are going to be less stressed in the near term," said TreeHouse finance chief Patrick O'Donnell. "If that's not true and it turns around, I think doing the cost work benefits you either way."

Grocery retailers typically rely on third parties like TreeHouse to make their store-branded items. With giants like Walmart, Kroger, Albertsons and Costco Wholesale boosting investments in their branded products, private labels were growing faster than name-brand goods heading into the pandemic. Then, consumers stuck at home with money to spend, went back to the national brands they were familiar with and that were, at times, more available on store shelves than some generic options.

Lower-cost brands have seen a resurgence again for a couple of reasons. Aside from higher grocery prices squeezing shoppers, retailers are expanding their store-brand offerings. Walmart, for one, introduced a premium line of food called Bettergoods alongside its Great Value brand.

Shoppers still want private-label chips, cookies and crackers, but their appetite for them is slowing, TreeHouse executives said recently. Industrywide, private-label unit sales in categories where TreeHouse sells its products, which also include pickles, candy, nondairy creamer and in-store bakery goods, grew 0.6% for the three months ended in late December, compared with a year earlier. Unit sales were up 4.5% in the first three months of last year, according to TreeHouse.

"People continue to move to private labels, and we're taking some share, but you're just seeing lower category growth," O'Donnell said. "So we're pivoting a little bit of the mentality, at least in the near term, to say, 'The consumer is uncertain, let's go control the things we can control to help drive profit.'"

That means slashing supply-chain spending in a few ways. TreeHouse is working with suppliers of ingredients and packaging materials to bring costs down. The company is also speeding up the time it takes to produce sweets, snacks and drinks in its factories with efficiencies such as automated case packing. TreeHouse aims to reduce its gross supply-chain costs by $250 million over a period of four years ending in 2027.

Meanwhile, prices and packaging are under the microscope to ensure customers get the size offerings and price variety they want, as is TreeHouse's list of products.

In some areas, the company is expanding. These include its approximately $100 million acquisition of certain coffee operations from Farmer Brothers in 2023 and its roughly $205 million purchase of Harris Tea, which closed in January. Meanwhile, TreeHouse is getting out of some businesses, most recently exiting from a ready-to-drink business that O'Donnell said largely consists of discretionary purchases for consumers and is an area where branded labels have a better foothold.

"You may see us step away from a few things in the year," according to the CFO. This will likely affect specific products rather than overall categories, he said, declining to provide specifics.

Analysts are looking for smoother operations from TreeHouse. After taking its broth facility offline for maintenance and upgrades in 2023, the company struggled to bring it back to full production, weighing on sales. A voluntary recall of frozen griddle products such as waffles added another drag. Net sales in the quarter ended in December were down 0.6%, the fifth consecutive quarter of declines.

"They need to execute better," said William Blair research analyst Jon Andersen. "No more plant-related issues. No more recalls."

The company's focus this year on eliminating costs and improving profitability, while not racing to drive sales at any cost, makes sense in a softer demand environment, analysts said. That means slower growth: TreeHouse expects adjusted net sales in the first three months of the year to be down around 3.5% compared with a year earlier.

But it is a needed, and temporary, pivot, according to Andersen. "You have to live with the environment you're operating in," he said. "And that's what they've done this year."

Write to Jennifer Williams at jennifer.williams@wsj.com

(END) Dow Jones Newswires

March 04, 2025 05:30 ET (10:30 GMT)

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