As Walmart Prepares a New Private Label Offering, We're Adding This Firm to the Bullpen
Many private label companies are privately held, but here's one that's publicly traded and focuses solely on private-label snack and beverage products.
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* As consumers embrace private label products and retailers expand their use, we’re adding shares of TreeHouse Foods to the Bullpen.
* As we make this addition, we’ll remove Fortinet shares from the Bullpen.
So far this earnings season, we’ve heard companies discuss consumers becoming increasingly selective in their spending, especially lower-income consumers. On its recent earnings call, Tyson Foods TSN said it is seeing “customers drop down from those not-as-expensive restaurants to eating more at home.”
A report from the San Francisco Fed finds that as of March, American households have fully spent their pandemic-era savings. And trends at Buy Now Pay Later (BNPL) firms like Affirm Holdings AFRM suggest more consumers are embracing their services.
We’re also seeing consumers trade down to private brands for food and beverages from national brands. Private-label brands have been around for a long time, and many large retail and grocery chains have them. According to data from market research firm Circana, private brands in food and beverage accounted for nearly 26% of the overall market share in the number of units in that category sold last year, up from 24.7% during the previous year.
Amazon AMZN has a number of private food brands as does Target TGT and Kroger KR, while Costco COST has its Kirkland Brand.
Walmart WMT is no stranger to private label products, but over the weekend we read it is launching its biggest store-label food brand in 20 years in terms of its breadth of items, as it seeks to appeal to younger customers who are not brand loyal and want chef-inspired foods that are more affordably priced.
The brand, called Bettergoods, is just hitting Walmart stores and online. By this fall, there will be 300 products, spanning frozen, dairy, snacks, beverages, pasta, soups, coffee, and chocolate among others, the retailer said. The prices range is from under $2 to under $15, with most products available for under $5.
When it comes to these private label products, Amazon, Target, Kroger, Walmart, and others aren’t manufacturing them. Private-label food manufacturers formulate, package, label, and ship products to customers looking to sell their own line of food products. With a private-label food manufacturer, buyers can focus on other aspects of the business such as marketing, sales, and distribution. And because there is a large scope of food items, the private-label food market is significantly fragmented.
TreeHouse Foods
Some companies like privately held Sara Lee will use private label offerings to fill excess capacity and improve bargaining power, but there are also companies that focus exclusively on private label products. While many of them are privately held, like Betty Lou’s and Blue Chip Group, one publicly traded company that focuses solely on private-label snack and beverage products is TreeHouse Foods THS.
Spun out of Dean Foods back in 2005, TreeHouse has been an aggregator in the space, a strategy that included its 2016 acquisition of ConAgra’s CAG Private Food business. More recent acquisitions include the pickle banded assets from JM Smucker SJM, the direct ship coffee business from Farmers Brothers company (2023), and the seasoned pretzel business (2023).
Management at TreeHouse continues to optimize its offerings and isn’t afraid to either monetize certain product assets or cut underperforming ones. In late 2023, the company exited its Snack Bars business and in 2022 divested its meal preparation business.
Today, TreeHouse’s product portfolio includes snacking offerings (crackers, pretzels, in-store bakery items, frozen griddle items, cookies, and unique candy offerings), beverages & drink mix offerings (non-dairy creamer, coffee, broths/stocks, powdered beverages and other blends, tea, and ready-to-drink-beverages), as well as other grocery offerings (pickles, refrigerated dough, hot cereal, and cheese & pudding). In terms of customers, they include Kroger, Costco, Amazon, Target, and Aldi, but the biggest one is Walmart, which accounted for 22.4% of 2023 revenue.
Coming off the company’s recent earnings report, the shares saw a few price target cuts to $36-$37 from $38-$39, even though TreeHouse bested top and bottom-line forecasts and reiterated its 2024 revenue of $3.43-$3.5 billion.
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As we move past the current quarter, Tree House is expected to return to year-over-year growth with expectations for that to accelerate further in 2025. That likely reflects the pending launch of Walmart’s new private label offering but expanding lines from other TreeHouse customers as well. On the company’s recent earnings call, management said its net sales pipeline grew by over 20% with new wins in a variety of portfolio categories.
For now, we’ll put THS shares into the Bullpen. Whether the shares graduate to the portfolio will hinge on a few factors including sufficient upside in the shares to warrant calling them up, but also EPS growth potential that is greater than the S&P 500.
This will see us watch key input costs closely, including those for cheese, coffee, eggs, soybeans, and wheat. As we make this addition, we’ll remove Fortinet FTNT shares from the Bullpen.
At the time of publication, TheStreet Pro Portfolio was long AMZN, COST, WMT.
