Single-serve coffee 'harbinger of things to come at TreeHouse'
May 31, 2013
by Eric Schroeder
NEW YORK — Despite numerous successes in terms of brand acquisitions and development since its formation in 2005, TreeHouse Foods, Inc. may be poised for its most important initiative in the months and years ahead, said Sam Reed, chairman and chief executive officer.
“We have, after six years of starting and building this company, for the first time launched a large-scale project for organic growth based on utilization of intellectual property and the assets that we had internally — and that is single-serve filtered coffee,” Mr. Reed told analysts at the Citi Global Consumer Conference held May 30 in New York.
Mr. Reed said it is still “early in the game” for single-serve coffee, but expressed optimism that “this is an investment that is a harbinger of things to come at TreeHouse.”
He noted several reasons for his optimism.
“We have proved for the first time to ourselves that we can in fact develop something internally as opposed to simply pay for it and then lay it over our distribution system,” he said. “And in that regard, I think we will find, once there is sufficient data as this rolls out, that TreeHouse will be the leader in that private label category.
“And secondly, that our presence in that category will reach that $100 million mark as kind of the threshold for sufficient size for us to invest in the long term, for not only growth but a greater presence with our grocery customers.”
Mr. Reed described TreeHouse’s experiences with the single-serve coffee launch as being both similar — and different — from other private label efforts. Similar in that there was a substantial opportunity to create a private label presence, but different in that there was a specific date in which patent protections would expire and any and all private label coffee products would be able to hit the market.
In the year leading up to the launch, TreeHouse developed its technology and met with customers to determine how to best emulate the national brand, he said.
“I think it was very important that we concluded early on that we would focus only on the premium segment with regard to the quality of the product, how the beans were roasted, how they were blended, that we would limit our initial foray to only those grocery customers that we saw that were committed to creating a house brand in this category in their stores,” he said. “And then that at every instance we were aware of the view that we were creating substantial value that in fact could be monetized. And those are the kind of pillars on which we built this thing.”
Mr. Reed said TreeHouse views single-serve coffee’s long-term prospects as being a multi-billion dollar category. There also is an opportunity with the category to expand beyond food retailers, he said.
“For TreeHouse, this was the first product line that enabled us to move out of food brick-and-mortar retailers and go where coffee was being sold elsewhere,” Mr. Reed said. “And second, it enabled us to launch our first private label and control brands into the Internet.
“And while the Internet remains a small portion of food and beverage, its share is roughly equal to the total growth across the whole of the industry on a year-by-year. So it is an important beachhead for us to have.”
Dennis Riordan, executive vice-president and chief financial officer, said TreeHouse took a different approach with the single-serve coffee program than a more typical product category, opting to presell business and build capacity to match the sale. He said the measured approach “has exceeded” expectations, and TreeHouse will continue with the strategy.
He also said the company “will continue to move as the category moves,” regardless of private label coffee’s share of the overall market.
“We would love to see it be a large portion of the category, but we also want to make sure that it is working within the category where everybody maintains good margins,” Mr. Riordan said. “What you really don’t want to do is turn the category into a volume play.”