OAK BROOK, ILL. — TreeHouse Foods, Inc. offered a peek inside its innovation and growth “playbook” during its investor day conference held Nov. 13.
In a presentation to investors, Jess C. Sweley, senior vice-president of research and development at TreeHouse, highlighted three areas of focus for innovation and growth. But before delving into the specifics of the playbook, Mr. Sweley outlined what he described as TreeHouse’s “different approach to innovation.”
“Most often, you’ll find that the process of innovation is either linear and it’s a funnel or it’s a scattershot approach,” he explained. “And either one of these approaches leads to a lot of waste and disappointment. Our approach is grounded in the TreeHouse 2x2, but our capabilities in terms of innovation are specifically focused on creating platformable technology that can stand across multiple customers. And we’re focused on channels and customers that are growing. And as we move forward toward 2018, we’re going to be increasingly focused on those areas that create accretion and growth.”
Moving on to the company’s focus areas, Mr. Sweley said a first priority is making every ingredient count.
“Arguably, there has been no bigger change in food culture in the last several years than the movement toward premium, organic and better-for-you food,” he said. “In fact, this has been fueled by social media, by cooking shows, and the focus on ingredients, in particular, continues to build momentum. One-third of all consumers are looking for products that have the fewest ingredients possible, and 63% of all consumers want to recognize all the ingredients on their food label. And what is great about this opportunity is that it offers great particular emphasis for TreeHouse to grow both our top line and our bottom line even within existing categories. Our data shows that these premium, better-for-you products, like U.S.D.A.-certified organics, non-GMO verified and gluten-free products, just as examples, demand significantly higher pricing power in the market.
“And since 2015, we’ve placed a big emphasis on this area. We’ve actually grown our share of our total portfolio by 20%. So now 20% of our portfolio is comprised of these premium, better-for-you items. And this is really about managing the mix of our portfolio. We now have clean label product offerings in 26 of our 32 categories. We're not resting until we get to all 32. And in fact, 25% of all of our pipeline R.&D. work is focused on developing new, premium, organic, clean label products.”
A second focus at TreeHouse is on platform innovation in growth categories, including cold-brew coffee, health and nutrition bars, refrigerated dressings, bone broth and trail mix.
“These are on-trend categories, and the categories themselves have shown an 8.7% CAGR over the last 24 months,” Mr. Sweley said. “We’re making investments to win with these categories where there’s tailwinds for growth.”
Mr. Sweley said trail mix stands out as an example of the company’s ability to successfully integrate its legacy TreeHouse and Private Brands businesses.
“As you can see with our peanut butter chocolate mix, we have brought the expertise of sourcing and roasting snack nuts that you find from our Snacks division with the ability to create great new inclusions like miniature chocolate peanut butter cups and miniature peanut butter-filled pretzels that you find in the Baked Goods division,” he explained. “And we're coupling that with great new packaging technology to ensure that we can grow our trail mix business into new channels and customers.”
The third focus area for innovation and growth revolves around packaging agility for channel customization. Mr. Sweley said packaging is one of the biggest opportunities TreeHouse has to serve the needs of emerging growth channels.
“There’s been a lot of talk about the bifurcation in the market, and in fact, what you see is that there’s tremendous growth rates in alternative channels, including club, convenience, discount and e-commerce,” he said. “The opportunity for TreeHouse and the promise of TreeHouse is to develop those customized solutions for each of the value propositions in those channels, but not just to do it in a way that wins with our customers but to do it in such a way that is agile and efficient and accretive to our business. And this is where packaging solutions are particularly key.”
Using the company’s Lofthouse pink frosted sugar cookies as an example, Mr. Sweley said TreeHouse continues to look for ways to grow in white spaces. Packaging may provide that path to growth, he said.“We’ve always been limited by the shelf life of the product and the packaging format in the clamshell,” he said. “But our packaging R.&D. team has developed a new great package. There’s a 2-pack configuration you see that has extended shelf life that allows us to distribute this product into those new growth channels. Not only is it a new channel distribution, but the pricing power is much higher, and it offers the same great product you find, but now it’s portable and can be taken on the go.”