TreeHouse Foods must strategize about how to compete in e-commerce.
The impact of e-commerce
Mr. Reed said that with TreeHouse Foods’ growth through innovation and acquisition over the years the company has the same capabilities as most branded companies with the exception that TreeHouse’s customers are the ones that own the brands. Yet like the company’s branded competitors, TreeHouse Foods must strategize about how to compete in e-commerce.
“If you look at the totality of e-commerce in consumer products, food is really a small amount of that total business,” Mr. Reed said. “But the estimated amount of food going through e-commerce is equal to the total growth of consumption year after year.
“So, it’s got a small share, but it is clearly where there is growth. We have entered it through beverages, through single-serve coffee and single-serve cups of non-coffee items like cocoa and cappuccino. Now specialty tea has become a huge business for us.”
Despite a lack of reliable data about food sales in e-commerce, Mr. Reed said he believes TreeHouse Foods is well positioned to compete in the e-commerce channel.
“The data indicate that of people who buy food on-line, 61% of the purchases involve a beverage, 60% involve a snack, (and) a high 40s is for either cereal, pasta or grain products,” he said. “Those are the top three categories, condiments are fifth and we have a big business there. So we believe that as there is a business there we have a product line that will work.”
He added that while competitors such as Amazon and other e-tailers are emerging and increasing competition in the marketplace, one of the things that has not changed is the “heavy capital in plants and processes” required to manufacture the products.
“That is still running the same,” Mr. Reed said. “And we have that.”
TreeHouse Foods is currently selling its own brands through e-commerce. Mr. Reed noted that many companies in the market are still in a formative stage and have yet to develop a strategy around whether they want to develop their own brands. He added that traditional retailers will adapt as well.
“I think grocery stores will devote more space, more capability, greater product lines to e-commerce and amalgamate their perimeter, deli, bakery, the specialty foods sections, to create a meals-on-the-go business for consumers who can use digital technology to either swing by the store on the way home or have it delivered by the store.
“The retail business is fiercely competitive at creating new things all of the time, and I don’t see that changing.”