Referring to data from the US Bureau of Economic Analysis, TreeHouse CEO and President Steven Oakland noted that for the first time since the start of the pandemic, the Personal Savings Index, which measures disposable income after taxes, fell below where they were in January 2020, after surging in April 2020, December 2020 and March 2021 when the government provided stimulus.
At the same time, the price of food on the shelves jumped, outpacing a 10% increase in March from a year earlier, BLS data shows, helping to widen the percentage price gap between brands. national and private, Oakland noted.
“Price spreads have historically fluctuated between 26% and 30%. Spreads have widened above this range to the low 30s more recently. This will vary from month to month, but gaps at this level provide the consumer with a more attractive private label value proposition.”as the “absolute price inflation, the dollar savings of a basket of private label products is simply more substantial”,he explained.
“As a result, consumer buying habits are starting to change and we’re seeing it in the data,”The private label unit share posting year-over-year gains of just over 0.5 percentage points in April from a year earlier, Oakland said.
Riding the upward trajectory of private label, TreeHouse Foods’ net sales increased to $1.14 billion in the quarter from $1.06 billion a year ago, which Oakland described as a “very encouraging…a sign that the value proposition of private label is becoming increasingly important to consumers,”who are feeling the impact of higher prices at the grocery store, at the gas pump and across the economy.
TreeHouse warns of ‘more frequent and lower price increases’
The growing demand for private label products, and by extension TreeHouse Foods products, comes even as the maker, like most others, has raised prices to offset inflation — a move Oakland says the company will repeat in the third trimester.
So far, he added, retailers and customers have accepted the price increases, which are not as dramatic as those experienced by some national brands, in part because private label overheads are lower.
“Private label will naturally require more frequent and lower price increases because our margins are lower. We value on actual experience and not on forward curves,”Oakland explained, adding, “We don’t have the umbrella brands have to set category prices. So I think it’s natural for us to take the prizes more often, probably a little less from a percentage point of view. But, what’s encouraging is that we don’t see a problem with the price gap.
Between price increases and increased consumer demand, Chief Financial Officer William Kelley said TreeHouse Foods is reaffirming its guidance for full-year 2022, so he expects revenues are up 11%, mainly due to prices, which came up this quarter nearly 12% and will continue to build throughout the year.
He added: “The increased demand for private labels, combined with our work on in-store service levels, is having a positive impact on our performance. We expect this to continue, strengthening both revenue and profitability as the year progresses.