The Campbell's Soup Company spends a lot of money advertising its product.
Who among us has not seen Mrs. McNabb on TV serving up steaming bowls of
Chunky goodness to her QB son Donovan and his beefy teammates? Campbell's
spends that money in hopes of getting consumers off the couch and into the
grocery store. But once there, what's to keep the thrifty shopper's eye from
wandering to the private label brands that have less cachet than a brand
name, but offer more value? That very dynamic is exactly what TreeHouse
Foods and its retail partners count on.

TreeHouse Foods (NYSE:THS), based in Westchester, Illinois, is one of the
largest standalone suppliers to the $49 billion private label and food service industry. The seeds of the company date back to 1862 and the pickle
business, but after many incarnations, acquisitions, mergers and spinoffs,
TreeHouse has accumulated a diverse product portfolio that includes
everything from infant feeding products to picante sauce, and it has become
the dominant player in this fast-growing segment of the domestic food
industry. Over the past six years, sales of private label products have
grown at twice the rate of branded products. Since 2003, the percentage of
shoppers who purchase store brand products on a regular basis has increased
to 41% from 36%, and there is not a single macroeconomic measure around
today that would suggest a reversal in that trend in the near future.
TreeHouse is working hard to speed up the migration and to make sure
defectors to its products never go back to the branded labels.

One way the company is doing this is by matching the branded labels'
strategy of offering multiple products within the same category. Campbell's
offers old fashioned condensed soup, Chunky soup, low-sodium soup, Select
Harvest soup and many other types, all at different price points. TreeHouse
has matched the "good-better-best" approach, offering a range of products
within categories so that its retail partners can also take consumers up the
pricing ladder while still staying below branded prices. This strategy not
only improves profit margins, but makes it easier to pick off . . .

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