TreeHouse Foods and other private label companies face big COVID challenges

If you’ve been paying attention to any branded consumer goods company’s COVID-era financial returns, you’ll notice a familiar refrain: Things are crazy, but overall, business is going great. Private label companies? Not so much.

Nowhere is this more apparent than TreeHouse Food’s recent investor call.

Before discussing the company’s financial results, CEO Steven Oakland led with a bombshell. The $4.3 billion private label product juggernaut, which makes store brands for everyone from Walmart to Wholefoods, is looking to sell off its largest division-meal prep. “We have talked about those businesses as growth engines and cash engines,” Oakland told investors. The meal prep division, which includes products like condiments and mac-and-cheese, is a cash engine. It produces relatively low-margin staples that generate a lot of cash as products fly off the shelves. TreeHouse can use that cash to in higher-margin products within its snack and beverage portfolio. If that sales goes through, “We would simply have that cash available sooner and be able to execute that strategy a little faster.”

To understand why management is pursuing this new strategy, it’s best to take a step back and look at three things: The value proposition for a private label company, the operations…