US branded cereal business Post Holdings has revealed it is developing own-label lines.
Post was spun off by private-label group Ralcorp Holdings last year in a bid to allow both businesses to focus on their core areas of the market.
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However, in a surprising announcement this week, COO Terry Block said the Grape Nuts and Honey Bunches of Oats owner was set to launch store-brand items.
“Post has launched a private-label programme to engage and align with our retail customers to better address their quality needs with our desire for improved partnerships and plant productivity. We anticipate shipping to our first customer in the second quarter of fiscal 2013,” Block said. He did not name the retailer.
The Post COO was speaking to analysts after the company reported its annual financial results. Its underlying EBITDA fell in the year to the 30 September in part because of lower production volumes.
Barclays Capital analyst Andrew Lazar questioned whether Post could successfully grow brands and private label.
“To us, this is a clear indication of the capacity issues that are currently weighing on Post, though, as we’ve seen in the past, simultaneously running a branded and private label portfolio is wrought with execution risk. Previous attempts in the space have not gone well – including recent history with this company specifically,” Lazar said. “This begs an important question: has Post learned from the past, or is it doomed to repeat it?”
Similar questions have been asked of ConAgra Foods’ moves into own label. Those concerns intensified this week with ConAgra’s deal to buy Ralcorp, although the company argued it can grow brands and private label.
Post’s annual results included lower net sales, although revenue increased in the fourth quarter on the back of higher volumes.
Block said the year had been one of “transition” for Post as it reshaped and invested in the business after the split from Ralcorp.
He said Post had shown signs of “stabilising” its market share after spending on products, brand-building and customer management.
Block noted the increase in fourth-quarter sales was “only the second time in three years when Post has achieved year-on-year quarterly sales growth”. Sales across the US cereal category, he said, fell 0.7% during the quarter.
He said Post had “dramatically upgraded its selling effort” during the year and set up a direct-selling organisation across accounts representing 80% of its customers. It has also set up a new arm to “assist the alignment of marketing and customers” and manage trade spending, Block said. He claimed there had been “early evidence” of more effective trade spending and higher distribution.
Looking ahead, Post plans to roll out Good Mornings, a new product aimed at “economically-stressed households” after a test launch in June.
The company will add a Greek yoghurt line to its Honey Bunches of Oats portfolio next year and will roll out two new flavours to its Great Grains line, Block said.
“We will continue to increase the intensity behind innvoation and renovation that will enhance the market positioning of our iconic brands,” he said.
However, Block said productivity would continue to be “top of mind” amid pressure on commodity costs. Higher grain costs hit Post’s profits last year.
