TreeHouse Foods, Inc. (THS) Earnings Call Transcript & Summary

So welcome back, everybody, to our fireside chat with TreeHouse Foods. With me today are CEO, Steve Oakland; CFO, Pat O'Donnell. Welcome, gentlemen, and it's great to be back with you [indiscernible].

Andrew, thank you. Great to be here.

Sure.

It's great to see everyone. Do they have the lights on our face? So we can exactly do that.

That's a packed house.

Right.

So maybe to start off where recently, you held an Investor Day and discussed having successfully executed on a transformation to create a stronger TreeHouse. Maybe a good start would be a discussion of this transition in what was initially more of a private-label sort of brand aggregator strategy to maybe where TreeHouse is today? And why you feel that sets the company up at -- or for future growth?

Sure. Thank you. And it is great to be here. Great to see you all. I would say, if you think back to TreeHouse, and that brand aggregator strategy started right well over 20 years ago, right? The founders of TreeHouse saw this opportunity for private label in North America. We all know how underpenetrated it is, and they saw that the industry was fragmented. It was subscale in many cases, those kinds of [indiscernible]. So they went on to build the company that you see today, and they did that through [indiscernible] breadth with M&A, okay? Over that same 20 years, we've seen a big change. And you think of the changes that have happened in 20 years, right? If you think about the consumer and the millennial generation coming of age in that period of time and their demands for quality and flavor, right, [ in ] premiumization. So the consumer demographics changed dramatically since we were -- since that strategy started. At the same time, a retailer was dealing with e-commerce and trying to use private label as a way to build customer loyalty and requiring a lot more of the vendor. A nudge to the financial community, we got the folks in this room. And think about how important growth is to valuation today, right? So we had a chance to build the new TreeHouse, right? So we look at the portfolio that we had, and the one thing I would tell you is: Categories matter. I mean, we all know that, but categories matter, right? So we were able to purposely position the company, and those that were at the -- at our Investor Day heard me say this, we purposely positioned it at the crossroads of two powerful consumer trends, big macro trends, right? The growth of private label and grocery and the snackification or the growth of snacking in North America, right? And so we thought we could build a business that really responds to those demands of the retailer, that responds to those consumer demands and provides a faster growing, more profitable company to respond to the financial markets. And that's what we think we've done.

Great. By the way, if we could just start the timer, just so you have a sense of time. Perfect. Thank you. Maybe continuing along the same theme. You recently completed the acquisition of a coffee facility in Texas. And early in the year, you acquired a flavored pretzel facility as well. I guess how do these acquisitions coincide with TreeHouse's new strategic approach? And are those the type of transactions that we can expect to see more of as opposed to, let's say, more transformational deals?

Sure. So those two transactions are really our strategy in action, right? It's a clear view of the opportunity for us in these new better categories, right? So we've been in the single-serve coffee business, I mean, since moments after the patents expired, right? We were the first mover in that. And years ago, the pack value coffee pods was a great way to serve the customer. The customer expects a lot more from us in that category. That's an experiential category. We think the Farmer Brothers acquisition gave us the most modern assets. It gave us capabilities in sourcing and formulation and flavoring that would have taken us years to build our own, right? So that's a great example of how we're going to go deeper in categories and be that vendor that didn't exist, quite frankly, in private label for the retailer. Now Coop's is another story. I mean, we talked earlier before we started this about the seasoned pretzels across the retailer landscape, and for the flavor in Sobeys snacks is key. It amazes us all that it took so long for pretzels to be part of that phenomenon. But that was really an opportunity for us to just accelerate pace. We actually had that same equipment on order. We had a chance to buy it and accelerate the pace by a year. And it's a great example of what a strong balance sheet can do if you've got great opportunities in your categories, because we're in a position where we can make those investments quickly when they come about and serve the customer with it. And Coop's is off to a running start, quite frankly. And the Farmer Brothers thing, we're in the middle of integrating systems, and I think it will be early next year before you see a lot of impact to that. We need to get our systems in there, so we can run the business the way we'd run it. And those were more about sort of capabilities to your point and increasing depth in areas where you already operate versus, let's say, like you said, going into other -- just other categories, just to be in other categories from your private label [ standpoint. ]

Yes. And the retailer today needs more than just a value price in a category, right? The retailer wants depth. They want to build a relationship with a consumer that makes -- that builds loyalty, right? And private label is a way to build loyalty. And that requires so much more capability, right, whether that be flavoring, whether that be quality, whether that be breadth of assortment. So that's our strategy. We picked categories that are big enough that those investments will pay off, right? Look how big the coffee category is, right? And private label does really well there. Our cracker business is the same way. We think that pretzel, the Sobeys snacks business is the same way. So we've got a lot of big categories with opportunity for us to grow in the category. There's a lot less risk in that than new, right, and a lot less SG&A and a lot less working capital, et cetera.

Maybe turning a bit to the broader private label environment. I think a lot of folks were surprised maybe to hear on your last earnings call that overall private label volumes, not necessarily in your category specifically, were down a bit year-over-year, especially given that preceding your call, a lot of branded counterparts also showed some pretty large volume declines. And I think the assumption from them was that private label might have been the beneficiary of that. And as we see here today, I guess, what's your view of the overall state of private label today? What are the biggest opportunities for private label growth in the current environment? And is there -- what reason? It could be -- it's a little bit of a puzzle, I think for a lot of branded companies to sort of figure out what's actually driving some of these volume declines. I mean it doesn't seem like there's been this mass move to away-from-home meeting. To your point, we haven't yet seen this mass sort of trade down necessarily, maybe as people are traveling more in the summer. It's just -- everyone has a lot of different reasons. Consumers are hunkering down, what have you. But we'd love your thoughts on that as well.

Sure. Well, first of all, I'd say, look, it took a global pandemic and about $1 trillion in government stimulus to stop private labels momentum, right? We've got 20 years of straight, very slow-steady private label growth and share across North America. When we released our second quarter earnings weeks ago, we talked about the second quarter had the highest share for private label in our categories in our history, okay? So most of us look at share as a measure of health of businesses. And we've had, I think, with today's report, 84 straight weeks of share growth. So I think private label is alive and well, and I think share is a great way to look at it. More recently, I'm encouraged. We actually had a couple of weeks in August where the IRI data has turned positive. Now it's only a couple of weeks, right? And I wouldn't claim victory there. But I think we've all expected a faster shift to trade down from the consumer, and we've yet to see it. I would tell you, private label is performing better than my branded counterparts, right? We're down 1 point or 2. They're down significantly more than that, right? So the consumer is struggling. They're clearly buying different mix. They're clearly buying different channels. If you look at traditional grocery versus the value channels or mass, some of those folks are winning share. Now private label does well in those environments, and so we're partnered with those customers. So our business is solid. We think 1 year ago, and we talked about this on our call, the peak of some of the disruption was in the fourth quarter of last year. So our current service levels are going to allow us to bring more -- just do much more of that demand than we did a year ago. So we're encouraged as we go forward. And we think the share gains we've made in private label [indiscernible] are going to feed us for a generation, right? We're going to live on that as we grow. Now one thing I would say that I'm most encouraged about, why do I think it's going to continue to happen is the things that are happening today that haven't happened for 2 years. We're doing innovation. We're doing new products. We're doing work with retailers that we're not going to ship in this calendar year. That's going to ship sometime next year given the innovation cycle. But we now see that flywheel turning again on those things that build the business as we go forward, right? And so I think this will settle out. The consumer will settle out, but the retailer right now is working on product for next year. And that's encouraging me, because we haven't done that for 2 years, right?

At your Investor Day, you issued a new sales growth algorithm that calls for 3% to 5% year-over-year top line growth over the next 3 years. How much of that is based on the assumption of simply growing in line with the categories you play in versus your expectation that TreeHouse could outgrow and take share within those categories?

Sure. Would you take that?

Yes, I can take that. So we probably could grow 3% to 5%, and we see three drivers for the growth. The first would be core growth. And really, this is about leveraging our leadership and depth that we just talked about. And so maybe to bring that along, in an area like pretzels where we made an investment in depth, where we now have a great traditional business, we have a field pretzel business, and we've got a seasoned pretzel business. We bring the full assortment to our customers. And so the opportunity there is: well, we've got great depth. We do much better when we bring that full assortment. So it's the opportunity. The pretzel season, probably a little innovative and a little bit of bringing that full assortment and core growth. But we have the opportunity to go bring that full core growth. I think crackers is very similar. We have a great assortment. We're very competitive in that space. And so when we have that depth and capability, we're able to grow the core. And our core growth comes, both from winning distribution within private label as well as the broader private label gaining share as a whole trend as well. So we think it's a little bit of both in the core growth. The next area, which is capacity, that we think there are certain categories in our network where we're capacity-constrained today. Crackers is a great example. We will look to add capacity through the TMOS activities that we have underway. We saw a great example of being able to add 8 million pounds to our Princeton plant, which is in a capacity-constrained category today. We'll also look to add CapEx to grow. And so crackers would be an area where we'd look to add some CapEx in our space there where we can add capacity to sell more current crackers as an example, which has been a capacity-constrained category. And then last week, we talked a little bit just now about innovation, but we don't tend to do new-to-the-world innovation, but we'll be fast followers from an innovation standpoint. I think seasoned pretzel was a great example of that fast-follow. We also have existing technology today. We have aseptic technology where we have a lot of broth that we were able to make. And that technology can also be leveraged into other areas like plant-based milks and creamers, which we do a little bit of today, and we have the opportunity to grow into over time. And so I think some of that is a little bit of market share gain. And I think some of it is growing with the categories because we've seen our categories grow over time. Then there's [ paths ] and avenues for us to be able to capture that.

You mentioned this a little earlier. TreeHouse has developed what it calls its TreeHouse Management Operating System with TMOS. What's differentiated about this approach? And can you provide any examples of maybe some of the outcomes that the system has helped pave so far?

Sure. Maybe I'll take that one. You've heard the acronyms of these things across all these different companies, right? We all have a continuous improvement system, right? Ours is modeled after Procter & Gamble system, quite frankly. You probably heard of that for years, right, their integrated work system. And in my prior professional life, I had the blessing of being able to see that in action, right? We made some large acquisitions of Procter & Gamble businesses. And I got to see the impact of that culture, that work system coming into a company that didn't have that before. And we're actually blessed to have a team -- much of the team that implemented that in my prior life, doing it now at TreeHouse. So I've seen that system work, and it's more than just a lean system, right? It's about total employee involvement, right? And it makes the work much more satisfying. It makes that more rewarding to the employee. So I actually think we have a bigger opportunity than we used to have with those systems. Those new systems just drive cost out to eliminate waste is what you'll hear them talk about. I think now it makes the job more rewarding. And one of the toughest models we fight isn't market share or consumer growth or those things. It's manufacturing employees on a third shift in a rural market in America. And so we need to be that employer of choice. So I think our work system will drive cost, and we can talk about that if we like, but it will also drive reliability, and it will drive engagement in our factories. And we're getting the cost out, we know that. I think the reliability and the engagement is going to be the big win going forward.

You've set out a pretty robust multiyear productivity target of $250 million in cost savings from '24 to '27. Can you speak a bit to the sort of visibility you have in achieving the target? What some of the main focus areas are where you think the company is well positioned to operate more efficiently than it does today?

Sure. You want?

Sure. Yes, I can start on that. So we think there's three main areas that drive the productivity targets for us. The first is the TMOS activities that we talked about. So we think that delivers $125 million of gross cost savings over the 2024 to 2027 period. And we've seen really nice success where we've deployed TMOS. I think on our second quarter earnings call, we tried to talk about the fact that in those plants and those lines where we've deployed TMOS, we've seen 5% to 15% efficiency improvement in those lines. And so that's cost efficiency that's getting more product out the door, that's improving levels of service. And so we're encouraged by the progress that we've made. In the Princeton plant, we not only created production capacity of 8 million pounds, but we also eliminated $2 million of waste that was in the system. And so those are just good snippets of: How does that program work and what are some of the benefits that's driving? And we continue to see really great opportunity across the other plants in which we operate to drive similar-type results in those plants. The second area of cost savings that we think about a lot is procurement cost savings, and that's worth about $100 million in our mind. And so over the last several years, given the environment in which we operated, it wasn't a prudent time to go undertake cost savings and procurement exercise. We now think the stability of the broader marketplace, we have a better opportunity at this point to go do that given the stability of the supply chain. And so we'll work with our vendors. We've started scoping that out here in the fourth quarter. We'll start to take action into the early part of 2024. So we think as we ramp in 2024, there is the opportunity to start to realize some of those savings. And then I think the last area that we've highlighted has to do with our freight and our network consolidation. Post the Meal Prep divestiture, we obviously had a lot of distribution points. We continue to operate on a TSA. We recently hit a major milestone for us, which was that we were able to separate our distribution networks. At least for now, we're still operating systems and things in the background, but that allows us to go optimize our own distribution network. So we have the opportunity to go take our inventory, put it through the customer and operate with less distribution points, use less lanes, drive less miles overall. And so we think we have line of sight. This is a multiphase project. We're well underway on that. We think we'll start to see about $25 million of those savings that will start to accumulate in 2024 from a timeline perspective. So I think, overall, we've got pretty good line of sight into where to go deliver the $250 million. And we've got action plans in place that will start to deliver those savings in '24 and help us on our 8% to 10% EBITDA improvement, which mostly will be done at the market.

Maybe pivoting to a couple of near-term oriented questions. Volumes in the most recent second quarter were down about 7% year-over-year. And it was a combination of a shift in timing of shipments that helped your company over-deliver in the first quarter, the lapping of prior exits of low-margin business, some distribution losses, poor performance in the sort of 10% to 15% of the business that's more co-manufacturing and supports more premium brands. And then perhaps we described it a little bit as a general sort of slowdown in the industry as a whole. I guess despite this, you sounded increasingly confident, right, on the call, that TreeHouse should be able to deliver volume growth in your second half. I guess is that still the expectation? And if so, what assumptions are driving the expectations?

Yes, I'll take that. So there's a question we've got once or twice in the follow-on since the call.

[ 400 ] times.

[ 400 times ], yes, roughly. So as we thought about the first half of the year, and maybe just to go back, as we guided the year, we expected the first half of the year to be largely driven by pricing. And so when you take that H1 performance, which I think eliminate some of the timing noise, and that's a better comparison, we had 14% pricing and then negative 4% volume growth. And so the volume was driven by some of the things that you described. I mean we intentionally exited a business, and they're roughly equal in terms of magnitude on that 4%. We exited some low-margin business. We will sunset that now after the second quarter. So that's no longer a headwind for us as we head into the back half of the year. Some of the co-manufacturing business, we expect that, that will continue to be somewhat challenged. We sort of expected, but that would be a part of the math as we entered the year because of the pressure we were seeing on branded volumes and where consumers were really stretching their dollars. They were spending less on premium brands. And then certainly, the consumption was down. And so as we think about the back half of the year, we are lapping what were some of our lowest levels of service in 2022 were in Q3 and Q4. So you had 93%, 94% service. So we've got a tailwind now of 4 to 5 points, depending on the quarter of improved service, where whatever demand is available to us, we will be able to go service in the back half of the year, which is a different position than we were in last year. As we contemplate that and if there continues to be some consumer softness, we saw roughly flat in Q1 and down 1% to 2% in Q2. At that level, we think the math still suggests that we could drive volume growth in the back half of the year. So you're really lapping these business exits. You've got improved service to resolve the demand, if that demand is slightly softer than what you might have anticipated. We still think that equals volume growth, given the volumes that we've been able to process.

You're guiding for, I think, both sequential and year-over-year gross margin improvement in the second half of the year. I guess what gives you confidence that this could be achieved? And I guess more importantly, how do investors think about the margin potential of the business beyond '23?

Yes, I can take that one as well. So as we think about the margin potential for the business, as a lot of what I described from a cost savings initiative a minute ago was all coming through margin. And so the things that we talked about from our procurement where we've got line of sight, our TMOS activities, we're really excited about, given some of the early progress that we've seen in the plants where we've deployed, and we know that there continues to be a great opportunity. So I think the thing that gives us confidence is we're now operating in a more stabilized supply chain environment where we can get after the things that we weren't able to do a couple of years ago in terms of procurement, even just having our labor force focused on those things and not chasing ingredients or components or deliveries and spending their time on those types of things. And so you're in a more stabilized environment where we've got services that is now back to target levels, and so that creates better opportunities for us to go continue to go drive those supply chain savings that we think drive a lot of it. And so when you think about our margin potential over the next few years, we think we're exiting this year at an EBITDA run rate of about $400 million. And so a lot of that is coming through our supply chain savings as we exit the year, and then we've got line of sight for next year. And so as we move into next year, we think we're in a good spot where we've eliminated a lot of what was the disruption over the last few years. And that gives us better confidence to be able to execute in terms of where we're at.

TreeHouse has done a great job of working down leverage, right, to the low end of the company's long-term target of 3 to 3.5x. And you noted at the Investor Day, you expect to generate upwards of $800 million in free cash flow between '24 and '27. How are you thinking about capital allocation priorities over the next couple of years?

Yes. So as we think about capital allocation, I think we recognize our ability to deliver on our near-term and medium-term financial commitments is going to be predicated on a very disciplined capital allocation approach. And so the Board and the management team are very focused on selecting those investments that we think deliver the highest return to shareholders. And we think that will come through a couple of areas. We think the #1 priority continues to be investing back in the business. And so that will come in a couple of forms. It will be some of the capability build that we just talked about in terms of the coffee acquisition or the seasoned pretzel capability acquisition. Those are opportunities for us to continue to invest in the business. But we do intend to continue to invest from a capital perspective as well. And so we would anticipate spending 3% to 3.5% of revenue on CapEx. And in the near term, that's probably a 50-50 split between growth capital, which would be some of those things that I described earlier in terms of record cracker capacity expansion, seasoned pretzel equipment and the like that we think provides us a nice growth pipeline. And then it will also be split to maintenance where, over the last several years, we've not been able to get OEM manufacturers into our plants given some of the disruption on the supply chain. And so we have the opportunity to go into the reliability of our equipment to actually be able to [indiscernible] that we think we can deliver from that perspective. And so investing in the business will continue to be the #1 priority. Now we won't invest in a way that will weaken our balance sheet. And so we're going to continue to maintain a leverage ratio of 3 to 3.5x on a covenant basis. We're at the low end of that today. And so we think we're in a good spot from a leverage perspective. And then last but not least, we will look to opportunistically return capital to shareholders. With the recent changes in our share price, we were able to go do that in the market over the last few weeks. And so we repurchased about $50 million worth of shares over the last several weeks in order to return capital to shareholders because we felt like that was an opportunistic time to go [indiscernible] capital to shareholders.

Steve, with probably the one in general, it's a little bit more of a black box for us as investors, right, in the external world is going to get data by TreeHouse specific, track private label trends, whatnot. But it's a lot harder to track what you're doing with specific customers; specific customer wins, losses, all of those sorts of things. So if there's something that you think investors maybe are missing or aren't maybe appreciating enough in terms of what you're seeing specifically in your business that we can't track as easily from the external data now that this big divestiture of some of the Meal Prep business is behind you, some of the supply chain or a lot of the supply chain issues are now behind you, I guess, what are we maybe not appreciating as much, biggest evaluation certainly suggest there's not as much of a depreciation? And what are you most looking forward to? You touched on it a little bit earlier, now that you can go after maybe some of this business in a much more on fun-footed way supply chain issues behind you?

Our company, we built this, we chose the categories that we're in. We do this purposely, right? The demand for our categories, because they are growing consumer from the categories, right? So the relationship with the retailer on the businesses that we go to market with today is dramatically different than what we had before, right? We view good cycles as opportunities. We don't view them as risks. We view this as -- we're excited about the coffee bids that will come to market next year, right? Those are all new opportunities for TreeHouse. So we think there's more opportunity for the company than ever before. We think we have a balance sheet and a capital structure, and our debt structure is really favorable right now. So we're in a position where we can make good opportunistic things like we did with Farmer Brothers, like we did with Coop's Pretzels. So we have opportunities to invest to accelerate the pace of that. And then the one other -- the question you asked about the one other change and the investments in our business, the good news about the savings dollars that we committed to the marketplace, we can drive our margin returns inside the buildings. We don't have to go get it from the customer. We don't have to go, go to the battle for higher prices for those kinds of things. We see a line of sight to the cost savings to drive our EBITDA growth inside our building. So those are under our control. That's a very different place than where we were just a couple of years ago. So look, we thought our stock price is dislocated after the last quarter, frankly, right? And we bought $50 million in the stock that holds [indiscernible], right? This is webcast, so we can, I guess, say that, right? And what we...

Let me write that down.

No, you can write that down, it's webcast. But so the beauty of that is, is that we now have flexibility to really implement a growth strategy to do our capital allocation strategy, and we are in categories where those opportunities exist. So we've got to go prove it to you. I mean, the market, I think, is saying prove it to me. And so we have a team of people dedicated to do that, and we got to do it. We thought we did it last quarter, quite frankly. We thought we did it the quarter before. We'll continue to do it over the next couple of quarters. And hopefully, we'll have different results.

With your optimized portfolio, is it overly optimistic to suggest that maybe the percentage of your business that now has more frequent RFPs has come in? Or looking to the other way, do you have more multiyear contracts maybe than you might have had before because now you're a much more reliable, valuable partner, deeper capabilities in the categories in which you've chosen to play as a private label supplier?

Yes. I think also the pandemic changed the way the retailer looks at the supply chain, right? And I mean they recognize the importance of a well-capitalized partner, okay? And so I think the work we've done to capitalize ourselves to deliver, I think, our service level says it all. Now nobody was perfect. We were not perfect, but our service levels comparatively stood tall through the pandemic in most of our categories. So I think that relationship is as strong as it's ever been. I just -- I was on a top to top last week with one of our strategic customers. They are excited about the investments we're making in crackers. They were excited about our coffee and the rate of customer of that business. They're excited about us owning it, right? And so that tells me that the retailer sees us very differently than they used to, right?

In terms of tracking or thinking forward about potential consumer behavior, you mentioned a lot of the work you're doing now on innovation really benefits ultimately next year?

Yes.

In seeing where your key retail partners want to go with their private label business, maybe in the back half of this period in '24, as almost as a leading indicator, are you seeing a stepped-up level of sort of focus by key retail partners about what they expect to do with private label maybe next year versus what might have been the case 1.5 years or 2 years ago?

Sure. Sure. The new items you see in private label are a victim of the last couple of years, right, the lack of new items, I could say. So the things you'll see, you'll see the work we're doing today. You'll see it 6, 9 months from now, right? We'll see that. So yes. I would say that the innovation cycle has started with an innovation center in Downers Grove, Illinois. And we've had more meetings there than we've had in years, right? So we're starting that cycle again. I also think they're interested in seasonals. We're going to have merchandising this fall, we haven't had for a number of years. So they're excited probably important for all the reasons I talked earlier that really pull that relationship in loyalty. But also in these tough times, they want to show value. They want value alternative on one of the end caps. And so having the opportunity to put private label back on an end cap in a retail store is a big deal to them. So I think we'll see that as we go into the fall, merchandise categories that haven't been merchandised in years. There has been a lot of merchandising, as we know, where as a merchandise, we're used to that happening, but private label will be back in the game as well. So that's exciting. And the innovation pipeline has started to roll again. That will -- that gives us [indiscernible] to get going into the next couple of years.

I'd assume with the portfolio, the way it's shaped today, innovation in the categories in which you've chosen to play more in private label than maybe with some of the, let's say, more commoditized categories where it might not have mattered as much, is that a fair?

Oh, I think so. I mean I think if you think about coffee, right? The coffee in a retailer, most retailers' coffee brand is a brand, right? It's an experiential thing. Some of them have roasters in coffee shops in their stores. And so if you think about that, that's a really experiential element to the retailer. Cookies and crackers is that way, snack food is that way. So yes, I think it's going to be a very interesting near term. And you look at the mass retail book in all the different channels that are leaning in the value, the number of hard discount stores being right now, right, by those 2 big European vendors or European retailers. So I think we'll see a lot going on over the next, I mean -- and we're a part of that. So [indiscernible] it's fun. I can tell you, the meetings are a lot more fun than they were the last couple of years, right? The last couple of years were about recovering commodity costs and trying to get service. Today, they're about [indiscernible] future brands.

The price does matter when it's sort of private label vis-a-vis brands. I guess what are you seeing currently in price gaps? And how would you anticipate that unfolds as we start to lap out of the pricing? And would hope, if inflation stays at just a more modest level of inflation on outright deflation, how does that price going to tend to work in that kind of environment?

Yes, I can start there. So I think we've seen price gaps narrowed slightly in 2023 as compared to 2022 when they were an all-time high. But I would say, they're still elevated relative to history. And if I call 2019 as sort of normal history for reference point, we're still well above that. I think some of the contraction of the price graphs have to do with just some of the trade activity that we're seeing from some of the branded competitors are shrinking those price caps. And we're seeing more promotion from the brands. Yes, it's still at an elevated level, not at the levels they were in 2019. And so I think the price gaps are interesting in [indiscernible] at a matter of a percent basis. But when you're a consumer in a retail grocery shop, staring at an aisle, those price gaps as a whole dollar amount are very significant when you're choosing your basket of goods, particularly when you have a limited budget and you're trying to fill your shopping cart. And so I think the retailers recognize private label as a very unique offering to drive value and to drive loyalty in their stores, and it's been a very good option. And so I would say, we're not sort of threatened by the narrowing of the price gaps because we -- private label continue to gain fair even in history in 2019 when those price gaps were narrower than they are today. But certainly, it provides an interesting opportunity in the short term is that, that provides a whole dollar savings that's very meaningful given the level of inflation.

And maybe last, Steve, are there any relatively large potential customers that TreeHouse doesn't serve right now in terms of private label that could be incremental customers? Or is it more a matter of saying, look, we're operating with the customers that really value high-quality private label option, and there's just way more ground to cover with them rather than incremental customers as a whole? Or maybe it's both?

I think we serve most of those customers, you would call those high-value opportunities in some categories. But we have categories like our coffee business will be transformed now, right? So there's a lot of opportunity across that business with retailers that we would all cherish their business, right? And so I think there are big opportunities for us. There are big opportunities in snacking for us. There's opportunities in our cracker business. So across each individual category, we have large opportunities. And the good news is we serve all those customers. And so it's not a logistics challenge. It's a logistics opportunity. It's not -- I mean it allows us to leverage our scale against those different customers by bringing them another opportunity. So there are plenty of -- there's plenty of opportunity in the categories we participate in time. And there are some segments we don't quite serve that we're working really hard on, and we'll share those as we go forward. So we're excited about it.

Good. All right. It's a good place to cut it off. Why don't we head over to the breakout? And thank you, Steve and Pat, for being here.

Great.

Appreciate it.

Thank you, Andrew.