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This Food Company Is Leveraging on 2 Emerging Trends

By Mark Lin – Mar 25, 2014 at 2:00PM

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Private labels needn’t be cheap products, and snacks aren’t necessarily unhealthy. Inventure, a food company, is capitalizing on the emerging trends of premium private labels and healthy snacking to its advantage.

Source: Inventure Foods

While the popularity of natural & organic foods and the proliferation of private label products are old news to investors, there are emerging trends that might have gone unnoticed. The first trend is healthy snacking, and the second is premium private labels. Inventure Group (NASDAQ: SNAK), a food company that sells healthy/natural and indulgent specialty snack food brands, is a beneficiary of both of these trends.

Healthy snacking
There is no denying that healthy eating is now a major food trend with a big impact on consumer choices. Sales of natural and organic foods and beverages in the U.S. are projected to exceed $78 billion by 2015, based on research by Packaged Facts. Among the listed food companies, WhiteWave Foods (WWAV), has been one of the key beneficiaries of this health & wellness trend. WhiteWave produces the top selling plant-based food & beverage brands for both U.S. (Silk) and Europe (Alpro), and its premium dairy brand Horizon Organic and organic green brand Earthbound Farm are also the market leaders in their respective product categories.

The results speak for themselves. In absolute terms, WhiteWave has grown its revenues and operating income by CAGRs of 12% and 22% respectively from 2011 to 2013. On a relative basis, WhiteWave has been the fastest growing food & beverages company among its peers for both the trailing one-year (7.1%) and four-year (9.7%) periods, beating out companies like Hershey, Danone, and Nestle.

Although the notable segments within the healthy food categories have been occupied, there are still pockets of growth in niche product categories that other companies could take advantage of.

While the term "healthy snacking" seems like an oxymoron, many consumers do love the possibility of having the best of both worlds. According to a 2012 Mintel survey, 42% of individuals make it a point to snack on healthy foods.

Source: Inventure Foods

Inventure was early in reading the market trends. Since 2006, Inventure has started to expand its product portfolio to include healthy and natural snacks. Its efforts have paid off, with Inventure's Rader Farms frozen berries and Boulder Canyon kettle-cooked potato chips being some of the products catering to consumers' demand for low-fat and low-carb health-focused snacks.

According to SymphonyIRI research, frozen fruit sales increased 14.7% in 2013, validating the results of the 2012 Mintel survey where 86% of respondents took fruits as their choice of healthy snacks. With respect to Boulder Canyon, Inventure has introduced new flavors and variations such as organic, olive oil, and avocado oil versions to expand its reach to more customers.

Premium private label
Private label products fall into two categories: value private label products and premium private label products. Orchids Paper Products (NYSEMKT: TIS) makes more of the former category, while Inventure focuses more on the latter. 

Value private label products are typically just duplicates of existing branded products with little differentiation, with lower prices being the key selling point. Orchids Paper, a manufacturer of private label tissue products, has seen its sales and EBITDA grow by 9.5% and 19.3% annually respectively over the past 10 years as more people choose cheaper private label tissue products over their branded counterparts. The market share of private label bath tissue products increased from 15.4% in 2003 to 23.2% in 2013, while private label paper towels enjoyed a market share rise from 18% to 31.4% over the same period.

As competition intensifies in the value private label market with the entry of more low-cost manufacturers and competing store brands, premium private label represents a new area of growth. These products focusing on uniqueness and innovation as the key selling points, as opposed to price for value private label products.

More importantly, food retailers are using premium private label products to build customer loyalty, placing the spotlight on this product segment. Inventure has been building its premium private label business in recent years. It now counts retail giants like Kroger, Safeway, and Walgreen among its customers, and sales from this segment grew strongly by 20.9% in 2013.

There are two key advantages associated with Inventure's increased focus on its private label business. Firstly, this helps Invenure build stronger relationships with its food retailer customers and potentially aids in the cross-selling of its branded products. Secondly, Inventure's manufacturing facilities are all operating below 80% capacity, so secure new private label manufacturing opportunities will help to improve its utilization rates and operating efficiency.

Foolish final thoughts
Although profit opportunities in well-established trends like health & wellness and private label penetration have already been exploited fully by companies, emerging trends that are ignored could prove to be potential gold mines for those who care. Inventure is the best investment candidate for investors placing their bets with trends such as healthy snacks and premium private label products.  

Mark Lin has no position in any stocks mentioned. The Motley Fool recommends WhiteWave Foods. The Motley Fool owns shares of WhiteWave Foods. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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