Can a private label manufacturer manage a national brand?...the case of Ralcorp and Post Cereals

In November 2007, Ralcorp Holdings, one of the biggest manufacturers of store brand groceries, bought the Post brand (iconic products such as Honey Bunches of Oats, Post Raisin Bran, Grape-Nuts, Spoon Size Shredded Wheat, Pebbles and Post Selects,....) from Kraft for $2.6 BN (click here) in an all-stock deal.

Many people, including myself, wondered whether a private label manufacturer like Ralcorp can handle a national brand in a slowing economy?

One line of thinking questioned the logic of a private label company, that is gaining share from national brands, in buying a brand at a high valuation (2.6 times sales). After all, the marketing activities (promotion, advertising) in selling a branded product are much different than those involved in selling a store brand to a store. Also selling a branded product with store brands creates internal competition. This is what had led Ralcorp to sell off its brands (Chex, Beech-Nut) many years ago.

What worked for Ralcorp is that private labels traditionally have had a small market share in the cereals market (around 13%).

Ralcorp announced their FY09 Q1 results last week (click here). The sales contribution of Post was $256 MM (which is nearly the same run rate as at the time of acquisition). I estimate the profit contribution of the Post brand was more than $50 MM in the quarter.

Hats off to the Ralcorp folks and to the Post guys to have posted such strong results in a recessionary environment!

The brand new face(s) of Pepsi ;-)

Pepsi announced that it is rejigging its brands at the Morgan Stanley Global consumer & retail conference last week. The key elements of the brand redesign and repositioning are:

• New logos for all the Pepsi beverage brands which supposedly leverage Pepsi's design heritage, humanity, and simplicity. The logo re-design efforts are being led by Arnell Group (the same agency that re-branded Reebok as Rbk, and Donna Karan as DKNY).
• Clear sub-segmentation of the hydration 'need state' into simple hydration (Aquafina), body wellness (Propel, SoBe), and performance hydration (G2, Gatorade). Pepsi seeks to expand ('democratize') the brand appeal of Gatorade from athletes to exercisers.
• Repositioning of Tropicana for the breakfast occasion and Trop50 for calorie-conscious consumers
• Targeting of Lipton and Tazo RTD teas at specific demographic and need sub-subsegments within the Nourish need state
• Launching hybrids of the energy drink AMP (with tea, lemon) to incorporate consumer feedback of unfamiliar taste and lack of thirst-quenching in the Transform need state

I think these are bold moves that will revitalize the CSD market and well as position Pepsi well in the non-carbonated beverages market.

Some of the products launched by Pepsi recently are very notable (Diet Pepsi Max, flavored AMP variants). As a traditional Diet Coke fan, I was surprisingly attracted to the taste of Diet Pepsi Max. I personally witnessed a free sample promotion for Diet Pepsi Max outside Grand Central station in NYC in mid-October and the reviews appeared good. Pepsi has opened up a new segment in the CSD market by adding ginseng to cola. This will attract consumers who want a rush of energy with few calories at a price point below energy drinks.

The ball is now in Coca Cola's court...