Ralcorp Holdings Inc. of St. Louis has seen sales surge close to 60 percent over the past few years, thanks to steady sales of its cereals, crackers, cookies and jellies.
But don't look for the Ralcorp brand name on your supermarket shelves.
The food company is among the largest "private-label" manufacturers, which make their profits by producing goods that are sold under the labels of various retailers and grocers. It's a hot sector because more consumers are beginning to trust these cheaper store brands, sold under names such as Wegman's or ShopRite, and like paying less than they would for national brands.
Plus, private-label products are getting a boost from some missteps by traditional food manufacturers. Sales of private-label peanut butter at Ralcorp, for instance, got a boost after ConAgra's recent recall of its Peter Pan and Great Value peanut butter products amid concerns about salmonella contamination, says BB&T Capital Markets analyst Heather Jones.
"It helped consumers to see that there may not be as much difference in private-label and branded products," she said.
That's putting pressure on traditional manufacturers of branded-food products to put a cap on prices, spend more on marketing and work harder to differentiate their offerings. Kraft Foods Inc., for instance, has seen its share of some food categories drop amid competition from private labels. Now it's beefing up its marketing.
While private labels have penetrated almost every consumer group in the United States, the market share in the food industry - at about 16 percent - has been the strongest. High commodity costs and thin margins have made it harder for traditional makers to innovate in recent years, making their brands more vulnerable. In Europe - where a smaller number of retailers have a dominant market share - private labels' presence in some regions is in the range of 30 percent.
To be sure, private labels' share in the U.S. food market has been almost flat for the past few years, but that could change as a flood of more sophisticated store-branded offerings hits the shelves.
Recent research from International Business Machines Corp., for instance, found that three-quarters of consumers surveyed in the United States and the United Kingdom don't see any benefit in buying branded-food products. Most think the quality and the safety of private-label products are the same as those of similar branded products. Neil Stern, a senior partner at retail consulting firm McMillan Doolittle, says private labels in the United States could be headed in the same direction as those in Europe but that changes won't happen as quickly or to the same degree because U.S. retailers are more fragmented.
Still, private labels in the United States have grabbed strong shares in categories such as milk, cheese and eggs, which are harder to differentiate.