Natural, organic showing strength in C.P.G.
Aug. 24, 2014
KANSAS CITY — Food and beverage executives are struggling to understand the dynamics underlying the sluggishness that has enveloped the consumer packaged goods sector. Chief executive officers from leading companies have pointed to a variety of reasons, ranging from the overall economy, promotional inefficiencies, the agility of smaller companies, and a renewed consumer interest in the perimeter of retail formats. Each reason has merit, but an additional component to the sluggishness may be the strength of products perceived as natural or certified as organic.
Recent earnings reports from ConAgra Foods, General Mills, Kellogg and Kraft Foods all have highlighted the current challenges facing the C.P.G. market. At the same time, a company like the Hain Celestial Group has not experienced a similar sluggishness. It must be noted that most major C.P.G. companies have their own business units and brands that are targeting the natural and organic category, but those entities are often dwarfed by the investment their parent companies are making in traditional consumer packaged goods.
The positive news for Hain comes at a time when it is also aggressively seeking to expand its market reach far beyond its base of natural food stores.
“As I’ve said before, branded products innovation is driving the growth in natural and grocery and mass channels,” said Irwin Simon, president and chief executive officer of the Hain Celestial Group. “Hain’s growth from innovation is about 25% in the natural channel and 35% in grocery and mass channel. Availability of organic and natural products is on the rise whether at your local value, conventional food retailer, Wal-Mart, Target, Kroger, specialty food retailers and of course, don’t forget Whole Foods and Sprouts.”
Mr. Simon added that “broader consumer consumption of organic products and natural products is a more compelling dynamic driver of growth across our products. … You walk into 7-Eleven, convenience stores, you will see our products. You walk into fast-casual channels, including white tablecloth dining, to Panera, Chipotle, Chop’t and of course, college campuses where there is over 30 million students and our future and current consumers.”
Mr. Simon understands that the current perceptions surrounding products marketed as natural and organic resonate strongly with consumers. Those perceptions also have captured the attention of TreeHouse Foods, one of the largest suppliers to the private label market. Earlier this month, the company made a point of telling investors it plans to extend its reach into the natural and organic market. The strong performance of such retail brands as Simple Truth and Simple Organic shows there is growth potential under some store brand banners.
What the performance of a company like Hain Celestial demonstrates is they have successfully differentiated their products in a very crowded market and cultivated a loyal following. They will be challenged to maintain their performance in the coming years as they expand into more channels, but the perception of the products they sell may prove to be an advantage.