Amid the continuing challenges faced by food and beverage executives struggling to understand the dynamics of what remains a sluggish North American consumer packaged goods sector, the natural and organic segment offers evidence that the food business is not without strengths. A look at the financial results for Hain Celestial Food Group in recent years suggests a company successfully riding a wave within a highly attractive piece of the consumer packaged goods puzzle
While most major C.P.G. companies have their own business units and brands targeting the natural and organic category, those businesses are often dwarfed by the investment their parent companies are making in traditional consumer packaged goods. Hain, by contrast, has grown through a roll-up strategy targeting niche food companies mostly with strong credentials in the natural/health universe. The company’s consumer base represents a segment of the population for whom the economic recovery actually has represented a meaningfully improved economic picture and greater buying power. With stronger financial management in recent years, the company has seen its net income per share climb year after year, quadrupling to $2.86 in fiscal 2014 (year ended June 30) versus 70c four years earlier.
The positive news for Hain Celestial comes at a time when it is also aggressively working to expand its 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, in a recent conference call with investment analysts. “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 certified organic 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 with consumers. Those perceptions also have captured the attention of TreeHouse Foods, one of the largest suppliers to the private label market.
In August, company management made a point of telling investors they plan to extend the company’s reach into the natural and organic market. The strong performance of such retail brands as Kroger’s Simple Truth and Simple Organic shows there is growth potential under some store brand banners.
“We see more traditional grocers, both large and mid-size, placing more emphasis on the better-for-you food segment with premium private label products,” said Dennis Riordan, chief executive officer of TreeHouse Foods. “This is one of the reasons why we are so focused internally on reformulations and new products that appeal to customers who desire natural or organic products.”
What the recent performance of a company like Hain Celestial demonstrates is its management team has 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. Such a strategy has worked for retailers like Whole Foods, and an argument may be made that there is room for companies like Hain Celestial to capture share from food processors that may not have such a strong point of differentiation.
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