Hain's healthy growth spurt

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In little more than seven years, the Hain Food Group has gone from being an idea in President-CEO Irwin Simon's head to becoming the leading marketer in the booming natural foods industry. The company, now known as the Hain Celestial Group, is a powerhouse with annual sales of roughly $480 million.

Hain has been built from an amalgam of natural, organic and better-for-you brands Mr. Simon has acquired since 1993. His most recent acquisition, in May, was tea marketer Celestial Seasonings.

H.J. Heinz Co. affirmed the skyrocketing growth of Hain by taking a 19.5% stake in the marketer last year, a move Lehman Bros. analyst Andrew Lazar has praised. Hain is a "class act of the food group, with the kind of scale and breadth to be a winning player," Mr. Lazar said.

Now, having amassed a collection of more than 15 product lines, from Earth's Best baby food to cross-category health food brand Health Valley, Hain plans its first-ever national advertising for a handful of high-growth lines, known internally as "rocket brands." To mark the shift toward consumer spending, Hain is looking for its first agency of record, a search it hopes to conclude by yearend.

Advertising Age reporter Stephanie Thompson caught up with Mr. Simon recently to discuss the future of his thriving entrepreneurial venture.

Advertising Age: How do you explain Hain's phenomenal growth from a company with net sales of $58 million in 1995 to $205 million in 1999 and double that with the recent acquisition of Celestial Seasonings?

Mr. Simon: It goes back to our mission statement in 1993. We wanted to be the best, largest better-for-you company that encompasses natural and specialty foods. In our mission statement back then, it referred to words like "natural," "soy," "GMO free," [a phrase commonly used to indicate the product is not made from genetically modified organisms] and "medically directed." If you look at consumers' demand today for soy, organic, natural and GMO-free foods, they are a major part of a lot of people's diets today. And trends are still changing and continuing even more to include those foods. If you look at the top 15 categories within natural foods, we're a major player in 13. If you look at the brands we own today, it is a stable of powerhouse brands and a powerhouse of growth opportunities. Terra Chips is growing well into the multi-digit numbers, and Westsoy, Earth's Best, Health Valley and Celestial are all expected to grow exponentially. These are our five "rocket brands" -- those that will grow in double-digit numbers over the next year.

AA: How are you continuing to drive that momentum and capitalize on the natural food trend?

Mr. Simon: Having built this portfolio, how do we grow? New products, new distribution, strategic alliances, acquisition and international expansion. New distribution is our biggest growth opportunity. There are 33,000 supermarkets in the U.S. today. We finally have 70% [penetration] in supermarkets, but if you look at our rocket brands and all our products, we have nowhere near 30% [distribution of brands]. While there are a lot of natural food outlets -- 150 Whole Foods stores, 125 Wild Oats and 10,000 small ma and pa stores -- our biggest growth will come from supermarkets. We have such tremendous growth opportunities. Kroger, with 2,200 stores, is going big into natural foods, as are chains including Safeway, Ahold, Albertson's and American Stores.

We're going into Kmart for the first time, and Target is bringing Westsoy in.

AA: As you move into new retail channels and reach out to a more mainstream audience, how will you drive awareness of your brands?

Mr. Simon: That is our latest challenge. Now that we have product in stores, how do we get it off the shelves? How do we build brand equity and awareness? That's where we have to move a lot of our trade dollars back into consumer dollars, and by that I don't necessarily mean TV dollars. It's PR, advertising in the right magazines, FSIs, ActMedia [shelf signage]. It's a big move within the company to wind down spending on one level and move it to another, and while we're not moving away from trade spending, we ultimately need to spend money against the consumer.

AA: How big a chunk of your marketing dollars will be moved into consumer advertising and promotion?

Mr. Simon: Today we spend 17.5% or 18% of annual revenue on total ad/promotion dollars, where that's been split roughly 16% for the trade and 1.5% against consumer. We hope to shift to 13% against the trade and 4% or more against the consumer. In terms of dollars, initially we're looking to spend somewhere between $8 million and $12 million in 2001. It's still not enough, it should be a lot more. But we're doing our first national FSI [newspaper insert] to support Health Valley (see related story, Page 32), we're starting to advertise Westsoy, Earth's Best is getting its first advertising and we'll be doing a lot of consumer stuff on Celestial. Efforts on Terra have been put on hold until we're able to build enough capacity to meet demand.

AA: How important is advertising your brands to consumers right now?

Mr. Simon: As we move into grocery stores and move into bigger accounts, advertising is very important. You've got to build awareness. The natural foods industry was more of a push industry: You put it on the shelf, price it right, stack it high and watch it fly. As you go more into supermarkets, building awareness and building equity is very important, and that happens through consumer advertising. Our "rocket brands" are the ones that will get the majority of support.

AA: Celestial, which you acquired in May, was your only brand that had meaningful media expenditures in 1999, with spending of $1.5 million, down from $10 million in 1998. Will you continue spending against the brand?

Mr. Simon: The spending on Celestial last year [and the year before] was mostly put toward the supplements business, which will not be the focus this year. While the supplement business will not go away, it will not be the focus of advertising. It did not do well, in part because the supplement category overall has not done well but also because of pricing issues and confusion over the brand. The Celestial advertising focus will be on tea: green tea, black tea, herbal tea and new products. Print ads -- we decided against TV -- will start in January with a new theme. Stay tuned.

AA: I understand you have decided to embark on an agency review for your brands? Why now?

Mr. Simon: If we have three or four agencies with which we're spending $2 million to $3 million, we're not going to be important. If we get one agency as a company and we're spending $12 or $14 million, we're important to somebody. We want to grow with somebody and work with an agency that can become a good partner with us, to work with them on all brands. We're not big enough to have three or four agencies. Until now, we've worked with agencies on a project basis.

[The current roster includes Quinn Fable, New York, which has done work on Health Valley; Sterling-Rice Group, Boulder, Colo., which has handled efforts for Earth's Best and Celestial Seasonings; and Lotas Minard Patton McIver, New York, which has worked on the Terra and Garden of Eatin' snack brands.]

AA: You've definitely been on a fast-pace acquisition spree since 1993. Will that continue?

Mr. Simon: Acquisitions are very important to me. My goal of getting to be a $1 billion company by 2002 or 2003 will come through acquisitions, international expansion and new channels of distribution. Heinz will help us move into club stores, but our big distribution efforts are in grocery, and that we're going to do ourselves.

AA: Natural foods has been growing at a clip of 20% to 25% in grocery stores, with soy products growing as much as 80%. Can growth for the industry continue at that pace?

Mr. Simon: Eating healthy is not a fad, it's not a trend, it's a fact of life. Soy is going to become such a bigger part of our lives, as is eating foods that are GMO-free. There are so many facts that come back and say cure for disease relates back to nutrition, for example anti-oxidants in green tea help fight cancer. We're much more educated today, they teach eating healthy and reading labels in schools now, and there are more and more facts and information coming out every day. I refer to us as the General Foods of the 21st century.

AA: How do you feel about the big, mainstream food players such as Kraft Foods Co. and Kellogg Co. entering the natural foods arena with recent acquisitions of brands such as Balance Bar and Morningstar Farms?

Mr. Simon: When the bigger guys come in, they help drive the category and the industry. When General Mills comes in with Sunrise Organic cereal, my cereal numbers are up double-digits. It just brings validity to the category.

AA: How big a role do new products play in your game plan?

Mr. Simon: New products are the lifeblood of every package-goods marketer. We've been very innovative, and the most important criterion for everything has been that it taste good. While we're the third out with refrigerated soy, we just got voted the best tasting. We've done a great job coming to market, tasting great.

There are new flavors of Terra Chips, we just relaunched the Health Valley line and there is always more to come.

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