Hain Celestial (Hain) is operating in an increasingly competitive marketplace. The global health and wellness (HW) market is highly fragmented, with numerous products and players competing for limited retailer shelf space. For example, the top 10 HW beverage companies jointly controlled around 39% of retail sales in 2015, with The Coca-Cola Co being the strong leader with a 12% share. In Western Europe, private label players also have their own HW lines, which are generally sold at lower prices, pressuring branded products. Some multinationals, such as The Coca-Cola Co, are actively looking for small or medium-sized players in certain niche categories, acquiring them and adding them to their ever growing “health” platforms. Hain is one of those constantly looking out for deals, widening its HW offering and integrating various acquired brands into its operating segments.
Building the UK as a base for European expansion
Hain is the world’s major organic and natural products supplier, with 6,500 employees and 36 manufacturing plants across the globe, according to its 2015 annual report (financial year ending June 2015). The company’s worldwide net sales amounted to US$2.7 billion, a 25% increase over the previous year. The company stated that its growth was fuelled by strong worldwide demand for its diverse portfolio of leading organic and natural brands across many product categories, sales channels and geographies. The recent acquisition of UK-based Orchard House Foods Ltd (Orchard House) reflects its continuous acquisition-led growth strategy and its ambition to integrate, nurture and leverage small brands. Understandably, the acquisition will have a minimal impact on Hain’s overall net sales as Orchard House is a relatively small company, with anticipated net sales of approximately US$60 to US$65 million in FY2016.
Globally, the US accounted for over 51% of net sales and the UK 27%, although the company’s products are reportedly sold in over 70 countries. The company appears to use the UK as an important base for expansion in Europe and the acquisition of Daniels Group (New Covent Garden Soup Co, Johnsons Juice Co and Farmhouse Fare) in 2011 gave it a diverse product portfolio in the UK HW market. Hain has made a string of acquisitions elsewhere, which not only widened its geographical presence, but also created opportunities for leveraging, ie cross-selling products to retailers. Hain’s acquisitions in FY2015 can be seen in the accompanying table. The acquired brands elsewhere can also potentially be introduced to the UK, and then, later, Europe. Thus far, Hain has registered share in HW packaged foods in Ireland, Belgium, Norway and Sweden.
In its 2015 annual report, Hain stated that its business strategy for each operating segment is to integrate its brands under one management team and employ uniform marketing, sales and distribution programmes. The company believes that by integrating its various brands, it will continue to achieve economies of scale and enhanced market penetration. It seeks to capitalise on the equity of its brands and the distribution achieved through each of its acquired businesses with strategic introductions of new products that complement existing lines to enhance revenues and margins. In terms of acquisition targets, organic, natural and better-for-you products companies or product lines are on its radar.
For this type of business strategy, financially it appears less risky, as the deal is generally relatively small. The important thing is to spot the good candidate and identify which part of the acquired business can be potentially and practically integrated into the existing family smoothly. Thus, the capability to manage the post-acquisition operations and meet the initial expectations is important.
Orchard House is one of the leading providers of prepared fruit, juices, fruit desserts and food ingredients in the UK. The Orchard House acquisition will enhance Hain’s coverage in HW juice and prepared fresh fruits. Euromonitor International’s HW database shows that Hain ranked number one in organic baby food and NH soy-based ready meals in the UK in 2015, and also holds prominent positions in NH rice, organic other non-dairy milk alternatives and organic dairy. In HW juices, however, Hain is a minor player. Its Johnsons Juice brand remains small compared to Innocent (The Coca-Cola Co) and Tropicana (PepsiCo). Hain may use Orchard House as a vehicle to expand its fruit product offerings in continental Europe; meanwhile, it can experiment with cold-pressed juices and improve branded fruit product offerings in the UK. Cold-pressed juices shows strong growth potential, despite the high price compared to that of juice produced using conventional technology. As Johnsons Juice and Orchard House have some business overlaps, it is likely that Hain will create some growth-platform and leverage opportunities between the two subsidiaries in the long term.
Orchard House a member of SEDEX
Euromonitor International analysts believe that environment, ethical issues and corporate social responsibility are no longer a PR exercise and are now essential practice for long-term business sustainability. Some multinational brand owners require all their suppliers or business partners to be formalised as members of SEDEX (Supplier Ethical Data Exchange) by 2020, or to be part of an ethical association or similar organisation. SEDEX is an online information exchange for businesses that are committed to improving their ethical performance and that of their associated supply chains. As a member of SEDEX, Orchard House fits Hain’s overall corporate image as a responsible foods and beverages player.
In brief, Hain is likely to continue to hunt for small deals in the UK and beyond. Thus far, most deals have been completed in developed markets. The acquisition cost may rise in developed markets as The Coca-Cola Co is possibly looking for expansion in similar categories. In the medium term, the company could start to look for candidates in major emerging markets, such as the BRICs, as the economies stabilise.