Just eight months after taking the helm as CEO of Hain Celestial, Wendy Davidson offers a frank assessment of the market’s view of her better-for-you food and beverage company: prove it.
For years, the manufacturer of Terra chips, its namesake teas and other organic and natural products, was slimming down and refocusing its once sprawling portfolio. The pruning was quickly followed by the Covid-19 pandemic, a spike in inflation and a sharp drop in demand for plant-based meat. These challenges culminated in a prolonged period of disruption for the 30-year-old Hain at the same time competition in the better-for-you space intensified.
Still, Davidson, a CPG veteran with experience at Kellogg, McCormick & Co. and Tyson Foods, said Hain is “at an inflection point” where it can “unlock the potential of this company” by spending to increase brand awareness and expanding the markets where its healthier offerings are sold.
“We need to prove that we can grow and build brands, and we need to prove that we can navigate external macro-environment factors and control our destiny,” Davidson said in an interview. Consumers and retailers love our “purpose-driven brands and they want us to be successful, but they feel like, and to be honest, internally we feel like, we've fallen short of our own expectations of what the potential of our portfolio is.”
During its 2023 fiscal year, net sales declined 2.7% to $1.8 billion from the prior year when adjusted for foreign exchange, acquisitions, divestitures and the discontinuation of brands. Hain continues to face pressure on its margins, has posted five straight quarters of losses and its stock price is languishing near its lowest point in 13 years.
But there are signs of optimism.
Last week, the food and beverage maker forecast a return to sales growth of 2% to 4% for its fiscal 2024 year. Davidson highlighted growth and market share gains in Celestial Seasonings teas and Greek Gods yogurt, and strong sales in its Garden Veggie snack line. And recent investments in marketing for several of its core brands have boosted their sales, distribution and consumer awareness, she said.
Thinking outside the box
Hain is starting to expand the distribution of its products beyond big-box stores and health and wellness retailers as more consumers look for healthier items they can eat and drink on the go.
The opportunity is huge. In contrast to retail stores where Hain estimated there are about 25,000 points of distribution, there are more than 2 million opportunities available in colleges, hospitals, airports, hotels, convenience stores and other locations. Davidson estimated only about 1% to 2% of Hain’s sales come in these so-called away-from-home channels.
“We need to prove that we can grow and build brands, and we need to prove that we can navigate external macro-environment factors and control our destiny.”
CEO, Hain Celestial
Even though these locations typically have lower dollar sales, they offer increased exposure for brands, and they tend to have higher margins since consumers are willing to pay more for the convenience.
Davidson said in recent months, Hain has picked up “some very large gains and distribution” for its snack brands in convenience stores while increasing its exposure on college campuses and airports. In the case of convenience stores, Hain said these early “proof points” allow it to collect valuable sales data comparing its brands to similar products nearby or ones that were on the shelf before. In most cases, Hain has a higher rate of sales, which it can use to attract additional business.
These away-from-home channels “are not driving a meaningful material impact to the company, yet,” Davidson said. “You will see us leaning very heavily into this, especially over the next couple of years. If you were to get your fair share of that distribution, it could be very accretive to the company.”
Analysts said Davidson has a tough, though not impossible, road ahead as she tries to grow sales at Hain.
John Baumgartner, managing director and senior consumer equity research analyst at Mizuho Americas, said the natural and organic sector has changed a lot from 15 years ago when Hain was the undisputed leader.
Since then, he noted that General Mills, Kraft Heinz, Campbell Soup and other deep-pocketed CPG companies have introduced some of their own offerings and cleaned up the labels of existing products. These items are often enough for consumers who are looking to eat healthier, while selling at a lower price than those offered by Hain.
Baumgartner called Hain “a show-me story,” particularly when it comes to its strategy of expanding distribution into other channels where healthier products already exist.
“These are not whitespaces where the categories don't exist. You're going to have to knock somebody else off the shelf in these areas, and it's going to cost you money, because they have much more resources than Hain,” he said. “It remains to be seen how well [Davidson’s] strategy is going to work.”
Reshaping the portfolio
Davidson said she is comfortable with the brands and geographies she inherited and would prioritize innovating, marketing and expanding the reach of those offers. In addition to North America, Hain has a large presence in Europe responsible for about 45% of its sales.
Still, Davidson said she “could see some reshaping of our portfolio inside some of our categories” through acquisitions or divestitures.
Analysts and prior executives have called out Hain’s personal care portfolio of cleansers, shampoos, sunscreens and lotions as a logical target for sale, a move that would give the company cash to pay down debt and invest in its business.
Personal care, which makes up about 8% of Hain’s sales, has been struggling, but Davidson said she’s in no hurry to unload a business “while it’s in stress” when the return would be less. Instead, she is reviewing the portfolio and its future at Hain; Davidson hired a new executive in February to stabilize the business.
“We feel good about the categories that we’re in and the brands we have today. I’d like to see them each deliver on their full potential and then we can make some choices about are they best to grow in our umbrella or are they best to grow under somebody else's,” she added.