Wendy Davidson’s philosophy at Hain Celestial is more about what to add to the US-based group’s portfolio than any plans to dispose of brands or businesses – and M&A could be a feature.
Almost four months into her role as president and CEO of the $1.9 billion New York-based company, Davidson welcomed steps taken by her predecessor, Mark Schiller, to reduce the portfolio from 65 to 35 brands. she stated in an interview for Just food.
Now it all depends on where she and her colleagues can take these brands in terms of expanding reach, both into new product areas and geographically, while exploring opportunities in new channels and e-commerce. And Davidson has no plans to leave the private label or personal care business, either.
Davidson already outlined its initial strategy when it announced second-quarter results in February and expects to reveal more on the next earnings day on May 9, including a longer-term growth algorithm. “Stay tuned,” she says coyly.
“We’re looking carefully at the strategy and evaluating the categories we’re in.” How big can they be? And what will it take to move on from there?” Davidson explains, asking a series of rhetorical questions.
“Are there categories that we’re not in that we’d like to be in and the easiest way to get in is to expand one of our existing brands? Or is it an acquisition? Are there any parts of the portfolio that we would still change a bit?
“Are there things that we thought would be a bigger driver of growth that maybe have been more sustained [mode]? They’re important in the portfolio, they’re just not going to be an exponential growth driver, but they’re an important part of generating fuel for the rest of the business.”
Hain Celestial’s existing business model is weighted toward North America, where sales last year totaled $1.16 billion of the group’s $1.9 billion total. International ones, mostly Europe and especially the UK, make up the rest.
Spanning snacks, desserts, yoghurt, baby food and plant-based alternatives to meat and dairy, the brands are sold in individual markets or globally. Linda McCartney’s range of vegan options and Hartley’s jams are distributed in the UK, for example, while Yves plant-based burgers and sludge are available in Canada.
Davidson suggests that Hain Celestial is in a “compelling space” for the consumer, with around half of the global portfolio positioned as number one or two in their better-for-you categories. There may be further reduction of SKUs, she says, but not “holistic rationalization of the brand.”
An example is Ella’s Kitchen, the baby food company and brand Hain Celestial acquired in 2013 that currently only caters to toddlers. Perhaps the brand could be extended to an older group, school-aged children, suggests Davidson. Or taking American market snacks into more mealtimes.
“My bigger concern is not what we should get rid of, but what we should add,” she says. “Are we in a good position to drive the growth of the brands we have? Do we have the right operating model? Do we have the right approach to market that we can pursue all the potential distribution points we want to be in?”
Channel expansion
One such area could be direct-to-consumer, as Davidson reviews Hain Celestial’s e-commerce capabilities, or moving beyond traditional food retail into the out-of-home-yard segment as an option under consideration.
“Whichever market you look at, our products are well-suited to a direct-to-consumer or e-commerce model,” she asserts. “We’re not fully on board with that and we’re under-indexed against the industry. It’s a good opportunity.”
Davidson outlines the benefits of greater exposure to the channel, noting 30,000 distribution points in the US in a typical retail store, compared to say two million distribution points in the out-of-home sector.
“Those two million distribution points cost less dollars, but there are a lot of them, so you don’t want one to come at the expense of the other. You want both the right brands and certainly our portfolio of better-for-you snacks, this is an opportunity.”
She adds: “If I apply that to our European business, we have opportunities in the UK, certainly on the plant-based side in partnership with restaurants. We have this opportunity in some of our hot dessert businesses and food court partnerships. We have opportunities with some of our pick-up items, particularly the Hartley’s brand, to be there at that immediate point of consumption in the suburbs, in small retail environments.
“There are opportunities for us to drive incremental rollout – that’s incremental revenue. There are entire channels that consumers shop in that we don’t have a presence in, but we could. Rather, I’m interested in where we need to add the capabilities that will allow us to achieve incremental, profitable growth for the company.”
Hain Celestial’s balancing act
While the majority of Hain Celestial’s sales are generated in North America, on the international front the company has a “small portion” of business in the Middle East and “a little bit in Asia, but very small,” confirms Davidson.
However, regarding potential expansion into Asia and Australia, for example, she says “possible” but adds “it’s not a priority right now.”
“I want both to grow,” Davidson says when asked if she will seek to rebalance revenues. “I don’t think the stated target is around the balance of the business mix, it’s based on where the opportunity is that will provide the greatest return for our shareholders.”
“Where can we expand the brands we have today and where we have the license, the ability to play? It depends on where the biggest growth potential is for the brands and businesses we have. Is there more growth for us in snacks in North America? Or is there more growth for us in our other non-US businesses? That will remain to be seen as we get into the strategy.”
More generally in terms of potential new markets, Davidson adds, “It’s going to depend on where the opportunity is, the cost of it, and where the better return is for our dollars and resources. To go deeper into the markets we’re in, our core markets? Or should it extend to neighboring markets? I wouldn’t see us making a holistic push geographically, but I think there are opportunities for our brands to play in more than one geography.”
Davidson says she is happy for brands and private labels to sit side by side in the portfolio and rules out leaving the private label business as long as it has a clear distinction but still provides healthy eating and convenience options. However, the company’s brands cater to the more upscale or “less price sensitive” consumer.
“There are some markets where in our categories private label and brand coexist very well because they either appeal to different consumers or different consumer price points. It can be said that we are a good leader in this space [own-label]. But I think we want to be very clear about what is the role of brands and how do we support them, what is the role of private brands and how do we make sure we’re relevant in that portfolio?”
Belief in meat alternatives
The former CEO of Kellogg, McCormick and Tyson Foods is also committed to the personal hygiene portfolio to support the consumer seeking a healthy lifestyle, with sunscreen being an example.
“It’s not a question of whether we should participate or not,” Davidson countered when asked about the future direction. “It’s how do we do it in a way that it can be self-sustaining and exist in the market, and then have an appropriate point of difference that increases the overall portfolio.”
She is equally optimistic about other parts of the lineup, with a balanced philosophy behind future growth opportunities.
“If they are in the portfolio, we should expect them to grow. The question is, how much should they be expected to grow? And how much it would cost us to invest disproportionately where you can drive more growth. But that doesn’t mean we’re ready to watch the business dwindle to nothing,” says Davidson.
Hain Celestial has a diverse offering of meat-free and vegan alternatives, and Davidson seems to strongly believe in the category, despite all the hype in recent years and slowing demand in some geographic markets.
However, the company is not present in the US segment. “I don’t know the answer to that. We are looking at the strategy,” she says when asked about the reasons.
“We ask these questions for every brand we have, where are they today? How far could they go, where do we have the capability and where do we have the ability to be able to do it and is the market ripe for it?”
But she has no plans to seek M&A as an entry point into the US: “I certainly wouldn’t expect that in the short term.”
Instead, Hain Celestial will likely go “deeper into the markets we’re already in,” Davidson says, noting that the company also serves private brands in the category.
She supports the argument that plant-based meat producers should not focus solely on trying to copy animal proteins, stressing that taste should be at the center of any proposal, as many proponents suggest.
“The innovation team focused on how to deliver great food for the Linda McCartney brand and not get distracted by the bright, shiny objects in the category,” says Davidson. “What we know about this core meat-free consumer is that they’re not willing to sacrifice taste.”
However, the “meatless whirlwind of the past few years,” as Davidson describes it, has brought new consumers to the category.
“If they want meat experiences, they will have meat. If they want really good vegetarian food, they’re looking for it to have the right ingredient profile so they don’t sacrifice protein and fiber. They want great taste and they want it to be convenient and affordable,” she asserts.
Recently, a fog has surrounded milk or milk alternatives, but looking through the fog, Davidson believes the category has long-term legs. Her predecessor Shiller, who became a non-executive director at Hain Celestial, last August pointed to some softness in the sector, particularly in Europe, where growth has “slowed significantly”.
Davidson suggests it is a story of two parts – the cost of living crisis on one page and capacity on another. Those factors aside, “we’re still seeing a lot of consumer demand growth in the idea of non-dairy and plant-based drinks,” she says, where Hain Celestial is playing with brands like Joya and Lima and Linda McCartney’s creamers.
“There were some structural dynamics in the industry around capacity that definitely created challenges for every player that was in the space, including us,” explains Davidson. “I feel very good about the business we have. And I think the team has done a good job of navigating the short term to make sure we’re well positioned for the long term.”
Less than four weeks later, by the time Davidson presented his second results briefing, financial matters were out of the question. “I’ll give you a direct look at that on the earnings call,” she said when asked if Hain Celestial had finished pricing.
“I like where our brands are positioned in the categories we’re in. The categories we’re in tend to be where the consumer is a little less price sensitive, and we tend to be the entry price point better for you.”