US manufacturer Hain Celestial has struck again across the pond. And its latest acquisition in the UK seems to be the one with most potential, Dean Best suggests.
Hain Celestial announced its third major UK acquisition in 18 months at the beginning of May, snapping up organic baby food business Ella’s Kitchen.
The deal followed last summer’s move to buy a bunch of spreads brands (including Hartley’s jam and Sun-Pat peanut butter) from UK business Premier Foods plc and the acquisition in 2011 of chilled foods firm and New Covent Garden soup owner Daniels Group.
Hain Celestial first entered the UK in 2006 and it is a market that has not proved straight-forward for the US group. It made a profit in its first year but then moved into the red. However, Hain Celestial has persevered and, with the three acquisitions in the last year-and-a-half, developed a business that is now a notable player in the UK grocery sector.
Nevertheless, even after the deals, trading in the UK has presented its challenges. Its third-quarter results – announced alongside the Ella’s Kitchen deal – included “record” company revenues, which were helped by the contribution recent UK acquisitions made to the top-line. Meanwhile, Hain Celestial’s Linda McCartney meat-free brand, its first branded acquisition in the UK, saw sales jump 44%.
However, Hain Celestial admitted sales in the UK were lower than expected amid promotional challenges in jam and soup. The company also lost some distribution for Gale’s honey, a brand it acquired through its deal with Premier.
Away from brands, Hain Celestial has worked to change its own-label business in the UK, where retailer brands account for around 50% of grocery sales, it says. It has dropped private-label meat-free lines deemed “unprofitable” and has won a contract to supply Sainsbury’s with own-label chilled soup and won back a deal to supply another retailer with own-label jam.
Hain Celestial remains upbeat about its prospects in the UK. “Despite some tough trading conditions in the UK, we saw some really strong performances from the leading brands and categories, and we have a great number of initiatives underway to support under-performing brands back to growth. We are very bullish on organic growth prospects crystallising in the next few weeks and months,” Rob Burnett, CEO of the company’s UK unit Hain Daniels, says.
That said, the acquisition of Ella’s Kitchen, appears, on paper, the most promising UK buy. Ella’s Kitchen has carved out a distinctive niche in UK baby food. In an interview with just-food last August, founder Paul Lindley said the company’s share of the baby food market was growing – and it was gaining ground in the wet, dry and snack sub-sectors.
Innovation in packaging has also been key to Ella’s Kitchen’s growth – it played a major role in bringing pouches to the UK baby food sector and last year launched a “spouch” – a pouch and spout combined – for its cereals range. The Ella’s Kitchen brand is seen as a category leader, gaining listings in smaller convenience outlets, as well as the larger multiples.
Hain Celestial’s New Covent Garden chilled soup brand was a product that some industry watchers said was under-performing when the company acquired it in 2011. In October, Tesco dropped the brand after a range review and Hain Celestial admitted last week in its third-quarter earnings call sales have suffered in the last three months after two customers reduced promotional slots.
Hain Celestial CEO Irwin Simon insists the company had “a very exciting plan” for New Covent Garden but when that programme is designed to return the brand to growth it proves the challenges facing the product.
Meanwhile, although last summer’s acquisition of spreads brands like Hartley’s from Premier gave Hain Celestial more clout with UK retailers, the categories while providing decent cash, are hardly growing rapidly. Hain Celestial believes additions to the spreads portfolio – for instance adding cashew, almond and chocolate peanut butter products to its Sun-Pat range – will boost the business. Incremental sales could come but, as with chilled soup, spreads does not appear as offering as much promise as baby food. And perhaps that is why Hain Celestial is shoring up those business with investments in own label as well as brands.
Ella’s Kitchen, however, still has potential in the UK – and potential in a robust category. Hain Celestial also sees benefits for other parts of its existing baby food business in the States. It said the Ella’s Kitchen deal will help its flagship US baby food brand Earth’s Best break into the market.
However, Hain Celestial has wider aspirations for baby food after the Ella’s Kitchen deal. One, the company says it will use its European distribution network to open up more markets for Ella’s Kitchen. And, second, it is setting up a global infant products business headed by Ella’s Kitchen founder Lindley.
Indeed, Hain Celestial CEO Simon confidently claims the company intends to set about “changing the way kids eat around the world”.
It is a bold statement. However, Simon’s confidence – and he is an upbeat fellow at the best of times – looks well-founded with Hain Celestial’s latest acquisition.
Click here to access part three of July’s management briefing, examining Danone’s first move into organic baby food through the acquisition of Happy Family in the US