Dive Brief:
- Hain Celestial, maker of organic and natural foods, said demand for its premium health and wellness products during its fourth quarter was strong despite recent signs of “softening,” CEO Mark Schiller told analysts.
- CFO Chris Bellairs said the company is planning additional price hikes but that unlike its fiscal 2022 year where they were implemented at different points throughout the year, in 2023 they will be targeted primarily in the first quarter.
- The largely favorable results for the maker of Celestial teas and Sensible Portions Garden Veggie Straws provides further evidence that despite inflation increasing costs for goods and services, many people are willing to continue paying more for certain premium items rather than switching to lower-cost offerings.
Dive Insight:
While Hain faced a sharp 5.5% erosion in gross margins during the quarter, executives remain upbeat about the organic and natural food maker’s position in food and beverages.
Excluding acquisitions, divestitures and the impact of currency, sales in North America rose 6% during the fourth quarter — an increase that came in the face of supply chain disruptions. Consumption in the U.S. jumped 11% in the quarter, above the food industry average, according to the company.
Household penetration on snacks, tea, baby, yogurt, plant-based and personal care — the six categories that make up 80% of Hain’s sales and profits — grew household penetration by 5% in the quarter compared to last year, the company said.
A major reason for the growth, Schiller said, is that consumers who adopt a better eating lifestyle with natural and organic foods tend to remain committed to it.
“If you’ve made the decision to buy organic and pay the 30% premium, and you have a six-figure income, the likelihood that you’re going to say, ‘I’ve decided I don’t want to eat organic anymore’ would be lower than other tradeoffs that people are going to make,” Schiller told analysts.
Still, he said the company would closely watch whether people who entered natural and organic during the pandemic continue to remain buyers.
One advantage Hain has is that even though it operates in the premium category, it tends to be “the opening price point,” Schiller said, giving people brands to turn to even if they decide to trade down while remaining active consumers of these items.
The executive also said Hain hasn’t seen private label offerings taking share away from his brands since most of the categories the company is in “don’t have a meaningful private label presence.”
Schiller’s comments echo recent remarks from Todd Lachman, CEO of Sovos Brands. He told Food Dive his portfolio of premium offerings like Rao’s sauces and Noosa yogurt are thriving in the current inflationary environment as consumers eat at home more and gravitate toward better-for-you foods with recognizable ingredients.
For a company like Hain that was built on deal-making, divestitures have been an integral part of its business model in recent years, especially with Schiller at the helm.
The executive told Food Dive last year that the company’s portfolio is still too bloated. He acknowledged at the time that Hain’s personal care portfolio of cleansers, shampoos, sunscreens, lotions and baby care products, which make up a small part of its sales, doesn’t mesh with its chips, tea and yogurt.
While Schiller, who took on the president and CEO roles of Hain in 2018, didn’t specifically call out any one brand or broader category in his portfolio, he told Wall Street last week that Hain is in “active discussions on a number of things within our portfolio” but that the current economic environment is making it harder for buyers to get financing. “There’s interest in certainly some of the tail brands that we wanted to sell,” he said.
