Hain Celestial tees up innovation after shrinking SKU count

LAKE SUCCESS, NY — Executives of the Hain Celestial Group, Inc. have made progress in simplifying the company, eliminating nearly 1,000 stock-keeping units since the beginning of fiscal-year 2019, said Mark L. Schiller, president and chief executive officer. Now the company is focusing on innovation again but in a different way.

Take the tea category as an example.

“So innovation was not really a core capability of this organization a few years ago,” Mr. Schiller said Jan. 13 during the ICR Virtual Conference. “Innovation to us was here’s the 37th flavor of Sleepytime Tea, which is not going to be very incremental to the brand or the category.”

Recent tea innovations have been more effective. Hain Celestial has launched tea with melatonin for sleep benefits, tea with probiotics and tea with vitamin C, Mr. Schiller said. A new energy tea has as much caffeine as a cup of coffee and has been 90% incremental to the category, meaning 90% of the buyers did not buy a package of tea in the previous year before the item was launched, Mr. Schiller said.

Mr. Schiller became president and CEO in November 2018 when Hain Celestial had 55 brands.

“So with 55 brands, and us trying to drive growth on all of them, we were a little bit of an inch deep and a mile wide, and we really weren’t doing a terrific job on anything,” he said.

Hain Celestial began eliminating SKUs that lost money or did not have a path to making money. Some smaller brands were sold as well.

“Similarly, we had a lot of smaller brands that really needed to be nurtured in order to reach their potential, and in a company with 55 brands, they just were not going to get nurtured here,” Mr. Schiller said.

Simplification came in other forms, too. One example was the number of sales forces in North America dropping to one from five, Mr. Schiller said.

“We used to ship product from 40 different locations to customers (in North America) because none of the brands that had been acquired had integrated their supply chains, and so customers had to order one product at a time and receive product from multiple different distribution centers, which meant almost all of the trucks that they were receiving just had a couple of pallets of product on it,” he said. “We’ve consolidated from over 40 shipping locations down to primarily three, which allows everybody to consolidate orders, fill up trucks and take trucks off the road, which is great for the environment.”

Simplification has taken hold in Europe as well. Hain Celestial on Jan. 13 announced it had completed the divestiture of its UK fruit business, including the Orchard House Foods Ltd. business and associated brands, to Elaghmore, a UK-based private equity firm. Details of the transaction were not disclosed. Mr. Schiller pointed to the complexity of the fruit business and how its annual sales after COVID-19 hit had fallen to $165 million from $200 million.

“You’re talking about hundreds of people cutting up watermelons and mangoes and sticking them in plastic jars, and then the products basically go stale or rancid in three or four days and have to get thrown out,” he said. “It’s a very different model, very short shelf life, very manual process, and it’s just not core to who we are as a company.”

Progress in Hain Celestial’s transformation was evident in financial results for the first quarter ended Sept. 30, 2020. Net sales of $498.6 million marked a 3% increase from the previous year’s first quarter. Net sales rose 5% when adjusted to exclude the effects of foreign exchange, divestitures and discontinued brands.

Mr. Schiller pointed out sales figures from Information Resources, Inc., a Chicago-based market research firm, and New York-based Nielsen, do not include e-commerce sales.

“So if you go back 10 years ago, people that wanted to eat healthy, they couldn’t find healthy products in the grocery stores,” he said. “You really had to go to Whole Foods or Sprouts or e-commerce to find healthy offerings. So our company kind of started and blossomed in the e-commerce channel well before anybody else realized its potential.”

E-commerce sales now make up about 12% of Hain Celestial sales in North America, he said, adding e-commerce sales have grown by about 75% since COVID-19 struck.

“We know how to win in this channel,” Mr. Schiller said. “We’ve been there a long time. We have deep relationships. We understand what success looks like to the retailer, and frankly, we understand how to market there.

“It’s different marketing in e-commerce than it is marketing in other platforms. You have to understand how to get on the front page. You have to understand how to bundle products together and build basket size. You have to understand which vehicles will be more or less effective, and so we’ve got a head start on everybody else in that regard.”