Hain Celestial Group – Volume Trends’ Impact on Margins
– 27 August 2021
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Specialist:
Title:
Moderator: Nyree Hinton (NH), Third Bridge Sector Analyst
John Latosinszky (JL)
Former VP, Supply Chain & Manufacturing at The Hain Celestial Group Inc
Agenda:
1. Hain’s (NASDAQ: HAIN) portfolio across brands and categories
2. North American grocery market’ supply-and-demand dynamics during coronavirus
3. Suitability of Hain’s divestiture strategy amid high-demand environment
4. Hain's margin sustainability
Contents
Q: What strain has coronavirus put on some CPG players and their ability to meet demand? There have been
shortages, in-demand items flying off the shelves and grocery stores not being able to keep up. What do you
think has caused this?
4
Q: How did Hain’s portfolio change, increase or decrease throughout your time at the firm? What are the
strengths or weaknesses of its portfolio?
5
Q: Why do you think Hain’s portfolio became so large and diverse? Why does the company still seem to have
5
upwards of 50 brands across many categories?
Q: Hain’s portfolio offering products towards health and wellness is very on trend and it seems that the
company was ahead of the game. I’m surprised these brands are struggling given that the categories that they
operate in are growing as a whole. Why do you think those brands were struggling, given that the categories
that they operate in are still on trend and growing?
5
Q: Could you discuss what managing so many different brands does to a supply chain? It seems a logistical
nightmare. What are the complexities from an ingredient and shelf-stable standpoint?
Q: What issues impacted supply during coronavirus that meant the company was unable to meet demand?
How agile was Hain in its ability to meet that demand at short notice?
6
6
Q: Which shortages or pressures that you outlined do you consider controllable from an efficiency
standpoint? There’s been automation from Ocado partnerships with Kroger and its distribution facilities.
How adaptive is Hain technologically? What are your thoughts on the uncontrollable costs that everyone will
6
consider?
Q: How did Hain’s international presence help the company overcome supply challenges? It seems to have a
7
large international presence, given that almost 50% of sales are from outside North America.
Q: How successful do you think Hain’s overall turnaround strategy was? Do you think the right steps are
being taken or are there other opportunities for improvement within the supply chain or around brand
management? The company’s divestiture strategy may have made sense pre-pandemic given it has so many
brands, but do you think this aggressive strategy still makes sense in light of the explosion of grocery
demand, given that all you have to do is contribute to supply and ride the wave of high demand?
Q: It seems Hain is aggressively taking down or selling off brands in a time of high demand. Do you think
this is the right strategy given the company might have achieved growth and profitability by holding onto
these brands for longer and trying to clean them up? It has already let loose many brands and now the
explosion of demand signals a favourable environment. Does the strategy still make sense during
coronavirus?
Q: Could you elaborate on safety protocols and the added pressure they create on the supply chain? How
sustainable are the higher operational costs around PPE [personal protective equipment] and managing
employees who could potentially get sick? Are we over that hump or do you think there are still a lot of
variable moving parts in that part of the supply chain?
Q: What are your thoughts on Hain’s divestiture strategy and its approach to categories as a whole? Do you
think it should exit certain categories altogether, whether it’s personal care or others that are not really as
synergistic to the firm’s overall business model?
Q: Do you think the strategy of becoming a leaner company by getting rid of non-performing brands is
working? Is it improving productivity or reducing costs?
Q: What trends are you noticing from freight and how manageable is this cost?
7
8
8
9
9
9
Q: Could you outline Hain’s channel footprint, expanding on the breakdown between grocery and
foodservice? This is more geared towards grocery, but was or is there opportunity for the company to expand
9
distribution in areas such as foodservice?
Q: What are your thoughts on Hain’s organic growth? What innovation can the company do? It has
historically been interested in buying brands and scaling them.
10
Q: Where did you notice the most margin loss pre-pandemic? Which parts of the business were most
susceptible to spikes in costs or margin loss? Where in the supply chain were higher costs more likely due to
a lack of resources? How was the already volatile environment exacerbated by coronavirus?
10
Q: You mentioned the plant-based demand spike led to issues with textured soy protein supply. How did
that develop during coronavirus? It seems the demand for plant-based products has only increased and
profitability for ingredient suppliers is likely skyrocketing as a result.
Q: Do you think Hain was better-prepared for the pandemic than other suppliers in its e-commerce
capabilities?
10
11
Q: There’s a snacks competitor which distributes using a DSD [differentiated service delivery] model, which
allows it to quickly restock shelves. How does this compare to Hain’s distribution capabilities and its ability
to quickly meet demand?
11
Q: Is there anything you think is commonly overlooked around Hain Celestial or anything about the
company that you think gives it a unique competitive advantage?
11
Hain Celestial Group – Volume Trends’ Impact on
Margins
Transcription begins at 00:00:00 of the recorded material
NH: Welcome to Third Bridge Forum’s Interview entitled Hain Celestial Group – Volume Trends’ Impact on
Margins. I’m Nyree Hinton and I’ll be facilitating today’s Interview with Mr John Latosinzky, former VP of
Supply Chain and Manufacturing at Hain Celestial Group.
John, before we get started with today’s Interview, please state I agree or I disagree to the following statement:
You understand the definition of material non-public information and agree not to disclose any such
information, or any other information which is confidential, during this Interview.
JL: I agree.
NH: Thank you, John. Could you start by giving the audience an introduction of your background and the
various roles that you’ve held in the industry?
JL: I’ve spent about 40 years in consumer goods, food and beverage, working for companies such a Procter &
Gamble, Tim Hortons Bakery, Parmalat Dairy and I worked the last seven years of my career as Vice President
of Manufacturing and Supply Chain for Hain Celestial and the Canadian business where I reported to the
North American office in New York or Lake Success, actually.
[00:01:12]
Q: What strain has coronavirus put on some CPG players and their ability to meet demand? There have been
shortages, in-demand items flying off the shelves and grocery stores not being able to keep up. What do you
think has caused this?
JL: Almost as soon as COVID started and it was within probably weeks of COVID kick-off, which was
probably, what, early mid-March of last year, there was an immediate shift and an increase in grocery demand
across the board. What we attributed that to is the decline of food service and restaurant sales, and a shift to
home grocery purchases, which really, generally speaking, played very well to Hain’s strong suit, which served
the retail grocery market, so big increases in demand, difficult to forecast, different to catch up to. It was, I
think, an industry-wide situation. For instance, very much what we’re used to is retailers penalising us as a
supplier for not being able to achieve target service levels and they lifted those kinds of penalties immediately
because they recognised that that was across the board that there were very large increases. Initially too, there
was also speculation around potentially serious levels of stock-out, so I think that from a consumer behaviour
point of view, there was some pantry loading early on where people were stocking up on food and any home
products. If you recall, there were issues with toilet paper availability. That applied to a lot of the Hain brands
as well where people were buying shelf-stable products and storing them in their pantry because there were
long-term concerns around ability to sustain supply through the COVID issues and the uncertainty looking
forward, so very much a shift in that direction. The product categories that Hain made that went to food
service customers saw the opposite reaction. Food service basically dropped off to almost nothing, but this was
more than made up for by the grocery side of things where we saw a very strong volume growth.
Private and confidential 4
[00:04:05]
Q: How did Hain’s portfolio change, increase or decrease throughout your time at the firm? What are the
strengths or weaknesses of its portfolio?
JL: When there was the change in leadership, Mark Schiller was brought, there was an activist investor, whose
name escapes me, that came in, there was a very clear and I think well-articulated strategy to generate some
focus in the business. The general consensus, and I think it was broadly felt by the people that were in the
business, is there were too many brands, too much fragmentation, a lot of low-margin products, some
commodity-based products and the direction that came in under the new leaderships was very clear. “We want
to make it a more focused business and we’re going to divest unprofitable brands, unprofitable SKUs and get
out of those businesses.” What was spoken to the street, which was genuinely the strategy, was that we would
sacrifice some top-line sales in favour of focusing on fewer brands, fewer SKUs that had higher margin
contribution. Top-line sales was projected to decline, and it has, in favour of increasing margins, so there was
a fairly exhaustive SKU and brand rationalisation project, the divestiture of many brands such as Tilda,
Europe’s Best in Canada, some secondary personal care brands, as well a large number of brands that were
just taken out of the portfolio and sold off where a buyer was found. I think from that came an immediate
simplification of the business, and that allowed a lot of operational efficiencies to be created by taking out
some costs to take advantage of the simplification and that was basically the strategy, or one of the key
elements of the strategy was to simplify, focus on growth categories, brands with good contribution margin.
[00:06:49]
Q: Why do you think Hain’s portfolio became so large and diverse? Why does the company still seem to have
upwards of 50 brands across many categories?
JL: Historically, the business was started, I think it was 1992, Irwin Simon. The strategy was articulated as a
blend of acquisition and organic growth, so a smaller brand may be acquired, integrated into the Hain
portfolio, and by virtue of the fact that Hain had more sales and marketing support from the small brands, the
intent was to see those businesses grow and invest that sales and marketing support, and make those
businesses happen. I think the track record on that was a little bit mixed. Some of them did extremely well. It
hit a brand in the right product category that was turned into gold very quickly, saw some good growth in
sales, generated some cost efficiencies. There were also a bunch of brands that came in and quite frankly didn’t
get the attention, and particularly, I think, in the later years, just because of the number of product categories
and brands, the effort was so diluted that the brands didn’t get the focus that they needed to really see that
kind of growth, and some acquisitions, I think, that quite frankly seemed to be difficult to understand. The
Tilda acquisition seemed like a very unusual acquisition. It was very substantial in size. It was a large dollar
investment and quite frankly, rice is largely a commodity business, with the exception of some of the retort
pouch products, so I think that constant churn probably made some of the financials difficult to interpret, but
it became the modus operandi of the business. I think the change in leadership and direction of the business
was a bit of a course correction to start focusing on profitable growth and not just, any kind of growth will do.
[00:09:39]
Q: Hain’s portfolio offering products towards health and wellness is very on trend and it seems that the
company was ahead of the game. I’m surprised these brands are struggling given that the categories that they
operate in are growing as a whole. Why do you think those brands were struggling, given that the categories
that they operate in are still on trend and growing?
JL: Again, I think prior to the current regime, and I guess there are different degrees of complexity. Certainly
pre-the Mark Schiller era, the business was significantly more complicated. It’s still complicated, but a lot less
complicated than it used to be. In the so-called old days, I really think that the businesses did not get enough
R&D marketing sales focus and only the top brands that drove the largest sales with the largest customers got
Private and confidential 5
the attention they needed, and some of the secondary brands that were good opportunities to see substantial
growth probably didn’t get the attention they needed. I think there is a certain degree of focus that’s improved
and I would expect that with that improving focus, you’d see more growth and certainly more contribution
margin.
[00:11:31]
Q: Could you discuss what managing so many different brands does to a supply chain? It seems a logistical
nightmare. What are the complexities from an ingredient and shelf-stable standpoint?
JL: Certainly there are multiple channels to deal with. The largest part of the business is dry, but there are
some refrigerated and previously, some frozen products in the category as well, so you’ve got multi-channels of
distribution in terms of temperature chain anyway certainly. Historically as well too, again, and I’ll speak
about the old days, is the business was run centrally from a marketing and sales point of view, but the supply
chain was very fragmented and there wasn’t a lot of integration. I think, again, during the Mark Schiller era
and Jerry Wolfe was brought in as the Chief Supply Chain Officer, they took much more of a centralised
approach to warehouse distribution, demand forecasting, purchasing and all those types of things. By
centralising a lot of those functions, I think they drew a lot of standardised practices, probably some more
holistic approaches in terms of purchasing on a business-wide basis rather than on a plant-to-plant basis, and
that drove some good efficiencies and cost savings as well.
[00:13:12]
Q: What issues impacted supply during coronavirus that meant the company was unable to meet demand?
How agile was Hain in its ability to meet that demand at short notice?
JL: I would say somewhat agile. I think they suffered the way many manufacturers did. One of the things that
worked out really well is their Canadian personal care plants able to make hand sanitisers. Hand sanitiser was
going through the roof, so they could make and sell hand sanitiser as long as they could get the raw materials
to supply, and until there were supply issues with ethanol alcohol that impacted all of the sanitiser business, so
they had some opportunities there. Generally, a lot of the plants had some available capacity and they were
able to run extra hours, add shifts, work overtime to produce products. The downside that they came up with
was, similar to a lot of companies, if you had a COVID infection during the pandemic, you might lose a shift or
two in the plant because of infection and that affects your capacity. I think the struggled the way a lot of
manufacturers did, but by and large, I would say there were relatively few plants in their network that didn’t
have available capacity to flex up to this too much of the demand. Having said that, there’s also a large portion
of the business that was co-manufactured. Some of the Dream and Imagine brands, for instance, and capacity
at co-manufacturers where they didn’t fully own the supply chain did become a challenge. I guess the third
part of it is, as part of the reopening and the situation that we’ve been getting into in the last probably 3-6
months, I know that there are issues everywhere with material supply on corrugate fibreboard, plastic
materials, additional cost with ocean freight and a lot of inflationary effects that are both related to capacity,
transport, labour, some of those drivers. I’m not sure if I got into a tangent there or took you to some place you
didn’t want to go there.
[00:15:59]
Q: Which shortages or pressures that you outlined do you consider controllable from an efficiency standpoint?
There’s been automation from Ocado partnerships with Kroger and its distribution facilities. How adaptive is
Hain technologically? What are your thoughts on the uncontrollable costs that everyone will consider?
Private and confidential 6
JL: I think there are some controllable ones. I know that they consolidated two of their snack manufacturing
plants on the East Coast and there were some trans issues with that. I’m not fully aware of all the extent, but I
understand they’ve had some issues with that transition that may have impacted supply and that’s fully
controllable, I would say, or largely controllable, with the exception of some of the COVID factors. The
demand management, supply management piece, it’s arguable as to whether or not that’s controllable. I’m not
sure anybody knows how to model or forecast demand in a pandemic environment. I think they’ve got some
really good people to do that work, but being able to predict how quickly the return to normal is and how that
affects demand for the grocery chain is difficult to do. The ocean freight, the capacity issues, the resin issues, I
think there are universal issues that everybody’s dealing with equally and I think the main thing that might
stand in Hain’s favour on those is I know as they went through some of their material sourcing exercises over
the last two years, they contracted with supply. Having contracted suppliers with corrugate glass, plastic and
those type of things, they’re probably higher on the allocation chain to get supply, as opposed to smaller
customers that might be working on a purchase-order-to-purchase-order basis vs having a longer-term
contract with some obligation for supply, so they probably have some advantage in that area.
[00:18:41]
Q: How did Hain’s international presence help the company overcome supply challenges? It seems to have a
large international presence, given that almost 50% of sales are from outside North America.
JL: To be honest, I have limited exposure to the international business, so I can’t speak too much about that. I
did have a couple of trips to the UK to look at some of the Yves Veggie Cuisine and Linda McCartney brand
synergies, but I have not had too much exposure to the international business through COVID, as well as any
of their non-dairy beverage on the continent as well, so I can’t speak too much to those.
[00:19:45]
Q: How successful do you think Hain’s overall turnaround strategy was? Do you think the right steps are being
taken or are there other opportunities for improvement within the supply chain or around brand
management? The company’s divestiture strategy may have made sense pre-pandemic given it has so many
brands, but do you think this aggressive strategy still makes sense in light of the explosion of grocery demand,
given that all you have to do is contribute to supply and ride the wave of high demand?
JL: There were a few questions there. As far as the strategy applying to the brands goes, I still think there’s
room for some divestiture. I know some of the brands, for co-manufactured brands, my personal belief is that
if you’re going to compete in a category, there has to be some serious margin in it if you’re going to have
someone else control your supply chain. For soups, for instance, they co-manufacture the brands and it’s a
commodity category, so I’m not sure that they can be truly competitive on Imagine soup, for instance, the
same way they were with a Dream non-dairy beverage if they don’t control the manufacturing. Some of those
co-manufactured brands, I think unless they have inherently really good margin and growth opportunities, I
don’t think they could go compete with those and I think there’s room for more rationalisation, and I suspect
they would probably rationalise if they could find the right buyer, is my suspicion, so I think there’s more
room on the brand side to rationalise, is my opinion. Other things they could have done, certainly from an
ERP system point of view, they’re still very week. They don’t have a standardised platform across the entire
business, where all the financial reporting, MRP-type systems are all resonant together, and give you
consistent and standardised cost reporting by plant, brand, distribution centre, business unit, all those kinds
of things, so I think their financial reporting definitely needs a lot of work, and I’m not sure I answered all the
elements of your question. You asked about opportunities for more brand rationalisation, more supply chain-
type activities. Any other categories?
Private and confidential 7
[00:22:51]
Q: It seems Hain is aggressively taking down or selling off brands in a time of high demand. Do you think this
is the right strategy given the company might have achieved growth and profitability by holding onto these
brands for longer and trying to clean them up? It has already let loose many brands and now the explosion of
demand signals a favourable environment. Does the strategy still make sense during coronavirus?
JL: Again, the way Mark Schiller has positioned this before is, “We’re going compromise top-line sales to
focus on bottom-line profit, is what we’re going to focus on.” They’ve been telling the streets that, “Sales are
going to decline so that we can generate more margin, because we’re going to simplify the business and focus
on our brands that make the most money and have the most potential for growth.” I still believe there are
some products and brands in there where there are not huge growth opportunities, they don’t have clear
competitive benefits and they’re in categories that are just not large-growth or large-margin brands, so I think
there’s still some room for some rationalisation there. That’s my belief.
[00:24:34]
Q: Could you elaborate on safety protocols and the added pressure they create on the supply chain? How
sustainable are the higher operational costs around PPE [personal protective equipment] and managing
employees who could potentially get sick? Are we over that hump or do you think there are still a lot of
variable moving parts in that part of the supply chain?
JL: I think we’re over the worst of it just by virtue of the fact that vaccine levels are improving. There are still
concerns about anti-vaxxers and the wave for viruses, so I think that’s a wait-to-see, but my personal opinion
is, over the last year, having to work in a zero-vaccination environment with the virus, albeit a less-contagious
virus than what we’re dealing with right now, I still feel like we should be in a better place overall. I don’t think
it’ll be a zero impact. I think it’ll be a much reduced impact. That’s my belief, so I think we’re slowly clawing
our way out of this, but all of the COVID-related factors directly related to manufacturing plants and suppliers,
my opinion would be, it feels like in the order of 6-9 months of slow improvement to grind out of that, is what
I believe, but I’m sure you should be asking me that or if you should be talking to Dr Fauci about that. That’s
hard to read, but I do believe they’re taking all the proper steps to manage those things because it’s in the best
interest of the business and the best interest of the employees.
NH: At what point could the supply chain and manufacturing parts of the business ask for these costs to be
passed onto customers through price increases? What are your thoughts on Hain’s willingness to do this?
JL: I understand historically, our ability to pass on price increases has been very difficult. Many of our
suppliers, if you go to them with a price increase, you have to give them the whole storybook on, “What’s your
justification for the increase?” because they have their own buying groups that are doing their private label
products, and they’re very familiar with the price of corrugate, and glass and plastic, and all of the
commodities and ingredients that you might source from all over the world. You have to build a story to justify
those increases, and even so, they squeeze you on every penny that you charge them for. I think in the current
environment where inflationary factors like freight and manufacturing capacity, and people and allocations, I
was talking to a buyer today and they were talking about increases in plastic, or corrugate by 30% and plastic
resin by 50%, some outrageous cost increases. Ocean freight out of China, I’ve been doing some pricing on
that, is probably 300% of what it was 18 months ago. I think in this environment where I think it’s becoming
increasingly well-known that there are so many costs that are either directly or indirectly related to COVID, I
think retailers are in a position where they don’t have a choice. They recognise that these costs are real, not
fictitious, and even though I’m sure they’re pushing back and trying to mitigate them, I think those price
increases are going good, and I have had an indication that those price increases are coming through to a
degree.
Private and confidential 8
[00:29:06]
Q: What are your thoughts on Hain’s divestiture strategy and its approach to categories as a whole? Do you
think it should exit certain categories altogether, whether it’s personal care or others that are not really as
synergistic to the firm’s overall business model?
JL: The key categories, I think snacks certainly are. The better-for-you snacks with the Terra and the sensible
portions in particular, they’re growing YoY and they’re making money on them. The personal care is doing
very well as well. Celestial Tea is making good money. The pantry business, which is a little bit of a hodge
podge of a whole bunch of brands, is a mixed question and I think there’s room for either some innovation to
bring those categories back to life or some divestitures, and it’s probably not one or the other. It’s probably a
combination of the two.
[00:30:12]
Q: Do you think the strategy of becoming a leaner company by getting rid of non-performing brands is
working? Is it improving productivity or reducing costs?
JL: I think it’s definitely turning into real productivity. Again, I think I referred to it early, I know there was a
whole bunch of focus put on material sourcing and looking. Coming out of the supply chain team for North
America where historically, each plant did its individual purchasing, they started consolidating buys across
plants and looking to get network purchases of corrugate glass, plastic fibreboard, labels, you name it, so there
were real savings that came out of some of those material sourcing studies. There was work done on
distribution network design, where the warehouses were located, what the shipping points and consolidation
points were, and there were real savings that came out of those types of things. I know there was work in terms
of consolidating plants that generated some real savings, maybe some transitional bumps on the road that
might have hurt, but I expect those will turn into real savings by consolidating sites. I believe there were real
cost savings in the middle of the P&L to drive some bottom-line profit and I think those are playing through
now. I think there’s certainly more that can be done. I mentioned before, their ERP system is not fully
integrated. I think that’s a gap that needs to be addressed and I believe that’s on the books as a project they’re
working. I don’t know what their implementation time lines are currently.
[00:32:09]
Q: What trends are you noticing from freight and how manageable is this cost?
JL: I would say it’s not terribly manageable in this environment. Certainly anything coming from overseas, we
have probably limited ability to impact those costs because there’s an entire capacity situation that’s being
dealt with and there’s no getting around that. Some of the over-the-road freight is increasing, but not been
impacted nearly as much against the capacity issues there. I think that’s all part of the cost picture that needs
to be pushed through in terms of price increases.
[00:33:12]
Q: Could you outline Hain’s channel footprint, expanding on the breakdown between grocery and foodservice?
This is more geared towards grocery, but was or is there opportunity for the company to expand distribution in
areas such as foodservice?
JL: It depends on the category. I know the personal care plants, for instance, produce some private label
products, and some of those were very profitable and some of those were inconvenient complexities, so I think
there’s been a lot of rationalisation that went on the personal care side of things on the private label business. I
Private and confidential 9
was involved in the Yves Veggie Cuisine business and certainly there were food service products that were
produced there as well. Some of those were quite nice businesses actually, but those have declined and are
certain to bounce back now. I believe a few of the plants do some private label business, but it’s few and far
between. There’s much more focus on the branded business these days, certainly in the US plant network.
[00:34:37]
Q: What are your thoughts on Hain’s organic growth? What innovation can the company do? It has
historically been interested in buying brands and scaling them.
JL: I know that was, again, a big focus point. I know they brought some new leadership into the R&D
department probably about two years ago, and when I left the company, they were just getting their feet on the
floor in terms of introducing new product, some flankers. Focus, I think, initially was mostly on the snack
business because that’s a business that was growing very well anyway and they had launched a few products,
some work in the personal care area in terms of some product innovations, so I know it’s an area of focus. I
don’t have a good sense for how effective they’ve been because, again, I was just leaving the company as the
reorganisation was starting to take place.
[00:35:56]
Q: Where did you notice the most margin loss pre-pandemic? Which parts of the business were most
susceptible to spikes in costs or margin loss? Where in the supply chain were higher costs more likely due to a
lack of resources? How was the already volatile environment exacerbated by coronavirus?
JL: I’m not sure. There might be some ingredient-specific categories where we would run into issues. Here are
a couple that come to mind. Co-manufacturing about a year-and-a-half ago on the aseptic packaging became
an issue North American-wide, so there were price increases coming from co-manufacturers that significantly
impacted some of the brands like Imagine soup, Dream at the time before divestiture. That was an issue that
came up, so capacity from co-manufacturing with specific technologies. The meat-free or plant-based wave
had a huge impact on the demand for texturised soy protein, which is a key ingredient that went into Yves and
Linda McCartney, for instance. That became an issue because there was a global capacity issue on the
availability of textured soy protein, so that was a major issue. Those are a couple of the major issues that come
to mind pre-COVID. Other than that, it seems like normal business noise. You see the price of oil going up to
USD 140, which impacts all your fuel and freight costs, which is very insidious across the cost structure
because it touches everything a little bit, but not one thing a lot, but it’s very insidious in aggregate and
significant in aggregate. Corrugate, some of those types of materials might have a cyclical nature to them, I
guess, as well as plastics. Plastics would be tied to the oil price as well too. The two larger ones that impacted
me directly because I was involved with them were co-manufacturing capacity for aseptic products and
textured soy protein. The other ones, I think, are more cyclical business issues that are just standard part of
business.
[00:39:33]
Q: You mentioned the plant-based demand spike led to issues with textured soy protein supply. How did that
develop during coronavirus? It seems the demand for plant-based products has only increased and
profitability for ingredient suppliers is likely skyrocketing as a result.
JL: Textured soy protein is a good example. I think the issues in terms of supply, the way I see them now are,
again, I know there are issues with just manufacturing getting back into business in a post-COVID
environment. A lot of corrugate plants, whether they’re converting corrugate or forming corrugate, are having
trouble getting people back to work. They’re not at full capacity from a supply point of view, and that’s
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impacting the supply of corrugate and fibreboard, and probably some plastics products as well, so I think
there’s a labour issue that’s impacting manufacturing capacity in general, and hopefully, as some of the
government support programmes start evaporating, those return-to-works, and COVID is more under control,
those will start to fade away. The other thing from a supply point of view is just the whole ocean freight. Again,
anything that’s coming from overseas, particularly China, but actually, that’s not true, anything that goes on a
boat, it can be a bit of a challenge, so there’s a little bit of hand to mouth in inventory planning and prioritising
that’s going on in some of those materials.
[00:41:41]
Q: Do you think Hain was better-prepared for the pandemic than other suppliers in its e-commerce
capabilities?
JL: I don’t even know what to say about that. To be honest, again, during my time there, we weren’t terribly
well set up with e-commerce other than using Amazon to list a few products. There wasn’t too much e-
commerce going on, and I wasn’t there through the whole COVID fight and I’ve heard very little about e-
commerce efforts specifically. I think they were so preoccupied, my sense is that they were so preoccupied with
keeping grocery in stock that support of e-commerce maybe did not get the attention it needed. Sorry, there’s a
little bit of speculation on that because I haven’t been as directly involved with that and I’ve heard very little
commentary about that.
[00:42:51]
Q: There’s a snacks competitor which distributes using a DSD [differentiated service delivery] model, which
allows it to quickly restock shelves. How does this compare to Hain’s distribution capabilities and its ability to
quickly meet demand?
JL: I believe that Frito-Lay has a DSD model where they actually have trucks that are going into stores, and
stocking shelves and those kind of things. To my knowledge, Hain did not have any of those things, again,
unless they sub-contracted that out regionally, so my understanding is they’re doing entirely a warehouse
business. I’m talking about the snacks distribution. I think you’re trying to ask me about responsiveness to
COVID changes and I’m not sure I’m getting exactly what you’re looking for.
NH: That’s exactly it actually.
JL: On the snack front, as far as I know, they’re still going direct to warehouse and the warehouses, whether
it’s Kroger or Walmart or Costco, whoever it is, it’s all going through their DCs.
[00:44:52]
Q: Is there anything you think is commonly overlooked around Hain Celestial or anything about the company
that you think gives it a unique competitive advantage?
JL: I don’t think so. I’ll give Mark Schiller credit. He says what he’s doing and he does what he says, so I think
they’ve done a good job of that. Again, some of the product categories that they worked in like snacks and
personal care, I think they do a very good job with. Some of the pantry products that are a little bit more
fragmented are just that, fragmented, maybe don’t get the focus, and perhaps, as I mentioned before, there are
some categories there that are probably a little bit sleepy and difficult to build, I guess, in terms of a healthier-
for-you or innovation platform, so I think some of the secondary brands are struggling a little bit. I think
Celestial Tea is a nice little niche brand, but they haven’t really identified a strong growth strategy or
marketing position to support its growth, so I think there are some brands that are struggling. I think there are
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some brands that are doing very well. I think the company is doing a good job of driving out cost and reducing
overhead, but probably, again, some brands struggling with an identity and a path forward to grow.
[00:46:50]
NH: Thank you, John, We will now end the Interview. Let me close by saying thank you for your time today
and thank you clients for joining Third Bridge Forum’s Interview. Have a good weekend. If any clients would
like to arrange a private meeting or consultation, please contact your relationship managers.
JL: Thanks very much. Take care.
Transcription ends at 00:47:02 of the recorded material
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