Hain Food Group, Inc. History

Company History:

Hain Food Group, Inc. markets and distributes about 550 branded natural food products and is a leader in many of the top 15 natural food products, a category consisting of foods that are minimally processed, mostly or completely free of artificial ingredients, preservatives, and other nonnaturally-occurring chemicals, and are as near to their whole natural state as possible. It also markets and distributes a full line of sugar-free and low-sodium products, kosher frozen foods, and snack foods, and manufactures, markets, and sells under license about 60 Weight Watchers dry and refrigerated products.

Hain Pure Food Co.: 1926-94

Hain Pure Food Co. was founded in 1926 in Stockton, California, by Harold Hain, who began by marketing carrot juice. A Hollywood line, chiefly of vegetable cooking oils, was added in 1955. With the introduction of Hain Yogurt Chips in the early 1970s, Hain began developing diet and health snacks. By 1983 the company, which was acquired by Ogden Corp. in 1981, was offering more than 300 natural and health food items. Most of these were manufactured in its own Los Angeles facility, where it also maintained its headquarters, and the majority of the products carried the Hain name.

Hain's product development was based on good taste, as determined by consumer panels, without adding sugar or any artificial ingredients. Many of the nearly 40 snack items were low in sodium or contained no salt. A line of kosher foods was produced as well. The company's products were found in supermarkets, health food stores, and specialty shops throughout the United States and abroad in countries such as Austria, England, Germany, and Japan.

Ogden sold its food products subsidiary, which included Hain Pure Food Co., in 1986. The purchaser was IC Industries Inc., which assigned the acquired companies to its Pet, Inc. specialty foods subsidiary. But in 1991 the former IC Industries, which had become Whitman Corp., spun off Pet, which became an independent company. Hain was one of the marginal food operations that Pet shed in 1993 to focus on its core businesses. The buyer, in April 1994, was Kineret Acquisition Corp., a specialty foods company based in Jericho, New York, that paid $22 million in cash and stock for the operation. At this time Hain was marketing more than 160 natural food products, including the Hollywood line of specialty cooking oils, carrot juice, mayonnaise, and margarine, and had sales of about $50 million a year.

Simon's Food Acquisitions: 1992-93

Kineret was a kosher food company recently acquired by Irwin Simon. The son of a Canadian grocer, Simon became a product manager for a Toronto food conglomerate before moving to New York City in the mid-1980s at the age of 25 to work for Pillsbury Co. on projects such as developing Haagen-Dazs ice cream outlets. In 1991 he moved to Slim-Fast Foods Co. as vice-president of sales and marketing. When his contract expired a year and a half later, Simon decided he "couldn't take the idea of working at another corporation."

Instead, Simon went into business for himself with a grubstake of $500,000, in part derived from his savings and a second mortgage on his apartment. His objective was to buy specialty food companies that were mismanaged or not realizing their potential, including those selling natural, low-fat, or ethnic foods. "The traditional food business is flat," he told an interviewer in 1995, "but specialty foods are growing in double digits. And the categories are still too small for the big guys like ConAgra, Kraft, and Pillsbury, so we don't have to compete against them. ... I didn't want to invest in brick and mortar, so we get contract manufacturing and focus on management and marketing." His company originally was named 21st Century Food Products.

Simon used his savings in March 1993 to buy California Slim, a struggling diet drink and diet-powder competitor of Slim-Fast, for $50,000 and a seven-year royalty agreement. His next step, two months later, was to purchase Kineret, a $4 million-a-year manufacturer of kosher frozen foods, for $2 million. Simon then incorporated under the name Kineret Acquisition Corp. In August 1993 Kineret acquired from Tree Tavern, Inc., for $300,000 and stock, a frozen soy-based pizza product line marketed under the Pizsoy name. Three months later Simon's company purchased Barricini Foods Inc., a firm producing nondairy frozen Ice Bean desserts and frozen organic products combining pita bread with grains and vegetables under the Pita Classics name. These products also were marketed under the Farm Foods name. Kineret paid $195,000 plus stock for the acquisition.

To pay for these acquisitions, Simon took Kineret public, raising $4 million in November 1993 by selling 48 percent of the company's common stock at $3.25 a share, plus warrants. To underwrite the offering, however, he had to turn to Lew Liberbaum & Co., a firm with a history of securities regulations violations that took 30 cents on the dollar as its commission. Simon recalled, "After I paid lawyers, underwriters and everyone else [including the sellers of Kineret], I probably had enough money to pay for a taxi home."

Adding Hain and Other Companies: 1994-97

The Hain acquisition, purchased with debt financing from Argosy Group LP, "made us a major player in the natural-food industry," Simon said. "It allowed me to hire a different level of people, and from a company standpoint, it allowed me to be able to participate in certain advertising and promotions and upgrade systems." A Super Bowl promotion of merchandising kits, supported by radio spots and full-page trade ads, was designed to increase male patronage for Hain products, for which three quarters of the customer base consisted of college-educated women between the ages of 25 and 49.

About 40 percent of Hain's sales was coming from all-natural rice cakes. Simon repackaged the line in brightly colored, resealable cardboard cartons, introduced rice cake snack bars, and marketed Mini Munchies, a new line of bite-size rice cakes in several flavors, including "strawberry cheesecake." Although Quaker Oats dominated this market, Simon did not let the food giant faze him. "People always ask me, 'Doesn't Quaker frighten you?"' he told a Forbes reporter in 1996. "But every time I see Quaker ads on TV I just shout, 'Yeah!' They're growing the category."

Simon moved his company to Uniondale in August 1994 and changed its name to Hain Food Group four months later. In fiscal 1994 (the year ended June 30, 1994), the company reported a loss of $502,000 on sales of $15 million. But it also came up with 24 new products to market. With the completion of the Hain acquisition, revenues rose to $58.1 million in fiscal 1995. The company moved into the black that year, with $2.4 million in net income. Hain raised $7.6 million in 1994 from the conversion of warrants to common stock in connection with the company's initial public offering. The funds were used to retire a $7.9 million loan.

In late 1995 Hain Food Group purchased Estee Corp., a deficit-ridden producer of sugar-free and low-sodium products for persons on medically directed diets, including diabetics, and other health-conscious consumers, for $11.3 million. Simon immediately closed the company's New Jersey plant, dismissing 180 employees and contracting production to a Canadian firm. Hain's acquisitions continued in 1996, when Simon purchased Growing Healthy Inc., a fledgling baby food company, and Harry's Premium Snacks, a potato chip and pretzel maker.

During fiscal 1996 the company had revenues of $68.6 million and earnings of $2.1 million, and it upped the number of its food products to 250. Simon was running a very lean operation, with only 43 employees, by farming out manufacturing and distribution. Nevertheless, when sales declined to $65.4 million in fiscal 1997, a drop that was attributed in large part to a $10.5 million sales fall-off for Hain's rice cakes, net income fell to $1.1 million. That year the company marketed 71 new products.

In March 1997 Hain reached an agreement to manufacture, market, and sell soups, snacks, and other food products of Weight Watchers Gourmet Food Co., a subsidiary of H.J. Heinz Co., with the products to continue to be sold under the Weight Watchers name. These 60-odd products were the dry and refrigerated goods that had generated only $17 million in sales for Weight Watchers in 1996 but at one time had done $100 million a year in business before becoming "lost within the Heinz infrastructure," according to Simon. Under the five-year agreement, Weight Watchers would receive royalties and a share of the profits. This transaction made Hain, according to one of its executives, the nation's leading marketer of foods sold to dieters and other consumers with special medical needs. Hain repackaged the line to connect it more closely to Weight Watchers "1-2-3 Success" theme and added 30 new products.

Hain Food Group's next major acquisition, in October 1997, was that of Westbrae Natural, Inc., a California-based company with sales of nearly $38 million the previous year, for $23.5 million in cash. Westbrae's leading product was soy milk. The purchase allowed Hain to strengthen its presence in natural food stores, where Westbrae averaged 250 to 300 stockkeeping units (SKUs). Following the transaction, Hain's product line reached 1,000 SKUs spanning 13 brand lines. Other 1997 acquisitions included Alba Foods, a Heinz line of dry milk products, and Boston Popcorn Co., a snack food firm. Having sold the manufacturing facilities of its acquisitions, Hain now was dealing with a network of 95 co-packers. Simon was named 1997 Entrepreneur of the Year by Ernst & Young and one of Business Week's Best Entrepreneurs of the Year.

Hain Food Group in 1998

In April 1998 Hain Food Group announced that it had agreed to acquire four closely held natural foods businesses for $60 million, plus the assumption of about $20 million in debt, from Shansby Group, a San Francisco investment company, and other owners. These firms were Arrowhead Mills Inc., DeBoles Nutritional Foods Inc., Dana Alexander Inc., and Garden of Eatin' Inc. The acquisition was completed in July. In June of that year Hain contracted to handle sales and distribution of Heinz's Earth Best organic baby foods to natural food stores and to develop new products under the Earth's Best label.

By this time Simon, who had a five-year plan to increase company sales to $500 million by 2002, was paying more attention to promoting Hain Food Group products among consumers rather than merely distributors and retailers. The company had become involved in a number of promotional campaigns, including ones involving Weight Watchers, the American Diabetic Association, schools, and several cancer groups. "As we move into the 21st century," he told a reporter, "there is more awareness about nutrition and healthy foods. ... We see the market (for better-for-you foods) growing drastically." Accordingly, Hain, in the latter half of 1998, introduced Chicken Broth and Noodles with Echinacea, Country Vegetable with Echinacea, Creamy Split Pea with St. John's Wort, and Chunky Tomato with St. John's Wort. These products were described on their labels as "herbal supplements," rather than soup, probably because dietary supplements were subject to less government regulation than were foods.

Hain Food Group made a new public offering of 2.5 million shares of common stock at $9 a share in December 1997. The proceeds of about $21 million were used to pay down debt, which was $16.6 million in mid-1998. In large part because of the Westbrae acquisition, net sales rose to $104.3 million in fiscal 1998. Net income increased to a record $3.3 million, inspiring the price of the stock to rise as high as $28.625 a share in the summer of 1998.

One of the company's supporters was billionaire George Soros, whose Soros Fund Management bought a 16 percent stake in early 1997 and still owned nearly ten percent in October 1998. White Rock, a Texas corporation and limited partnership, owned 20.1 percent. Simon held 10.7 percent of the shares.

In addition to its Hain and Westbrae lines of natural food products, Hain Food Group's products, in mid-1998, consisted of the Hollywood Foods line, the Estee and Featherweight lines of sugar-free and low-sodium products, kosher frozen foods under the Kineret and Kosherific labels, the licensed Weight Watchers products, and about 40 snack food items under the Boston Popcorn and Harry's Original names. The additions from the July 1998 acquisitions consisted of 360 ready-to-eat grains, nut butters, and nutritional oils produced by Arrowhead Mills and DeBoles, about 48 natural food vegetable chip items by Terra Chips, and a variety of tortilla chip products from Garden of Eatin'. Nondairy drinks accounted for about 19 percent of Hain's fiscal 1998 net sales.

All of Hain Food Group's products was being manufactured by nonaffiliated co-packers in mid-1998. With the July 1998 acquisitions, the company inherited a Brooklyn facility for making Terra Chips as well as plants in Hereford, Texas and Shreveport, Louisiana, for Arrowhead Mills and DeBoles products. The long-term future for these facilities was uncertain. In addition to leasing corporate headquarters in Uniondale, Hain was leasing warehouse and office space for its West Coast distribution in Compton, California, a smaller warehouse and distribution center in East Hills, New York, for its kosher products, and a small Boston Popcorn warehouse and distribution center in Foxboro, Massachusetts. The majority of Hain's products was being marketed and sold through independent distributors.

Principal Subsidiaries: Arrowhead Mills, Inc. and subsidiaries; Hain Pure Food Co., Inc.; Kineret Foods Corp.; Westbrae Natural, Inc. and subsidiaries.

Principal Divisions: Grocery/Mass Market; Natural Foods; Snack Foods.

Further Reading:

• Ain, Stewart, "A Dynamo in the Food Marketing Arena," New York Times, April 12, 1998, Sec. 14 (Long Island Weekly), p. 2.
• Anderson, Duncan Maxwell, "Free At Last," Success, July/August 1995, p. 14.
• Davids, Meryl, "Healthy Harvest," Chief Executive, May 1998, p. 25.
• Dwyer, Steve, "Hain's 'Natural' High," Prepared Foods, April 1998, pp. 12-13, 15-16.
• "Hain Food Seals 4-Store Acquisition," Newsday, July 2, 1998, p. A60.
• "Quality and Taste Spur Hain Snack Line Growth," Snack Food, March 1983, pp. 20-22.
• Siklos, Richard, "Real Men Do Eat Niche," Financial Post, October 16, 1997, p. 12.
• Studnick, Alison, "Ricequake," Food & Beverage Marketing, January 1995, pp. 26-27.
• Sugarman, Carole, "Magic Bullets," Washington Post, October 21, 1998, p. E1 and continuation.
• Tascarella, Patty, "Heinz Puts on a New Baby Face," Pittsburgh Business Times, June 5, 1998, p. 1.
• Waters, Jennifer, "Growing Healthy Leftovers for Sale," Minneapolis-St. Paul CityBusiness, May 3, 1996, p. 1.
• Woods, Bob, "Healthy Appetite," Food & Beverage Marketing, May 1998, p. 8.
• Wooley, Scott, "The Slipstream Strategy," Forbes, October 7, 1996, pp. 78, 80.

Source: International Directory of Company Histories, Vol. 27. St. James Press, 1999.