Hain Set to Compete With Heavyweights

Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Last month Hain Celestial (NASDAQ: HAIN) completed the acquisition of a small raw, organic juice company in New York called BluePrint Juice.  Hain regularly uses the acquisition route in its search for strategic growth, so they know their way around a purchase.  But the BluePrint acquisition places the company in the daunting position of going toe-to-toe in the super-premium juice market with three companies that most wouldn't want to tangle with -- Coca-Cola (NYSE: KO), PepsiCo (NYSE: PEP), and a motivated Campbell Soup Co. (NYSE: CPB).  Can Hain and BluePrint make inroads against these heavy hitters?  Let's get a lay of the land, and then investigate Hain’s approach.

<table> <tbody> <tr> <td> <p><strong>Parent Company</strong></p> </td> <td> <p><strong>Market Cap ($B)</strong></p> </td> <td> <p><strong>Super-Premium Juice Brand</strong></p> </td> <td> <p><strong>Current Annual Revenue of Brand</strong><strong> ($M)</strong></p> </td> <td> <p><strong>Acquisition Details</strong></p> </td> </tr> <tr> <td> <p>Coca-Cola</p> </td> <td> <p>$166</p> </td> <td> <p><span><span>Odwalla</span></span></p> </td> <td> <p><em>$120</em></p> </td> <td> <p>2001, $181M (~2x's annual revenue)</p> </td> </tr> <tr> <td> <p>PepsiCo</p> </td> <td> <p>$110</p> </td> <td> <p>Naked Juice</p> </td> <td> <p>$500</p> </td> <td> <p>2007, $450M (<em>3x's annual revenue</em>)</p> </td> </tr> <tr> <td> <p>Campbell Soup Co.</p> </td> <td> <p>$11.1</p> </td> <td> <p><span><span>Bolthouse</span> Farms</span></p> </td> <td> <p><em>$500</em></p> </td> <td> <p><span>2012, $1,550M (9.5x's <span>EBITDA</span>)</span></p> </td> </tr> <tr> <td> <p><span><span>Hain</span></span></p> </td> <td> <p>$2.5</p> </td> <td> <p><span><span>BluePrint</span></span></p> </td> <td> <p>$20</p> </td> <td> <p>2012, undisclosed</p> </td> </tr> </tbody> </table>


We know the most about the Odwalla acquisition because it was publicly traded at the time.  Naked Juice and Bolthouse Farms were owned by private equity firms and BluePrint was acquired from the company’s co-founders, so the italicized numbers in the tables are estimates.  If we assume that Hain paid ~3x’s  the $20M annual revenue they achieved in 2012, in line with the other acquisitions, we are probably getting reasonably close to the acquisition price.

A Little Friendly Trash Talk

CEO Irwin Simon wasted no time announcing their presence and marking their position in the market as the provider of the only truly healthy juice.  Check out this quote from Simon during the conference call after entering into the letter of intent to make the BluePrint purchase:

"If you come back and look at be it Walla juices or Naked Juices that goes through a pasteurization or Tropicana juices, I mean again, it's not dissimilar to what canned soup is..."

Simon is referring to flash pasteurization in this quote, the method used to kill bacteria by all three competitors.  (And he managed to take a shot at all three competitors in a single sentence.  This may speak to Hain’s operational efficiency, but that’s another blog for another time.)  Flash pasteurization was implemented in this industry largely in response to the Odwalla e. coli outbreak in 1996.  BluePrint, on the other hand, uses High Pressure Pascalization (HPP) to kill bacteria.  This allows them to highlight the “raw” (never heated) characteristic of their product.  

Nature of the Competition

HPP is more expensive than flash pasteurization, though I haven’t been able to find out just how much more.  It turns out that I don’t really need to for this analysis.  Why?  Because BluePrint is not competing on price.  Not even a little bit.  A 15.2 oz. bottle of Naked Juice costs consumers about $3.60.  A 16 oz. bottle of BluePrint juice costs $11.00 or more.  What?!?  (At least that was my reaction.)  Yes, BluePrint is the Gucci of juice.

I don’t think this acquisition is going to be advantageous for Hain for two reasons.  First, I think Hain will largely fail to convince consumers that Naked Juice, Odwalla, Bolthouse Farms juice, and others are selling unhealthy products.  Whole Foods Market (WFM) sells all three of these juices, and consumers trust food from Whole Foods.  This “canned soup” analogy is not going to resonate with grocery shoppers. 

The second reason I think it will struggle is due to the nature of selling such a luxury item.  Hain wants to leverage its much stronger distribution network and bargaining power to grow BluePrint sales.  In this regard Hain is a typical CPG company.  But an $11 bottle of fruit juice with a particularly short shelf life doesn’t fit that model well.  BluePrint is already available in many Whole Foods locations in the northeast, west coast, and Chicago, where such luxuries can sell at a relatively higher volume due to the denser populations (especially of wealthy individuals).  BluePrint also sells in exclusive spas and private workout clubs in these areas.  But I would argue that Hain may be no better-equipped than BluePrint itself to expand sales to these types of establishments throughout the country.

Foolish Bottom Line

Despite my pessimism specific to the BluePrint acquisition prospects, I like Hain's long-term potential.  They are well-positioned as a major player in the growing organic / natural food markets.  BluePrint has reasonably strong sales in the markets where their products are available, but I think Hain will find it extremely difficult to expand ultra-luxury juice sales.

Michael Cash owns shares of Hain Celestial and Whole Foods Market. The Motley Fool recommends Coca-Cola, Hain Celestial, and PepsiCo. The Motley Fool owns shares of Hain Celestial and PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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