Natural Foods Merchandiser

Hain Heads for Personal Care Aisle With Jason Deal

The Hain Celestial Group entered into the personal care business June 3 with the purchase of Jason Natural Cosmetics Inc.

Terms of the sale were not disclosed. Jason posted about $30 million in revenue last year, including overseas and private-label business, according to its former chairman, Jeffrey Light, who bought the 45-year-old cosmetics company from its founders in 1976.

Jason?s 105,000-square-foot plant in Culver City, Calif., will become headquarters of the new Hain Whole Body Care Division. Andy Jacobson, former general manager of Hain?s nondairy division, will manage the body care division, while Light will report to him as vice president of acquisitions and new product development.

?They?re going to roll up body care,? predicted Gregory Badishkanian, who covers Hain for Citigroup Smith Barney.

That?s exactly what?s happening, according to Hain President and Chief Executive Officer Irwin Simon. ?It?s no different than the food business was 10 years ago. The personal care category is extremely fragmented.?

It?s also fast-growing. For the 52 weeks ending Feb. 21, 2004, natural body care sales totaled more than $267.6 million, according to SPINSscan. Fastest-growing subcategories included cosmetics and fragrances, up 16.6 percent to $11.7 million; body lotions and creams, up 14.8 percent to $36.2 million; and facial cleansers and exfoliants, up 14.7 percent to $11.6 million.

Jason is ?a great brand, with a great business, in a great category,? Simon said. But its 300 SKUs are scattered across personal care, from toothpaste to foot cream. Jason also makes five Heather?s Natural and Organic cleaning products and the Shaman Earthly Organics line of botanical hair products. Its brand image is diffuse and confusing, analysts said.

Simon agreed. ?We?ve been through that with numerous brands,? he said. ?We bought Arrowhead Mills and repositioned it to be the organic brand. When we bought it, it had six different looks on the shelf.?

Walnut Acres, which Hain acquired in 2003, had lost $14 million on a collection of brands ranging from Mountain Sun juices to Shari Ann?s soups. ?Walnut Acres will make money this year. ? Today it?s a $22 [million] to $23 million brand, and $16 [million] to $17 [million] of that is beverages. We eliminated a lot of SKUs.?

In late May, Hain Celestial acquired the Ethnic Gourmet and Rossetto?s frozen lines from Heinz Foods. Simon said Ethnic Gourmet ?will give us a $45 [million] to $50 million frozen business? that can grow into Mexican and other cuisines.

Simon said much of the innovation to come from Hain will involve combinations of existing lines of business. Low-carb frozen DeBoles pasta entrees, Earth?s Best baby care products or frozen kids? meals under a new license with Sesame Street were three he mentioned.

Badishkanian suspects that Hain will unlock the value in Jason through growth and synergy, rather than from cost-cutting. ?Andy Jacobson is one of the best operators in the business,? he said. M&A activity in natural personal care has been heating up. In October 2002, North Castle Partners took an undisclosed majority stake in Avalon, while 80 percent of Burt?s Bees was sold for $155 million to AEA Investors in September 2003.

?Now you have a full-fledged consolidation,? said analyst Patrick Turpin of USBX Advisory Services of Santa Monica, Calif. ?It changes the dynamics of the category. All of a sudden, it?s harder to be an independent.?

Light credits last summer?s bidding war for Burt?s Bees with attracting investor interest to the natural personal care business. ?We should thank the Burt?s Bees people because it softened the market up for everyone in our category,? he said.

Light said he made the deal with Hain in part because of that pressure. ?As a little company, you have to grow up and talk business,? he said. ?Your checkbook is only so thick. ? How can a small company afford to put demos in 160 stores??

Turning 60 also informed Light?s decision to sell, he said. Hain appealed as a strategic, rather than a financial, buyer. There?s also history at work: Murray Light and George Jacobs, Jeffrey?s father and uncle, owned Hain from 1951 to 1971, and Light and Jacobson used to visit stores together during Jacobson?s tenure at Tree of Life and Westbrae Natural. ?We used to teach people how to merchandise our products,? Light recalled.

Analyst Scott Van Winkle of Adams, Harkness & Hill termed the Jason acquisition a risky move for Hain. But, ?as long as Hain continues to beef up its management staff, this should prove to be a good acquisition,? he said. ?Jason is not the business Burt?s Bees is, but Hain certainly didn?t pay the same price for Jason that Burt?s garnered.?

Natural Foods Merchandiser volume XXV/number 7/p. 9

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