Hain Acquires Imagine Foods: Ramifications on European Non-Dairy Beverages Market

Consolidation in the organic food industry continues with Hain Celestial acquiring Imagine Foods this month.

The acquisition of Imagine Foods by one of the largest American organic food companies is to have a big impact on the non-dairy products industry.

Imagine Foods has grown to become one of the largest producers of soya-based and rice-based drinks since it started production in 1982. Its flagship product is Rice Dream, which is marketed all over the world as a dairy milk substitute. It is the market leader in the American and European rice drinks market.

History of Acquisitions
Hain Celestial has bought Imagine Foods for USD 52 million and it is the latest in a series of acquisitions by the company. It acquired Canadian firm Yves Veggie Cuisine and Belgian company Lima in 2001, and Celestial Seasonings the year before. Its most notable acquisition has been that of the Earth’s Best brand from H.J. Heinz, which involved the multinational taking a 19.5% stake in the company in 1999.

The ‘inorganic’ expansion strategy of Hain Celestial has been criticised by some industry observers who state that it pays too much for new companies that do not always integrate smoothly. The purchase of Imagine Foods is deemed to be a smart move for there are possible synergies between the two firms and it also gives Hain Celestial a larger slice of the non-dairy sector.

Hain Celestial leads the American un-refrigerated non-dairy beverages sector and the addition of Rice Dream and Soya Dream to its portfolio increases its market share. Hain Celestial also gains an entry into the frozen non-dairy desserts sector and the refrigerated non-dairy beverages market.

Prospects in Europe
The ramifications of the acquisition will also be felt at the international level, especially in the fast-growing European market. Sales of non-dairy beverages are projected to expand by 22.1% to EUR 228 million this year. Imagine Foods is the market leader in the rice drinks market, which is projected to show higher growth than the dominant soya drinks market in the coming years.

Before buying Imagine Foods, Hain Celestial had a small presence in the European non-dairy beverages market. Its presence was via the Belgian company Lima, which has a portfolio of non-dairy drinks but it has relatively low market share. Its products are mostly marketed by specialist retailers and increased competition has prevented it from making inroads in high growth segments.

Hain Celestial has been eyeing the European non-dairy beverages market for a number of years. In October it unveiled a new range of non-dairy drinks at SIAL 2002 in Paris. These were scheduled to be launched in the European market before year-end under the Hain Pure Food brand.

Competitive Structure
Alpro dominates the European non-dairy beverages market. The Belgian firm leads with its Alpro and Provamel range of non-dairy drinks and it also supplies a number of leading companies like Distriborg. It is widely seen as a pioneer in the European non-dairy products industry where it now has three processing facilities. Its domination has been unchallenged partly because most of its competitors are small-medium sized firms with low financial resources.

The acquisition of Imagine Foods by Hain Celestial makes it a challenger to Alpro’s domination of the European market. Hain Celestial is likely to build on the success of Imagine Foods Rice Dream in the rice drinks sector by launching complementary products like soya drinks and chilled desserts. The purchase also gives Hain Celestial instant access to established marketing and distribution infrastructure of Imagine Foods in Europe. Marketing expenditure is expected to increase over time as it looks to make its presence felt in the European market.

Competition was already stepping up in the European market prior to the market entry of Hain Celestial by acquiring Imagine Foods. High market growth rates have attracted a significant number of new entrants, particularly in Italy. There are a number of rice drink producers in Italy, many of which are developing a regional presence. One leading company has even made a successful foray in the Far East with its range of rice drinks.

Impact on Competition
Two-tiers of competition are expected to develop in the European market. The first tier is to remain highly concentrated with companies like Alpro and Hain Celestial (Imagine Foods) dominating. These companies will focus on producing large volumes of non-dairy drinks that will be mostly marketed by mainstream marketing channels.

The second tier is to become increasingly fragmented as more companies enter. Companies in this tier will focus on niches, either in terms of product offerings or marketing channels. Most of them will focus on specialist retailers like health food shops, which have been the traditional sales channels for non-dairy drinks.

There could also be some consolidation or acquisitions in the European non-dairy sector in the coming years. Hain Celestial could become a successful example of how acquisition can be used as market entry method for non-European companies that are looking to take a slice of the high growing non-dairy products pie.

Related report: The European Market for Soya & Non-Dairy Drinks

Posted: December 23rd 2002