Biz Briefs: Food: Can Granola Grow Up?

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Not everyone thinks Simon's budding empire, begun in 1993 with the purchase of a small Brooklyn, N.Y., kosher-food company, is ready for the future either. Given the size and breadth of Hain's portfolio, it is true that "if a retailer wants to build a natural section, they almost have to come to [Hain]," says Scott Van Winkle, analyst at investment firm Adams Harkness. Still, while Simon has assembled an enviable assortment of brands, expected to generate upwards of $600 million in revenues this coming year and fast approaching the $1 billion-a-year mark, he has yet to deliver fully on their potential by consistently meeting earnings targets, keeping expenses down and maintaining a smooth, uninterrupted supply of products to stores. Instead, Hain has repeatedly disappointed Wall Street, hurting its credibility along with its share price. As Prudential Equity Group analyst John McMillin recently wrote, "With Hain, the saying 'if it isn't one thing, it is another' may be appropriate."

At a time when giant food companies are making inroads into the business, the margin for error is getting smaller. Frito-Lay has launched a line of natural snacks, and General Mills recently announced that all its cereals will soon be made from whole grains. In the four years it has owned Kashi, Kellogg has increased the cereal brand's sales from about $20 million to nearly $200 million. And backed by a $22 million marketing campaign, courtesy of its new parent, Dean Foods, refrigerated-soy-milk leader Silk is grabbing more of the business from primarily aseptic shelf brands like Hain's WestSoy. Meanwhile, with its distribution muscle, Kraft has expanded the Boca line of veggie burgers and Back to Nature cereals and snacks. "We get audiences with retailers that other companies could only dream of," says Kevin Scott, senior vice president of natural and organic foods at Kraft.

The competition is particularly daunting since Simon, who originally entered the natural-foods business because it had been largely ignored by the big boys, has at his disposal an arsenal that is so much smaller. In the first nine months of last year, Gerber spent more than $20 million on advertising for all its baby-food lines, including organic, while Earth's Best shelled out a piddling $760,000, according to TNS Media Intelligence. But Simon is full of the breezy confidence you'd expect from a risk-loving entrepreneur who in 1994 bid $21 million for his first big acquisition, the decades-old Hain Pure Foods company, before he had lined up most of the financing.