The Apprenticeship of Irwin Simon

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Control is a big part of Hain Celestial, whose gross margin for its last fiscal year was 43%. Simon is just plain good at maintaining quality under tight cost controls. Example: Hain has just built a plant in New Jersey that nearly tripled its production of Terra Chips using a patented technique for vacuum frying. Aside from being a great potential enlivener of high school physics and leaving the chips tasting more like a vegetable and less like oil-soaked construction paper, the low-temperature process reduces the amount of fat absorbed by the chips and saves money because the remaining oil lasts longer. Here in one potato chip is a good deal of the Simon savvy: better tasting, more healthful, and produced economically -- though in truth the only reason Hain Celestial produces the chips itself is that it hasn't been able to find quality packers with enough capacity. That being the case, the company moved quickly to turn the vacuum-frying technology into a profit center by licensing it through a European joint venture. In most cases, however, Simon will buy a company with the intention of selling off its manufacturing facilities, whose operators often become Hain's suppliers. Simon then uses the proceeds to pay down the debt incurred in the acquisition. About half the company's production is farmed out, and that figure would be 100% were there enough dependable quality suppliers.

"The other thing is that here I was, 26, 27, and I was going out and terminating people in their fifties, which is not only difficult to do -- they have kids in college -- but, you know, I didn't want to be there one day in the same situation. They'd replace these people with younger people that made less and had a lot more energy, and they'd burn those guys out too. I said, 'This can't happen to me.' I went to Slim-Fast."

Though Simon has managed to hold on to many managers during his eight years, he is not sentimental about making changes among the staff at Hain. He's on his third chief financial officer, for instance. But the second is now head of operations. Simon, sitting in his ground-floor Long Island office, which overlooks a parking lot and contains a desk and conference table that appear to be the unsold orphans of some yard sale, explains: "Because of our growth we go through people. But if people can learn new talents, you should help them instead of throwing them out. So you move these people around." Though Simon has thrown out plenty, a lot more remain to move around. The company has grown to 1,400 employees, with about 10% of them at its headquarters, which recently moved into larger offices near Hain's former base. Simon took his low-rent furniture with him -- "I'm superstitious: that's my lucky desk," he says -- as well as a recently acquired corporate-style human-resources director who replaced one who Simon felt may have been too friendly with the staff. "I no longer fire anyone," Simon says. "She does."

"Slim-Fast was a fast-growing brand but totally opposite to H?en-Dazs. Disastrous -- no structure, no strategic plans. You had no authority. You had a meeting with the top guy, and the next day you would start to do what you were told, and he'd come back and say, 'Why the hell are you doing that?' 'You agreed to it.' And he'd say, 'So why'd you listen to me?' What I learned there went against what I learned from youth. People were treated badly. Slim-Fast would hire people when things were good -- the philosophy was, When things get bad we'll just fire them. They would call people over the PA system, and everyone knew what it meant: come down and be fired. They didn't value people -- at Hain we've never had a reduction in force; what I try to do is hold back on hiring until we're absolutely stretched -- and they didn't value the brand. With my father in the store, it was Campbell's soup in that red can, that was always in our store, and Heinz ketchup -- these were products you always had to have in the store. Pillsbury, Coca-Cola, Canada Dry. They stood for something. At Slim-Fast they thought the brand could go on anything and sell: salad dressing, popcorn, cookies. Probably one of the most valuable things I learned at H?en-Dazs was brand equity, brand equity. Slim-Fast would put their brand on toilet paper if they thought it could sell $5 worth. I hated it."

Rather than growing Hain by stretching a single brand until it snaps, Simon has collected a portfolio of brands sufficiently balanced that should one ship go down it won't sink the fleet. He learned that much in 1995, when 40% of his revenues came from the rice cakes flying off the shelves in the wake of a $35-million marketing blitz by Quaker Oats Co. -- until the fad collapsed.

Simon believes in gently stretching each brand. His Earth's Best baby food now has a line called Earth's Best Kidz (infants tend to grow), but it's unlikely he'd put the brand on disposable diapers or baby bottles. Simon's brands work more like a patchwork quilt -- each piece delicately overlapping the next -- than like a jigsaw puzzle. On a recent visit to a supermarket-size Whole Foods health-food market in Manhattan it was actually a trick to walk down an aisle and not bump into Hain Celestial: here soups, here cereals, here soy milks, here cold soy beverages, here snacks, and here baby foods. To Dean De Santis, a Whole Foods manager, that was no secret. "Hain? No rival, not even close," he says. "Everything they put their name on is top-notch. And they own everything."

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