Several well-known niche ethical brands have become part of larger companies in recent years but such acquisitions need not mean a dilution of ethics. In fact, the result is sometimes the opposite
Several well-known niche ethical brands have become part of larger companies in recent years but such acquisitions need not mean a dilution of ethics. In fact, the result is sometimes the opposite
Innocent Drinks may enjoy an angelic image, but its owners are anything but naïve. When the UK smoothie maker decided to sell a 10-20% stake to Coca-Cola last year, they expected some flak. They weren’t mistaken. Consumers and media alike decried the £30m tie-in. Both brands are icons – but from different sides of the global ethisphere.
The move could have spelt disaster. But it didn’t, for two reasons. First, benefit of the doubt. Innocent has built up enormous brand equity and consumer confidence since its wholesome, healthy smoothies hit the shelves a little over a decade ago. Simply put, its customers trust the company.
Second, no-nonsense communications. In their inimitable first-name style, co-founders Adam (Balon), Jon (Wright) and Richard (Reed) directly addressed their customers’ concerns. Via a panoply of blogs, videos, Facebook entries, Tweets and traditional media, they preached reassurance. Coca-Cola’s cash would only be used to get more “natural, healthy stuff” out there. Not a nickel for shareholders. “That desert island will just have to wait.”
Selling out and buying in
The charge of selling out is all too common. Every ethical brand that has ceded part of its business to an external investor, be it a partial or majority share, has faced such accusations.
And such deals are not new. When Rachel Rowlands sold her grandmother’s dairy company to a US organic milk giant 10 years ago, she sparked uproar among ethical consumers.
Rachel’s Organic, the UK’s first organic dairy company, has consistently refuted any suggestion that its ethics have been compromised. Its farms in the UK continue to meet Soil Association standards.
The picture at the parent company is less rosy. In 2003, Rachel’s Organic’s original purchaser was itself acquired. The UK brand now sits within the portfolio of Texas-based conglomerate Deans, described by some hostile commentators as the Microsoft of milk.
The US Organic Consumers’ Association claims Deans sells milk from cows that are confined to indoor feedlots and fed on genetically engineered growth hormones. Demands for a consumer boycott have followed.
It is tempting to conclude that any dalliance with big business inevitably results in a dilution of an ethical company’s values. The evidence is, however, far from watertight.
Ethiscore, a rating system designed by Ethical Consumer magazine, provides one widely cited barometer of ethical performance. On the face of it, the image of brands tarnished through acquisitions holds up.
The Body Shop, for example, slipped from a rating of 11 out of 20 to 4.5 after it was bought by cosmetics giant L’Oréal in 2006. Likewise, US healthcare company Tom’s of Maine saw its rating crash from 16 to 9 after it was subsumed into Colgate-Palmolive four years ago.
A note of caution is required. The Ethiscore ranking is skewed towards the parent corporation’s practices and products. Only two or three points are attributed to the performance of the ethical subsidiary. Without any change in performance, a niche player would therefore see its score plummet simply by being considered as part of a larger, less ethical company.
Dozens of ethical brands have lost their independence through mergers and acquisitions in recent years. Yet the pool remains too small to draw any general conclusions, says Craig Smith, a marketing professor at Insead business school. What’s required instead is a “case by case” assessment, he says.
Investment motives
Naturally, much depends on the motives of the investing company. If the reasons are cynical, then the probability of an ethical brand seeing its image tarnished is naturally that much higher. A company looking to rid itself of an upstart ethical competitor or “buy” its ethics are two such examples.
Incidences of either are hard to find, however. The reason is simple: marketers know that such tactics are likely to be ineffectual, and they have a high potential to backfire.
“A small ethical brand is unlikely to influence the reputation of a large corporation, unless it is in a negative way,” says Simon Webley, research director at the Institute of Business Ethics.
Chris Deri, executive vice-president at public relations company Edelman, agrees. A company will be disappointed if it buys a niche business solely for its external brand equity, he says. In fact, such equity is the part “at greatest risk of evaporating” once an ethical brand walks inside the parent company.
“Serving as a catalyst and a change agent inside the company’s four walls, that’s the real value of these ethical brands,” Deri says.
This last argument certainly reflects official rhetoric. Ethical brands are typically created by charismatic pioneers with a driving sense of mission. The prospect of ratcheting up that mission by integrating it into a bigger company makes for an attractive proposition.
Again, concrete proof of such Trojan horse strategies paying off is “pretty limited” according to Michael Tuffrey, founding director of London-based consultancy firm Corporate Citizenship.
Why so? From an internal management perspective, corporations tend to view ethical acquisitions as occupying a “separate space”. “The thinking is ‘that ethics is all right for them. They are different. We are mainstream’,” Tuffrey explains.
That said, anecdotal evidence is not entirely absent. Unilever, for example, issued its first ever comprehensive annual social and environmental report immediately after acquiring ice-cream brand Ben & Jerry’s. Coincidence or coercion, who’s to say?
The recent decision by Cadbury to shift its flagship Dairy Milk brand to 100% Fairtrade cocoa is another convincing example. The move follows the UK confectioner’s acquisition of ethical chocolate manufacturer Green & Black’s five years ago.
“It does almost look like Green & Black’s has won its argument about taking its cultural mission and moving it up within the parent company,” says Rob Harrison, editor of Ethical Consumer.
The observation brooks no objection from Kellie Fernandes, director of global marketing at Green & Black’s. Sharper communications and supply chain efficiencies are two more areas she would add to the list (see box overleaf).
Mars offers another example. Thirteen years ago, the US confectionary giant acquired Seeds of Change, a small organic seed and food producer. Last year, Mars announced it would move its entire cocoa bean supply onto a sustainable footing. By 2020, global brands such as Galaxy, Mars, Snickers, Twix and M&Ms will all meet exacting social and environmental standards, the company says.
Seeds of Change founder Howard Shapiro has said the original sale was motivated by Mars’s belief in the commercial potential of the ethical market. That vision took more than a decade to realise itself, but Mars has not been stationary in the interim. Three years ago, it received a lifetime achievement award from the US Organic Trade Association. More recently, it pledged $10m towards the mapping of the cacao tree genome.
Not exactly a Damascene conversion, but gradual change all the same.
A good measure of an investor’s intentions is the degree of management autonomy it gives to its newly acquired ethical brand. Naturally, the more freedom, the more likelihood the subsidiary’s values will remain intact.
There is a compelling case for investors to leave ethical acquisitions at arm’s length, according to Giles Gibbons, chief executive of the UK consultancy Good Business. His argument rests on hard-nosed business sense and financial decision-making.
Maintaining ethics
“Bigger companies purchase these brands because of their ethical credentials. They therefore recognise the need to ringfence those methods to maintain the reason why they purchased them in the first place,” Gibbons says.
Cadbury’s acquisition of Green & Black’s provides a paradigm of such logic. “Cadbury was clear that it would be fatal if in any way Green & Black’s independence from Cadbury was diluted,” a consultant close to the deal tells Ethical Corporation.
In practice, Green & Black’s founder Craig Sams remains president of the company, while the niche confectioner’s original senior management all retain board positions. Cadbury has appointed the last two managing directors for the premium ethical brand, but all major decisions remain subject to board approval. Likewise, none of the brand’s sourcing agents or suppliers have been altered.
The argument in favour of soft-touch management generally stands up, as long as the ethical brand delivers on its sales targets. Perhaps inevitably, a degree of “mission creep” from the parent company can occur over time, Gibbons admits.
“It is probably fair to say that the Body Shop has lost some of its campaigning soul as L’Oréal professionals have increasingly gone in to manage the organisation,” he says.
Not that management crossover is necessarily a negative occurrence. If best practice is to be shared between the parent and subsidiary, then a degree of overlap arguably has its benefits.
Despite the initial media hullabaloo, not all campaigners are against corporate tie-ins with ethical brands. Many concede it is the best means for increasing the sphere of influence of such brands.
“The notion of ‘institutionalising mission’ is how the campaign community has got its head around the issue,” says Ethical Consumer’s Rob Harrison.
The same argument stands for corporations too. Over the past decade, leading players in the corporate sector have taken huge strides to institutionalise ethics within their brand portfolios.
Take Unilever. Over recent years, its Dove cosmetics range has become synonymous with female empowerment. Likewise, its Lifebuoy soap brand enjoys a strong reputation for its contribution to basic health in India and other south-east Asian markets.
These “marquee” ethical sub-brands operate as a “sort of halo” to other parts of a corporation’s business, argues Edelman’s Deri.
“Having a halo brand is one of the ways that companies can create synergies and develop ethical brands in specific industries or segments of the market,” he says.
Others are taking a root-and-branch approach to building ethics into their brands. UK retailer Boots, for example, has developed a web-based tool to assess the social and environmental impacts across its product range. The Green Tick model covers the product’s full life cycle, from consumer use and waste disposal.
The prime example of a holistic management approach is provided by another UK retailer, Marks & Spencer. In January 2007, M&S rolled out its flagship Plan A programme. The initiative incorporated dozens of commitments affecting all its products, from increasing fuel efficiency of its logistics network by 20% to reducing food carrier bag usage by 83%.
In March, M&S unveiled a new phase of its sustainable branding scheme, taking the total number of social and environmental targets up to 180. The high street brand has set itself the target of becoming nothing less than the “most sustainable major retailer in the world”.
M&S has been careful about its wording. It has intentionally placed its end goal within the remit of the world’s “major” retailers. But small ethical retailers would be unwise to think their niche markets will remain unaffected.
As more companies follow M&S’s lead, the ethical space is set to become more mainstream. And mainstream means more competitive. No longer can ethical brands presume they are the first port of call for the values-conscious shopper.
Corporate brands may not be as “pure” as the traditional ethical brands, but they are quickly adopting similar practices, warns Edelman’s Deri. The critical difference is that these companies are doing so on a much larger scale.
“Now they [niche brands] are using their ethical attributes as a key rationale for significant price premiums. But it’s going to be hard for them to sustain that proposition. They have to find other attributes for their products as well,” he says.
For the moment, ethical brands still retain the edge over their corporate copycats. Coca-Cola may claim to be world’s most recognised trademark. But what the US megabrand boasts in popular recognition, Innocent Drinks enjoys in popular affection. Why? Because consumers still know the real Real Thing when they see it.
Corporate quotes
“We’ve established ourselves to consumers as people, rather than a brand or a corporate entity. And by establishing ourselves as people, consumers have come to understand what kind of company we are and what’s important to us.”
Jessica Sansom, head of sustainability, Innocent Drinks
“Cadbury’s recent shift to Fairtrade is a good example of how we’ve learned from Green & Black’s, but [how we’ve] done it in a mainstream way.”
Alex Cole, global corporate affairs director, Cadbury
A two-way street: the case of Cadbury and Green &Black’s
Cadbury’s acquisition of a majority share in Green & Black’s in 2005 was met with significant public scepticism. But, oddly enough, not by Green & Black’s.
For founder Craig Sams, the move was “no sell out”. Given Cadbury’s Quaker roots, Sams felt a certain synergy with the larger company’s ethical values. As important, he felt an opportunity existed to spread Green & Black’s way of working into the parent organisation.
The experience of the past five years has borne both points out, according to Kellie Fernandes, director of global marketing for the premium chocolate brand.
She cites communications as a case in point. Marketing budgets have never been big at Green & Black’s, especially when the brand was established 20 years ago. The company’s way around the problem was to “make a lot of noise”. Above all, it orientated its communications around the “people behind the brand”.
“Big budgets don’t always mean the best forms of communication … With the mainstream brands that Cadbury has, you don’t know the people behind the brands,” Fernandes says. Under Green & Black’s influence, that is beginning to change.
Supply chain management is the final area where the hand of Green & Black’s can be seen. The brand’s head of supply chain Neil Lacroix sits on the board of Cadbury’s Cocoa Partnership, a £45m initiative set up in 2008 to secure the sustainability of around one million cocoa farmers in Ghana, India, south-east Asia and the Caribbean.
“Lacroix has been instrumental in some of the new initiatives that they have been running over the last couple of years, especially with the recent move to Fairtrade,” Fernandes says.
The traffic hasn’t all been one way. Cadbury has taught its niche subsidiary much about management discipline and professionalism, especially when communicating its brand across different markets, Fernandes accepts.
Above all, the premium brand has benefited from Cadbury’s established routes to market. Green & Black’s has gone from a niche brand operating only in the UK to a global product with major markets in the US, Australia and Canada.