Really interesting FT article
Here's an article with Mark Constantine talking about the buy out of so many natural cosmetics companies.
http://www.financialpost.com/small_business/story.html?id=269605
Lush looks to clean up
One holdout in the green body-care business hopes buyouts of firms such as Burt's Bees and The Body Shop will help its sales
Karen Mazurkewich, Financial Post Published: Monday, January 28, 2008
The founder of Lush Fresh Handmade Cosmetics is in a lather. Mark Constantine, U.K.-based chief executive of Lush, is one of the few founders dating back to the Body Shop era, who has dodged the buy-out mania. In recent years, many natural cosmetics firms -- including the Body Shop in the United Kingdom, Jurlique in Australia and Bare Escentuals in the United States -- have been gobbled up by hedge fund managers and mega-corporations.
The deal that has Mr. Constantine rattled most is the recent sale of Burt's Bees to Clorox, a bleach manufacturer. "You couldn't have a more dramatic difference in image from a chemical bleach company and a natural cosmet ics company based on honey and bees," he says.
Mr. Constantine says these deals are having a negative impact in the industry. "If all [natural-based companies] ever do is sell out to a large multiple, it gets very confusing, and in the end ethical consumption as a concept will just disappear," he says.
Who can trust the organic brand image if they all sell out?
Private equity firms including JH Parters, Harvest Partners and Canaccord Capital are increasingly scooping up opportunities in the organic food, health, anti-ageing and natural cosmetics retail sector -- evidence ethical marketing and private equity are converging.
The reason: when it comes to innovation, small family businesses outperform corporations, according to Scott Van Winkle managing director of Boston-based Canaccord Adams.
In the organic food sector, "98% of all new launches in the United States never reach US$50-million, which is the minimum [sales target] for a large company," Mr. Van Winkle says. As a result, companies such as Kraft Foods Inc. won't take a risk. "While most family-run businesses don't make it, those that do hit an inflection point, which I term as US$50-million in sales, and become very attractive to private equity," he adds.
Purists, including Mr. Constantine, say the buyouts serve as a fig leaf for large corporations who appropriate the virtues of the ethical company to rehabilitate their image. The trend has led to a new term dubbed "green-washing." While the North American arm of Lush, based in Vancouver and coowned by Mark Wolverton, may benefit from their competitors' sellout -- Lush's sales are predicted to jump from US$50-million in 2007 to US$80-million this year -- Mr. Constantine says the buyout fever will eventually lead to a consumer backlash.
He cites an informal survey on treehugger.com, which found that 48% of customers would abandon an ethical brand if they were bought out by a multinational. In addition, following the sale of the Body Shop to L'Oreal, the company's "buzz rating" had fallen 10 points and "satisfaction" rating levels declined from 25 points to 14, according to BrandIndex ratings measured by YouGov. But that's not slowing the trend. According to a report issued by Euromonitor last year, natural and organic products were a key driver in the 5% growth of the US$270-billion market between 2001 and 2006 because they "inject innovation" and sell at a 30% to 50% premium over standard products.
Not surprisingly, the companies that have sold out, including MAC Cosmetics, Kiehl's and Aveda saw their revenue streams grow. According to Euromonitor International, sales at MAC Cosmetics jumped to US$640-million in 2006 -- after L'Oreal took over -- from US$276-million in 2001. Ditto for Aveda, which had sales grow from US$158.9-million in 2001 to US$216.4-million in 2006 following its purchase by Estee Lauder back in 1997. It's still too early to see how much muscle L'Oreal can bring to Body Shop.
That's not to say Mr. Constantine doesn't have a valid point, Mr. Van Winkle says. "You are going to lose some consumers and some distribution because you are no longer small," he says. "In the natural foods industry in the U.S., there is a very strong core channel of distribution, within the small, mom-and-pop health food stores and when they find out a product is bought by Kraft, they will no longer sell that product." But in the majority of deals he has studied, Mr. Van Winkle says the sales of acquired firms more than double: "The early adopter, the cultural creatives will buy your product, not because of price but because you are using recycled materials, or it makes them feel great that you are giving 5% of profits to charity. But once your product hits Wal-Mart store shelves the game becomes price."
A recent study conducted by Remi Trudel and June Cotte at the University of Western Ontario's Richard Ivey School of Business shows consumers who are interested in ethical products are only prepared to pay a minimal premium. People are happy to buy organic and natural products, they just don't want to dig deeper into their wallet, Mr. Trudel says.
That does not mean companies such as Burt's Bees are going to completely abandon the core mission of their founders. In an e-mail, John Replogle chief executive and president of Burt's Bees writes: "Why would we change the essence of our brand? We recognize what makes us unique, and we intend to remain the Burt's Bees that consumers love." He says the executive leadership team took the time to call about 100 individuals who expressed concern through blogs and letters: "With the merger, some consumers struggled to understand the fit between Burt's Bees and Clorox but we made a sincere attempt to reaffirm our commitment to making high-quality natural personal-care products and delivering against our social mission for the Greater Good." He says the Burt's Bees team is inspiring the parent company to launch a Green Works line.
But there are limits to what consumers will accept. To be sure, "the name Clorox will never show up on a Bert's Bees product," Mr. Van Winkle says. "If they do, they are in trouble. The story of the lonely beekeeper and the enterprising waitress, which has been propagated through the specialty channels, remains front and centre of all marketing materials. They will make changes, maybe in people, maybe in the SKUs [product variety], where ingredients are sourced or manufactured, but it won't happen overnight," he says.
The Richard Ivey School of Business study shows that while consumers won't pay a lot more for an ethical product they will punish companies that do bad things. There is also evidence investors reward socially responsible corporations.
"There's no question, there is a huge move toward ethical investing," says Paula Glick, director of sales and marketing for Jantzi Research, an independent investment research firm that screens companies for their environmental, social and governance performance and last year launched the first socially responsible Exchange Traded Fund (ETF) in Canada.
Consumer advocacy groups are increasingly interacting with invest-or groups, and more companies are issuing sustainability reports, says Ms. Glick. The Toronto-based Social Investment Organization reports that assets invested in a socially responsible manner has grown to US$500-billion from US$65.5-billion between 2004 and 2006.
Andrew Heintzman, president of Toronto-based private equity firm Investeco Capital, which focuses on green companies, says although private equity firms never have the same interests as what the founders of small companies intended, there is still a self-interest not to destroy a company's ethos. "They'd know it's an aspect of respect and will try to preserve as much as they can," he adds.
But Mr. Constantine, who is under immense pressure to sell, is not happy with the options. "I'm 55, and you have to start thinking about what's going to happen," he says. Like many businessmen, Mr. Constantine would like to expand the company, but this requires capital. If you go with a venture capitalist they might flip you fast to a company you don't want, he says. Mr. Constantine would like to see more ethical funds that "don't necessarily require a quick exit."
Until the market evolves he plans to hold firm to his company: "We are fed up. Ethical marketing has become an oxymoron."
http://www.financialpost.com/small_business/story.html?id=269605
Lush looks to clean up
One holdout in the green body-care business hopes buyouts of firms such as Burt's Bees and The Body Shop will help its sales
Karen Mazurkewich, Financial Post Published: Monday, January 28, 2008
The founder of Lush Fresh Handmade Cosmetics is in a lather. Mark Constantine, U.K.-based chief executive of Lush, is one of the few founders dating back to the Body Shop era, who has dodged the buy-out mania. In recent years, many natural cosmetics firms -- including the Body Shop in the United Kingdom, Jurlique in Australia and Bare Escentuals in the United States -- have been gobbled up by hedge fund managers and mega-corporations.
The deal that has Mr. Constantine rattled most is the recent sale of Burt's Bees to Clorox, a bleach manufacturer. "You couldn't have a more dramatic difference in image from a chemical bleach company and a natural cosmet ics company based on honey and bees," he says.
Mr. Constantine says these deals are having a negative impact in the industry. "If all [natural-based companies] ever do is sell out to a large multiple, it gets very confusing, and in the end ethical consumption as a concept will just disappear," he says.
Who can trust the organic brand image if they all sell out?
Private equity firms including JH Parters, Harvest Partners and Canaccord Capital are increasingly scooping up opportunities in the organic food, health, anti-ageing and natural cosmetics retail sector -- evidence ethical marketing and private equity are converging.
The reason: when it comes to innovation, small family businesses outperform corporations, according to Scott Van Winkle managing director of Boston-based Canaccord Adams.
In the organic food sector, "98% of all new launches in the United States never reach US$50-million, which is the minimum [sales target] for a large company," Mr. Van Winkle says. As a result, companies such as Kraft Foods Inc. won't take a risk. "While most family-run businesses don't make it, those that do hit an inflection point, which I term as US$50-million in sales, and become very attractive to private equity," he adds.
Purists, including Mr. Constantine, say the buyouts serve as a fig leaf for large corporations who appropriate the virtues of the ethical company to rehabilitate their image. The trend has led to a new term dubbed "green-washing." While the North American arm of Lush, based in Vancouver and coowned by Mark Wolverton, may benefit from their competitors' sellout -- Lush's sales are predicted to jump from US$50-million in 2007 to US$80-million this year -- Mr. Constantine says the buyout fever will eventually lead to a consumer backlash.
He cites an informal survey on treehugger.com, which found that 48% of customers would abandon an ethical brand if they were bought out by a multinational. In addition, following the sale of the Body Shop to L'Oreal, the company's "buzz rating" had fallen 10 points and "satisfaction" rating levels declined from 25 points to 14, according to BrandIndex ratings measured by YouGov. But that's not slowing the trend. According to a report issued by Euromonitor last year, natural and organic products were a key driver in the 5% growth of the US$270-billion market between 2001 and 2006 because they "inject innovation" and sell at a 30% to 50% premium over standard products.
Not surprisingly, the companies that have sold out, including MAC Cosmetics, Kiehl's and Aveda saw their revenue streams grow. According to Euromonitor International, sales at MAC Cosmetics jumped to US$640-million in 2006 -- after L'Oreal took over -- from US$276-million in 2001. Ditto for Aveda, which had sales grow from US$158.9-million in 2001 to US$216.4-million in 2006 following its purchase by Estee Lauder back in 1997. It's still too early to see how much muscle L'Oreal can bring to Body Shop.
That's not to say Mr. Constantine doesn't have a valid point, Mr. Van Winkle says. "You are going to lose some consumers and some distribution because you are no longer small," he says. "In the natural foods industry in the U.S., there is a very strong core channel of distribution, within the small, mom-and-pop health food stores and when they find out a product is bought by Kraft, they will no longer sell that product." But in the majority of deals he has studied, Mr. Van Winkle says the sales of acquired firms more than double: "The early adopter, the cultural creatives will buy your product, not because of price but because you are using recycled materials, or it makes them feel great that you are giving 5% of profits to charity. But once your product hits Wal-Mart store shelves the game becomes price."
A recent study conducted by Remi Trudel and June Cotte at the University of Western Ontario's Richard Ivey School of Business shows consumers who are interested in ethical products are only prepared to pay a minimal premium. People are happy to buy organic and natural products, they just don't want to dig deeper into their wallet, Mr. Trudel says.
That does not mean companies such as Burt's Bees are going to completely abandon the core mission of their founders. In an e-mail, John Replogle chief executive and president of Burt's Bees writes: "Why would we change the essence of our brand? We recognize what makes us unique, and we intend to remain the Burt's Bees that consumers love." He says the executive leadership team took the time to call about 100 individuals who expressed concern through blogs and letters: "With the merger, some consumers struggled to understand the fit between Burt's Bees and Clorox but we made a sincere attempt to reaffirm our commitment to making high-quality natural personal-care products and delivering against our social mission for the Greater Good." He says the Burt's Bees team is inspiring the parent company to launch a Green Works line.
But there are limits to what consumers will accept. To be sure, "the name Clorox will never show up on a Bert's Bees product," Mr. Van Winkle says. "If they do, they are in trouble. The story of the lonely beekeeper and the enterprising waitress, which has been propagated through the specialty channels, remains front and centre of all marketing materials. They will make changes, maybe in people, maybe in the SKUs [product variety], where ingredients are sourced or manufactured, but it won't happen overnight," he says.
The Richard Ivey School of Business study shows that while consumers won't pay a lot more for an ethical product they will punish companies that do bad things. There is also evidence investors reward socially responsible corporations.
"There's no question, there is a huge move toward ethical investing," says Paula Glick, director of sales and marketing for Jantzi Research, an independent investment research firm that screens companies for their environmental, social and governance performance and last year launched the first socially responsible Exchange Traded Fund (ETF) in Canada.
Consumer advocacy groups are increasingly interacting with invest-or groups, and more companies are issuing sustainability reports, says Ms. Glick. The Toronto-based Social Investment Organization reports that assets invested in a socially responsible manner has grown to US$500-billion from US$65.5-billion between 2004 and 2006.
Andrew Heintzman, president of Toronto-based private equity firm Investeco Capital, which focuses on green companies, says although private equity firms never have the same interests as what the founders of small companies intended, there is still a self-interest not to destroy a company's ethos. "They'd know it's an aspect of respect and will try to preserve as much as they can," he adds.
But Mr. Constantine, who is under immense pressure to sell, is not happy with the options. "I'm 55, and you have to start thinking about what's going to happen," he says. Like many businessmen, Mr. Constantine would like to expand the company, but this requires capital. If you go with a venture capitalist they might flip you fast to a company you don't want, he says. Mr. Constantine would like to see more ethical funds that "don't necessarily require a quick exit."
Until the market evolves he plans to hold firm to his company: "We are fed up. Ethical marketing has become an oxymoron."