Smoothie operators sell out to Coke
Have the founders of the Innocent label compromised their ethics by taking £30m from a corporate giant? Martin Hickman investigates
Tuesday 07 April 2009
As 160 Innocent staff stood on the artificial grass in the "chill-out room" of their headquarters, Fruit Towers, yesterday, they were about to receive some news that not all of them found as palatable as their smoothies. A stake in the London smoothie-maker had been sold to the world's biggest soft drinks company and symbol of ruthless US capitalism, Coca-Cola.
For the three founders Richard Reed, Jon Wright and Adam Balon, who met at St John's College, Cambridge, the £30m funding from the US drinks giant will propel the company's fledgling move into Europe and fight off multinational companies determined to replicate its success in Britain.
For some Innocent customers, going into business with a fizzy drinks company which puts eight teaspoons of sugar into 300ml cans of its best-selling drink will not be the most auspicious of partnerships for a social enterprise which prides itself on its wholesomeness and independence.
By selling between 10 and 20 per cent of its business to Coca-Cola, Innocent is following a slew of niche brands into the arms of larger companies. Since the boom in ethical consumption at the end of the 1990s, the organic soup and sauce maker Seeds of Change has been taken over by Mars, Rachel's Organics by the US dairy giant Dean Foods and organic chocolate company Green & Black's by the mass-market organisation Cadbury.
The premium sandwich maker Pret A Manger (which had a dalliance with McDonald's), the speciality crispmakers Tyrrell's and Kettle, and health food maker Dorset Cereals have all been gobbled up by private equity companies.
Ben & Jerry's, the quirky Vermont company whose ice cream comes with chunky political slogans, was scooped up by the conglomerate Unilever, which makes everything from Persil to Flora. In the most famous case of all, in 2006 ethical pioneer Anita Roddick sold her Body Shop chain to the French cosmetic giant L'Oréal, which she had accused three years earlier of making women feel bad about their bodies.
In all the cases, the entrepreneurs, who received multimillion-pound payouts, argued that a big company's money and expertise was vital to spreading their ethical message. Yesterday, Innocent was no different, explaining that Coca-Cola's funds and 120 years of business experience distinguished it from two other fund-raising offers on the table. "They're only a minority investor but we have got someone on the end of the line that we can ring for advice," said Richard Reed. "To have cash and expertise rather than just cash to use seemed a good move."
Unlike other "sell-outs", the founders will not be pocketing the cash; instead, it will fund offices, staff and marketing across Europe to push the company's smoothies and new veg-pots.
Only 20 per cent of the company's £103m sales last year came from the Continent, where it operates in 13 countries. Most of the time it is second, third or fourth behind the banana giant Chiquita or Tropicana, which is owned by Pepsico, Coca-Cola's arch rival.
"On Continental Europe, only 20 per cent of supermarkets have smoothies," said Reed. "But the big boys, Chiquita and Tropicana, are moving in quickly. We could carry on doing it piecemeal; the reality was we didn't have the luxury of time in Europe, because everyone has seen what we have done in the UK."
With Coca-Cola's money, Innocent will launch in Spain and Italy and seek to improve its position across Europe, and eventually the world; it is trademarked in every country apart from those in sub-Saharan Africa.
In return for its £30m, Coke will attend quarterly investment meetings but the loudest voices will still be those of the founders, who will have stakes of 20 per cent each, the staff, who have 10 per cent, and Maurice Pinto, the initial investor, who has the rest.
Britain's top smoothie maker promised to continue donating 10 per cent of its profits to good causes.
Whatever the merits of the investment, Innocent acknowledged that some customers would feel uneasy about leaping into bed with Coke, which is often vaunted as one of the brashest examples of American consumerism.
How the move will turn out in the long run remains to be seen. Where companies have surrendered their business to a bigger partner, their fortunes have been mixed. In an interview with The Independent last year, Ben & Jerry's founder Jerry Greenfield acknowledged that Unilever had kept the business a separate division, but he still rued his lack of control.
Green & Black's founder Craig Sams felt that giving the company access to Cadbury's money and expertise had helped sell more organic chocolate bars without lowering quality.
According to Ruth Mortimer, the associate editor of Marketing Week magazine, businesses who take over smaller, niche brands are too smart to kill off their new acquisition's attributes. "I don't think most shoppers will be especially concerned as long as they see no obvious differences in the way that Innocent behaves or communicates," she said.
"Green & Black's has gone from strength to strength since it was acquired by Cadbury and people haven't stopped buying Ben & Jerry's now it is owned by Unilever. Pret A Manger once had a stake taken by McDonald's and has also gone on to flourish."
Manchester-based Ethical Consumer magazine, however, immediately downgraded Innocent's ethical score from 12.5 out of 20 to 6.5, putting it towards the bottom of smoothie makers. Editor Rob Harrison said Coke scored poorly for its record on water extraction in India, human rights in Columbia, environmental reporting and marketing of sugary drinks to children.
In a market dominated by multinationals, Richard Reed said he felt safer with Coke by his side. "We have got an older brother. We are still on the programme to fight the bullies but we have got this older brother to call to the school gate to sort them out," he said.
Sold out? Ethical chains that lost their independence
Ben and Jerry's (2000)
Founded by hippies Jerry Greenfield and Ben Cohen, the ice-cream maker famous for funky flavours like Cherry Garcia and Chubby Hubby was bought by Anglo-Dutch household products giant Unilever for £175m in 2000. Unilever has kept the business separate and stuck to many of Ben and Jerry's original Fairtrade ideals but did not promise to maintain forever the company tradition of giving 7.5 per cent of profits to good causes.
Pret A Manger (2001)
A third of Pret A Manger, the upmarket sandwich maker opposed to "obscure chemicals, additives and preservatives", was sold to fast food giant McDonald's, which uses 78 E numbers in its own branded food. Private equity company Bridgepoint bought all of Pret for £345m last year, making at least £50m each for its founders Julian Metcalfe and Sinclair Beecham.
Green & Black's (2005)
Green & Black's, which started life in 1991, was named after its gourmet credentials: organic (green) and high-cocoa (black). Organic pioneer Craig Sams and his wife Jo Fairley felt the best way foward was by selling the company to mass market chocolate-maker Cadbury for an undisclosed sum.
Body Shop (2006)
Ethical business Anita Roddick was criticised by animal welfare campaigners in 2006 for selling Body Shop, which campaigned against animal testing, to French beauty corporation L'Oréal, which admitted "a very small" number of ingredients in L'Oréal products had been tested on animals. In 2003, Dame Anita condemned L'Oréal in particular and the beauty industry in general, saying that it promoted "unattainable ideals and sabotages self-esteem". Roddick and her husband, Gordon, who founded the company in 1976, earned £130m from the £652m sale.
Abel & Cole (2007)
Keith Abel, founder of one of Britain's most popular organic box schemes, started out selling potatoes door to door. He cashed in some of his chips two years ago when he sold a multimillion-pound stake in the company to Phoenix Equity Partners.
William Chase made national headlines in 2006 for demanding Tesco stop selling his crisps. Chase, who grew the potatoes for his crisps on his Herefordshire farm, last year sold the business to private equity company, Langholm Capital, for almost £40m. You still cannot buy Tyrrell's in Tesco.
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