Slaughter of the Innocent? Or is Coke the real deal?

Fans fear Coca-Cola will poison the good name of the smoothie maker. Richard Northedge reports

'We know that some people will always disagree and we respect that, but we know this deal is a great opportunity for Innocent," says Dan Germain, the head of creative at the smoothie company that last week accepted £30m from Coca-Cola to become a shareholder. In fact, from the comments on Twitter, Facebook and Innocent's own blog, it is hard to find anyone who agrees with the deal.

"You just killed your business," says Jim. "I can't quite believe how exercised and angry I am about this," Steve tells the drinks company. "A sad day for independent and ethical business," says Bee. "It would be laughable if it wasn't so desperately sad," says Bev, adding: "The Innocent smoothies in my fridge won't taste the same this morning." Another customer says: "Your business is tainted." Actually, this is from yet another ex-customer, and there are dozens more.

The complaints have poured in to what the company calls Fruit Towers, its headquarters in London's Shepherd's Bush. Richard Reed, one of Innocent's three founders, says he will answer them all personally but he has clearly upset customers of a company that prides itself on being consumer friendly.

Innocent was established 10 years ago this month. Last year, it invited customers to its annual meeting for the first time and, before announcing the Coca-Cola deal, it extended the offer to attend next month's meeting. It could be less of a love-in this time, especially if the Coke representatives dare to show their faces. To Innocent customers, their company was everything the giant American drinks company is not. And vice versa.

Reed formed Innocent with two colleagues from his student days at St John's College, Cambridge. The way they tell the story, they were on a skiing holiday in 1998 wondering why there was nothing decent to drink. One friend, Jon Wright, had tasted smoothies during his days in San Francisco, so they developed recipes and tried them out at a jazz festival in London that summer.

They bought £500 of fruit, erected a sign asking customers "Do you think we should give up our jobs to make these smoothies?" and placed bins marked Yes and No to collect the empty bottles. "At the end of the week, the Yes bin was full so we went in the next day and resigned," says Reed.

It took nine months' planning over the kitchen table before the first drinks were sold through their local café. A friend of a friend of Wright's provided the finance to grow. They sold 24 smoothies on that first day 10 years ago; now they sell two million a week.

But while the business got bigger it carefully avoided the big-business image. Innocent markets itself on its private ownership, ethical standards, recyclable packaging, sustainable fruit supplies and environmentally friendly carbon footprint. It gives 10 per cent of its profits to the Innocent Foundation to fund rural development projects in supplier countries. Excess smoothies are given to the homeless. Last year's Innocent village fete raised £150,000 for Friends of the Earth and other charities. Reed's business cards describe him as "Cherry picker" and it is dress-down day every day at Fruit Towers, where staff all own shares.

The reality was rather more businesslike even before Coke came on board. Reed, after reading geography at Cambridge, was working at BMP, the advertising agency whose clients include Barclaycard. Wright, an engineering student, had joined Bain, the big US management consultancy – hence his time in California. The third founder, Adam Balon, used his economics degree to secure a job at rival consultancy McKinsey.

The early finance was £250,000 from US venture capitalist Maurice Pinto of Priory Investments, who still has a 10 per cent stake – like the 270 staff. Profits now exceed £6m from sales of more than £100m a year, boosted by diversification into vegetable dishes. The company sells through all the big supermarkets, its two-thirds share of the UK smoothie market giving it dominance. It admits to global ambitions and has offices in Paris, Amsterdam, Copenhagen, Salzburg, Hamburg and Dublin.

Yet Innocent has retained its image, even after signing a deal two years ago to supply McDonald's, a company even more despised by its enemies than Coca-Cola. Customer James Snow could accept that dabbling with the devil but drew the line at last week's deal. "We could understand the McDonald's decision as it meant fruit for kids, but how can you justify Coke owning part of Innocent?" he asked.

Reed emphasises that he and his co-founders receive none of the US investor's £30m. "That desert island will just have to wait," he jokes. The money will finance expansion in Europe, especially Italy and Spain.

Germain says: "We're 10 years into a 30-year journey. Our vision is for Innocent to grow into a global, natural, healthy food and drinks company. In terms of international expansion it's a big goal, and to get there we're going to need a bit of help."

Innocent chose the US company from more than 15 potential investors, but Germain says the others wanted some degree of control. "That's why we chose Coke. Of all the people we spoke to, they guaranteed a hands-off approach. We will continue to make the decisions."

However, Coca-Cola's European group business unit president, James Quincey, has been invited to join an investor board that comprises the three founders and Pinto. Quincey, another former Bain consultant who ran Coke's Latin American operations before moving last October to the company's UK office, just yards from Innocent's west London base, says: "We have long admired their brand and their unique approach to business."

And Reed is happy to accept help from his new shareholder: "We chose Coca-Cola because as well as providing the funds, they can help get our products to more people in more places. Plus, they have been in business for more than 120 years, so there will be things we can learn from them."

When people buy Innocent's smoothies they were not just buying a cold drink but also a warm feeling. And they pay a premium. Now Coca-Cola is paying a premium in the hope it feels the warmth too. The group has bought between 10 and 20 per cent of Innocent – Reed refuses to be specific – for £30m but that means it has paid 1.5 to three-times turnover and 25 to 50-times pre-tax profits.

For a company that reputedly spends nearly $2bn (£1.4bn) worldwide on marketing, £30m is a small price if part of Innocent's image rubs off on it. It would cost more than that to launch its own rival smoothie brand, but while Coca-Cola could emulate the product it could never buy the aura created and carefully cultured by Reed and his colleagues.

"It's taken a lot of hard work and not a small degree of luck to get us this far," he says. He reserves special thanks for his customers. "Without you, we'd just have been an expensive fruit-crushing hobby." The customer comments suggest that he will have to make do without many of them in the future, however.

"We sure aren't perfect but we're trying to do the right thing," he concedes. But mixing with the "the real thing" company is the wrong thing, say the formerly loyal customers.

BIG-BOY TAKEOVERS

'Can they mature and remain naive?'

Coca-Cola is not the first worldwide corporation to buy into a group built on alternative and ethical principles. The hope is that the smaller company's social acceptability will transfer to the global giant: the danger is the big business's bad image will damage its new property.

Graham Hales, the London managing director of the Interbrand consultancy, says: "Innocent is embarking on a period of its brand history that has an element of risk. It needs managing carefully."

The late Anita Roddick sold Body Shop to L'Oréal for £652m three years ago, despite the French company admitting to testing cosmetics on animals. A year earlier, Cadbury took over the Green & Black organic chocolate company. McDonald's bought a slice of the Pret a Manger sandwich company in 2001, a precursor to a full private-equity takeover. The previous year Unilever acquired Ben & Jerry's ice-cream business.

The Innocent-Coke deal brings together a global group that is as loathed by many Innocent customers as much as they love their smoothie supplier. However unfairly, Coca-Cola is seen as the epitome of cynical globalism. It seems to be blamed for everything from obesity to third-world poverty.

The company has tried to improve its UK image before but reportedly lost £40m five years ago with its launch of Dasani, a bottled water that turned out to come from a tap in Sidcup. It was hastily withdrawn. "The lesson of that will have been learnt," says Mr Hales, who argues that both companies can gain.

But it is, he says, a sign of Innocent becoming a mature product. "How do you keep the sense of immaturity or naivety that helps create the magic of the brand?" he asks. "Coca-Cola is not stupid. It is not going to want to disrupt the magic."

The stake stops Innocent doing deals with other drinks groups and is, many suspect, the first step to a full takeover. Hales says the negative initial reaction is not unexpected. "The question is what happens next?"

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