April 17, 2009
Coca-Cola Buy Stake in U.K.’s Innocent Drinks
By Bernice
Hurst, Contributing Editor
To some, Coca-Cola’s
move in early April to acquire a minority stake in British smoothie maker
Innocent Drinks is a way for the beverage giant to expand beyond soft drinks
by taking a small stake in an innovative company. But others railed about
how Coke’s involvement might corrupt one of the U.K.’s beloved niche brands.
Innocent, which gives
10 percent of its profits to charity and uses recycled bottles, has quickly
become one of Britain’s top brands by emphasizing its healthy ingredients
and social commitment. Some of Innocent’s trucks are covered in fake grass
and daisies, and hydraulics make the trucks appear to dance.
Innocent’s owners plan
to use the £30m investment to fund expansion. Co-founder Richard Reed told
the Telegraph,
“They have been in business for 120 years, so there
will be things we can learn from them. And in some small ways, we may be
able to influence their thinking too.”
But much of the British
media was fixated on how Innocent Drink’s do-good principles would likely
be compromised under Coke’s partnership. A 2007 article in The Independent tabulated how ethical standards at smaller independents were significantly
or at least somewhat diminished after merging or partnering with a larger
corporation. The list included Ben &
Jerry’s/Unilever, PJ Smoothies/PepsiCo, Pret A Manger/McDonald’s, Green &
Black’s/Cadbury, The Body Shop/L’Oréal, and Tom’s of Maine/Colgate-Palmolive.
For instance, Ben & Jerry’s
received a pre-takeover ethical-score of 13; and
a post-takeover score of 1.5. The article noted that since the 2000 merger,
Vermont factories had closed, its co-founders, Ben Cohen and Jerry Greenfield,
had distanced themselves from the brand, and a 2004 company audit found
less than half of the company’s staff
“expressed confidence that Ben & Jerry’s will continue to uphold
its commitment to values.” The article noted that new management had
made efforts to bring the co-founders back into the fold and that has continued.
On the positive side,
Craig Sams, founder of Green &
Black’s chocolates, has said the sale of his company to Cadbury provided
the funding and expertise to expand to the next level.
Assessing the Innocent/Coke
partnership, Ruth Mortimer, the associate editor of Marketing Week magazine,
told the Independent that many of these niche brands continued to
sell well after partnering with larger players. She added, “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.”
Management also vowed
not to lose its scruples.
“Every promise that
Innocent has made, about making only natural healthy products, pioneering
the use of better, socially and environmentally aware ingredients, packaging
and production techniques, donating money to charity and having a point
of view on the world will remain,” Mr. Reed told the Guardian.
“We’ll just get to do them even more.”
Discussion Questions:
What’s the likelihood that ethical standards slide after a smaller, socially-conscious
brand merges with a larger corporation? If likely, how harmful is that
to a brand’s development? What’s the key to preserving those niche attributes
while capitalizing on synergies coming from a larger parent?
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It has been said that it is difficult for big companies to operate little boxes and while that statement refers to retail, it has some applicability to large CPG companies and niche operations. The difficulty is that for Innocent, it goes from being the entire company with its founders calling the shots to being part of a much larger company where it is part of a portfolio whose manager has no emotional investment in the brand. He or she only knows that in order to meet their objectives they need to hit certain goals – sales, market penetration, profit, etc.
The question of whether it is harmful or not depends on the eye of the beholder. Is it harmful if the company earns three times the money, but only donates twice their current amount to charity? For a company like Innocent to stay true to its current brand positioning will require someone much higher than its new overseer with Coke to say let it be.
Okay, so maybe a lot of big corporations forget what made the small companies they just bought so great in the first place. But that doesn’t mean every innovative company is doomed to lose their social or market standing. Large corporations that understand that there is value beyond the balance sheet will allow these unique companies to grow and flourish.
Corporations that are short sighted, as some mentioned in the article, will see the results of their actions at the end of each quarter.
In this example, I truly believe Coke will have the insight to encourage Innocent to continue doing business based on its current philosophy and practices.
I’ve personally been part of three of these from the corporate side. Everyone enters into the arrangement with the best of intentions. The strategy is clear. The innovative young company must retain its independence and values or the magic will die. The parent company will “nurture” the adolescent into responsible growth. The small company’s management vows to fight any attempt to impose big company process and procedure that would kill the spirit of the organization they built. And everyone really means what they said.
Then inertia sets in. Big absorbs small. Small is forced to comply with system in the name of the great god “Synergy”. (“install SAP”; “have Deloitte do your audit”; “move the advertising to Saatchi”). Then the HR folks kick in with the opportunity for “cross-pollenization” of talent. The final blow is when the senior management team decides that the “XYZ Division” would be the perfect place for that up and coming new marketing director to cut her teeth as a general manager.
It would be nice if we could break that cycle. I know we all really meant to — every time we didn’t.
I declare Ben Ball a prophet! What he describes is exactly what will happen. I too have seen this many many times.
I’m just not so sure it’s an ‘ethics’ problem exactly – it will be more of an ego problem. People who run big institutional organizations can’t stand to see people running free, thinking for themselves AND being enormously successful at the same time. By needing to have control they squeeze the life out of companies like Innocent all the while protesting that it’s “for their own good.”
On the other side of the deal those who ‘sell out’ the dream need to look at themselves too. A big whack of money is very hard to resist, no doubt about it. The hard question is: Is it worth your corporate soul? I’d love to know if Ben and Jerry are glad they did it.
Big company buys small company.
Opens up new distribution opportunities for small company products.
Changes (improves?) or moves production to meet new demands.
Little company fades and loses its cache.
This one is simple. Coke did not buy this brand for it to chug along in its uniquely popular niche. Coke bought this brand because they thought they could substantially grow it. Coke is projecting a return on investment for this acquisition. That return on investment will include increases in volume and cuts in cost. I assure you that the first research Coke did before this acquisition was determining how the brand could be extended.
And even if the first plan written for this brand says, “we will continue to focus on the ethical standards (does that mean Coke doesn’t have ethical standards?) and social consciousness of Innocent Drinks”, the next year’s plan will focus on how to increase sales and the bottom line while paying lip service to the initial charge. And, by the time the third or fourth annual plan is written no one will find the words “ethical” and “consciousness” in the narrative.
Is that all bad? That depends. On the positive side, there is no doubt that this brand will become bigger and more profitable. There is also no doubt that the size of the niche will be too small for any long term plans Coke might have for this brand.
What is the key to preserving those niche attributes while capitalizing on synergies coming from a larger parent? There is none. The objectives of a large company are diametrically opposed to the objectives of a small niche company. That doesn’t mean it is always a bad idea. The large company will drive the revenues up substantially and that will be their measure of success. If it means leaving some of the original attributes of the small company in the dust, that is fine, because the large company is not in business to grow attributes, it is in business to grow sales and profits.
If Coke had purchased 40% of Innocent, I’d say that worry was justified. But a 10% stake won’t get them very far in the boardroom, and at this point, with that level of investment, they are no more than a bank, with strategic value in the way of information and knowledge.
This doesn’t mean that Coke won’t have suggestions that might be seen as negative by the ethics police, but the Innocent management team have been around long enough that they will be able to hold their own against the Coke management, and I doubt we will see huge changes in how the company operates.
Couldn’t we look to see what happened at Odwalla when Coke bought them? Seem to be similar situations.
Also, how about when Kellogg bought Kashi? Maybe someone with knowledge of these situations could shed light on what will happen to Innocent Drinks.
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It has been said that it is difficult for big companies to operate little boxes and while that statement refers to retail, it has some applicability to large CPG companies and niche operations. The difficulty is that for Innocent, it goes from being the entire company with its founders calling the shots to being part of a much larger company where it is part of a portfolio whose manager has no emotional investment in the brand. He or she only knows that in order to meet their objectives they need to hit certain goals – sales, market penetration, profit, etc.
The question of whether it is harmful or not depends on the eye of the beholder. Is it harmful if the company earns three times the money, but only donates twice their current amount to charity? For a company like Innocent to stay true to its current brand positioning will require someone much higher than its new overseer with Coke to say let it be.
Okay, so maybe a lot of big corporations forget what made the small companies they just bought so great in the first place. But that doesn’t mean every innovative company is doomed to lose their social or market standing. Large corporations that understand that there is value beyond the balance sheet will allow these unique companies to grow and flourish.
Corporations that are short sighted, as some mentioned in the article, will see the results of their actions at the end of each quarter.
In this example, I truly believe Coke will have the insight to encourage Innocent to continue doing business based on its current philosophy and practices.
I’ve personally been part of three of these from the corporate side. Everyone enters into the arrangement with the best of intentions. The strategy is clear. The innovative young company must retain its independence and values or the magic will die. The parent company will “nurture” the adolescent into responsible growth. The small company’s management vows to fight any attempt to impose big company process and procedure that would kill the spirit of the organization they built. And everyone really means what they said.
Then inertia sets in. Big absorbs small. Small is forced to comply with system in the name of the great god “Synergy”. (“install SAP”; “have Deloitte do your audit”; “move the advertising to Saatchi”). Then the HR folks kick in with the opportunity for “cross-pollenization” of talent. The final blow is when the senior management team decides that the “XYZ Division” would be the perfect place for that up and coming new marketing director to cut her teeth as a general manager.
It would be nice if we could break that cycle. I know we all really meant to — every time we didn’t.
I declare Ben Ball a prophet! What he describes is exactly what will happen. I too have seen this many many times.
I’m just not so sure it’s an ‘ethics’ problem exactly – it will be more of an ego problem. People who run big institutional organizations can’t stand to see people running free, thinking for themselves AND being enormously successful at the same time. By needing to have control they squeeze the life out of companies like Innocent all the while protesting that it’s “for their own good.”
On the other side of the deal those who ‘sell out’ the dream need to look at themselves too. A big whack of money is very hard to resist, no doubt about it. The hard question is: Is it worth your corporate soul? I’d love to know if Ben and Jerry are glad they did it.
Big company buys small company.
Opens up new distribution opportunities for small company products.
Changes (improves?) or moves production to meet new demands.
Little company fades and loses its cache.
This one is simple. Coke did not buy this brand for it to chug along in its uniquely popular niche. Coke bought this brand because they thought they could substantially grow it. Coke is projecting a return on investment for this acquisition. That return on investment will include increases in volume and cuts in cost. I assure you that the first research Coke did before this acquisition was determining how the brand could be extended.
And even if the first plan written for this brand says, “we will continue to focus on the ethical standards (does that mean Coke doesn’t have ethical standards?) and social consciousness of Innocent Drinks”, the next year’s plan will focus on how to increase sales and the bottom line while paying lip service to the initial charge. And, by the time the third or fourth annual plan is written no one will find the words “ethical” and “consciousness” in the narrative.
Is that all bad? That depends. On the positive side, there is no doubt that this brand will become bigger and more profitable. There is also no doubt that the size of the niche will be too small for any long term plans Coke might have for this brand.
What is the key to preserving those niche attributes while capitalizing on synergies coming from a larger parent? There is none. The objectives of a large company are diametrically opposed to the objectives of a small niche company. That doesn’t mean it is always a bad idea. The large company will drive the revenues up substantially and that will be their measure of success. If it means leaving some of the original attributes of the small company in the dust, that is fine, because the large company is not in business to grow attributes, it is in business to grow sales and profits.
If Coke had purchased 40% of Innocent, I’d say that worry was justified. But a 10% stake won’t get them very far in the boardroom, and at this point, with that level of investment, they are no more than a bank, with strategic value in the way of information and knowledge.
This doesn’t mean that Coke won’t have suggestions that might be seen as negative by the ethics police, but the Innocent management team have been around long enough that they will be able to hold their own against the Coke management, and I doubt we will see huge changes in how the company operates.
Couldn’t we look to see what happened at Odwalla when Coke bought them? Seem to be similar situations.
Also, how about when Kellogg bought Kashi? Maybe someone with knowledge of these situations could shed light on what will happen to Innocent Drinks.