The founder of organic food supplier Abel & Cole has sold a big stake in the company to private equity investors. He claims the deal will not change the firm’s values. But how have other independents fared when big business takes over?
The Guardian
by David Teather
For the past two decades, Abel & Cole has been salving the consciences of ethical shoppers with its organic fruit and vegetable delivery service. It claims to have 50,000 customers and sales of £28m – but it has ambitious plans to expand. On Tuesday, the company joined the world of big business, selling a stake to the private equity firm Phoenix.
For investors such as Phoenix, which has a fund of £375m, the attraction of ethical firms is obvious; organic food is one of the fastest growing and most profitable markets. As quickly as green or organic companies start out, corporations gobble them up. For the entrepreneurs involved, the corporate world can be a safety net, the chance to expand more quickly, or simply a means to cash in after all those years of hard work.
Each deal starts with the optimistic hope that the core values of the business will be protected. Keith Abel co-founded Abel & Cole in 1988, selling potatoes door-to-door in south-east London. He said that it would be “completely insane” for Phoenix or any other investor to meddle with the core values of his company. “They will let us carry on doing what we’re best at and support us with the rest of it.”
But does it always work out that way when the exigencies of the City begin to bite? Below we look at eight examples of “ethical” companies that have entered the belly of the corporate beast. They are given a rating out of 20 by Ethical Consumer Magazine, based on their impact on the environment, human rights, treatment of animals, sustainability and their political activity – both before the takeover and afterwards.
Ben & Jerry’s
In its 2004 social audit, the ice-cream maker famous for its counter-culture roots made a shocking admission: “We are beginning to look like the rest of corporate America.” One of the first widely known brands to boast of its ethics, Ben & Jerry’s was also one of the first to succumb to the corporations it had set out to challenge. It was bought by the Anglo-Dutch consumer goods giant Unilever in 2000 for £175m.
It has not been a comfortable fit. Factories in Ben & Jerry’s liberal home state of Vermont were closed and hundreds of jobs cut as the company was integrated into Unilever. Its social audit said “fewer than half” of the company’s staff “expressed confidence that Ben & Jerry’s will continue to uphold its commitment to values”. A supplier diversity programme to help minority-owned businesses was abandoned that year.
Jerry Greenfield and Ben Cohen, who founded the company in 1978, stepped back from the day-to-day running even before the sale to Unilever and, disillusioned, distanced themselves still further after the deal. Still, all hope is not lost. Chief executive Walt Freese has encouraged them to get involved again. Over the summer, Ben & Jerry’s launched a campaign to reduce America’s nuclear arsenal and free up $13bn to spend on schools and health; a flavour called American Pie has a pie chart on the lid, breaking down the US budget and showing how much discretionary spending goes to the military. Greenfield said the company had to get Unilever’s approval for American Pie. The parent firm said: “It’s not something we would do” but gave the nod none the less.
The most recent social audit report, for 2005, said the company had made “good strides” in carving out a niche within Unilever and learned how to engage with the parent company on its values more effectively. It claims to have offset 100% of its greenhouse gas emissions in 2005.
Pre-takeover ethiscore 13; post-takeover 1.5.
PJ Smoothies
Founder Harry Cragoe introduced a Britain weened on sticky cordials to the all-natural fruit smoothie in 1994. According to company lore, the former City trader discovered the drink while working in California and was frustrated when he was unable to find anything similar back home. He shipped the drinks from the US until 1998, when the company started blending the fruit at its own plant in Newark, Nottinghamshire, making it easier on the food miles.
The business became a success and turned the heads of the corporations. It was bought last year by PepsiCo and PJ Smoothies now lines up alongside a portfolio of brands including Tropicana and Copella.
The PJ brand was originally called Pete and Johnny, a fictional pair supposed to embody the healthy Californian lifestyle. It emerged last year that the photos of the men who appeared on packaging were in fact two of Cragoe’s English friends. In fact, the brand never had the offbeat credentials that it would have liked buyers to believe. It was backed by public relations consultant Matthew Freud and hedge fund manager Patrick Folkes. The brand today faces an increasingly crowded marketplace and is being outsold by the still independent Innocent. PJ Smoothies could have a worse corporate parent; PepsiCo does at least have one of the most diverse boardrooms in corporate America, led by its India-born female chief executive, Indra Nooyi.
Pre-takeover ethiscore 12; post-takeover 1.5.
Pret A Manger
Makers of the sandwich of choice for middle-class Britain, Pret, founded in 1986, would seem to be the anti-McDonald’s of the high street. It claims to avoid “obscure chemicals, additives and preservatives”, uses recycled packaging, buys organic “where we can”, and says it would never use airfreight to import ingredients. In fact, McDonald’s has a one-third stake in the business.
Simon Hargraves, Pret’s commercial director, admits that selling a third of the company to one of the most reviled (though successful) restaurant chains in the world in 2001 was “a very strange decision” but made sense commercially at the time. The sandwich chain had hoped to use McDonald’s international experience as a springboard for its own expansion overseas. Planned expansion in New York and Hong Kong stalled, although it is about to make a new push and is opening its first store in Singapore.
“McDonald’s has never had any day-to-day role in Pret, nor has it had any say over what we do, or how we do it,” Hargraves says. The Pret founders still have more than 50% of the voting control in the company. But he says the relationship has been useful; McDonald’s has helped source a new biodegradable sandwich box. The sandwich chain says its coffee is already “ethical” but it is working to get it “three badged” as organic, Fairtrade and approved by the Rainforest Alliance.
Pre-takeover ethiscore 13; post-investment 7.
Green & Black’s
Made with organic cocoa beans and – in the case of its flagship Maya Gold bars – Fairtrade- certified, Green & Black’s chocolate is one of the fastest growing confectionery brands in Britain. Little wonder that Cadbury Schweppes, maker of decidedly unorganic Dr Pepper, Bassett’s and Creme Eggs, decided to buy the business last year. Green & Black’s revenues rose 49% in 2005 to around £40m compared with an overall rise in chocolate sales in the UK of just 2%.
Green & Black’s was set up in 1991 by Craig Sams and his wife Josephine Fairley. The couple did a deal with farmers in Belize, offering them a significant premium to the market rate at a time when prices had collapsed. Maya Gold was the first brand in Britain to receive the Fairtrade mark.
The founders had already sold 80% of the business to the former chief executive of the New Covent Garden Soup Company and a group of investors in 1999. But Sams is still president of Green & Black’s. He says there were a few “grumpy letters” when the deal was signed but he doesn’t think that corporate ownership has hurt the brand.
He says Cadbury has introduced more discipline into the business but that it would never tamper with its core values. “Cadbury got its people to read the Fairtrade and organic regulations, which I admit I never have read all the way through because they are hundreds of pages.” He also says that Cadbury has a better record on treatment of cocoa farmers than most people realise.
He is pragmatic about the ability of a company such as Green & Black’s to thrive without corporate ownership. “It’s one of the things that all small companies come up against. You are doing really well but whenever others see that you have done something clever they all come after you – supermarkets launch own brands, wholesalers knock you off. The market becomes fragmented and diluted and other people mop up. So, instead, we took in cash to invest in the brand.”
Pre-takeover ethiscore 16.5 (Maya Gold); post- takeover 9.5.
The Body Shop
Dame Anita Roddick sold The Body Shop to L’Oreal for £652m in March last year, 30 years after opening her first shop in Brighton on a set of principles that shunned animal testing, supported fair trade, the environment and human rights. The deal was, to the say the least, unexpected. The tub-thumping businesswoman had frequently railed against the mores of the big corporations running the beauty business and what she viewed as the unrealistic demands made on women. A couple of years earlier she had launched a withering attack on L’Oreal for employing only “sexy” women on its sales counters. Critics immediately accused her of selling out.
L’Oreal, which owns Maybelline, Lancome and the Armani and Ralph Lauren fragrances, stopped testing on animals in 1989. Some of the chemical ingredients are still tested on animals but L’Oreal says it is supporting the development of alternative testing. Still, detractors have plenty of other ammunition. Nestle, one of the most boycotted companies in the world because of its sale of baby milk powder in the developing world, owns a 26% stake in L’Oreal.
Dame Anita, who died in September, said she had been “seduced” by the French and was convinced that L’Oreal wanted to learn from The Body Shop. “Having L’Oreal come in and say, ‘We like you, we like your ethics, we want to be part of you, we want you to teach us things,’ it’s a gift,” she said at the time. She stayed on as a consultant at L’Oreal, focusing on fair trade. A spokesman said it was “business as usual” at The Body Shop. Among recent initiatives, the retailer is now making all its soaps with sustainable palm oil from Colombia; it also recently announced that all of its products are suitable for vegetarians.
There were immediate calls for a boycott of The Body Shop. But shoppers have clearly found it hard to do without their cranberry body butter and peppermint foot lotion. In the first half of 2007, like-for-like Body Shop sales were up 7% on the first six months of 2006. L’Oreal opened another 56 Body Shops worldwide. The retail chain’s global values director, Jan Buckingham, says that The Body Shop needs to “work hard to earn the trust of our customers” but that corporate ownership had not so far dented its brand image.
Pre-takeover ethiscore 11; post- takeover 4.5.
Rachel’s Organic
Rachel Rowlands was following in the family tradition when she set up Rachel’s Organic in the early 1980s. Her grandmother had owned the Aberystwyth dairy farm and her mother was one of the first to sign up to the Soil Association. In 1952 it became the first certified organic farm in Britain. Today it is part of Dean Foods, a huge and controversial American conglomerate with annual sales of more than $10bn (£4.88bn).
Dean Foods swallowed Rachel’s Organic in 2003, hoping to grab a piece of the growing demand for organic milk and yoghurt, but there is scepticism about Dean Foods’ genuine commitment to organic standards. The Organic Consumers Association in the US has called for a boycott of Dean’s American organic business Horizon. Earlier this year, the Cornucopia Institute, a Wisconsin-based organic watchdog group, filed a legal complaint against Dean Foods for using large, industrial-sized farms that allegedly failed to meet regulatory standards. Dean Foods has strongly denied the allegations.
Rachel’s Organic employs 130 people in Wales and has sales of £40m. The company says that corporate ownership has given it the investment to expand. But it maintains that all of its milk is sourced from certified organic dairy farms and says it is offering incentives to Welsh dairy farmers to switch to organic methods. Asked about the criticism levelled at Dean, a spokesman offered a terse reply: “Rachel’s Organic has no day-to-day involvement in or experience of the US operations.”
Pre-takeover ethiscore 15; post-takeover 13.
Seeds of Change
Right at the bottom of the Seeds of Change website, in tiny pale green type against a slightly different shade of green background, you can spot the Mars name if you look hard. Mars, maker of M&Ms and Twix, bought Seeds of Change in 1997 to the horror of some its most loyal customers.
Seeds of Change began life as a small seed company in 1989 in Santa Fe, New Mexico. It was founded by Howard Shapiro, who was concerned about the long-term effects of intensive farming methods on the environment. The business still produces seeds for vegetables, fruits, medicinal flowers and other plants and expanded to sell a range of organic prepared foods including pasta sauces, cooking sauces, soup, pasta and cereal bars. Mars brought the brand to Britain in 1999 where it is stocked in all of the leading supermarkets .
Shapiro has said he sold to Mars to secure the capital necessary to move into food production. “Mars is interested in providing what consumers want – if that’s organic food, then Mars wants to be able to satisfy that demand,” Stephen Badger, a member of the Mars family, said in one interview. But there is scepticism about Mars. According to the Good Shopping Guide, 90% of its cocoa is sourced from the Ivory Coast, where, the book says, children under 14 are working on farms and it is hard to ensure that cocoa is “slavery free”. Mars simply says that it sources cocoa from many different countries. The company has signed up to an industry protocol to eradicate abusive child labour on farms. A Mars executive co-chairs the International Coca Initiative, a Swiss charity concerned with child and forced labour.
Seeds of Change declined to comment.
Pre-takeover ethiscore 15; post-takeover 3.5.
Tom’s of Maine
Like many brands that trade on their natural, ethical or homemade appeal, Tom’s of Maine is shy of admitting that it is now part of a big corporation. When the healthcare business was sold to Colgate-Palmolive for $100m (£48.8m) in March, the company insisted that its new owner’s brand name would not appear on its packaging.
Tom’s of Maine built its $50m in sales by offering an alternative way of doing business. The company was founded by Tom and Kate Chappell in 1970, who left their corporate jobs in Philadelphia to move to the woods in Maine and start their own natural products business. Their first product was a non-phosphate laundry detergent sold in returnable green jugs. Five years later the company launched its first natural toothpaste, still its flagship product. There is no animal testing, no dyes, preservatives or chemicals and packaging is recycled. The company donates 10% of profits each year to charity. It is famously generous to its workers; something that Colgate, which has been criticised for its labour policies, might find difficult to accommodate.
Ethical Consumer Magazine gives Colgate one of its worst ratings in areas such as environmental reporting and animal testing. In the past, Tom Chappell had frequently berated bigger corporations for their use of additives and chemicals. In his 1993 book The Soul of Business, he said he had received offers from bigger rivals but had turned them down “because I didn’t want to become them”.
At the time of the Colgate deal, he said the company needed to be part of a larger group to meet demand for Tom’s products. He insisted that the Tom’s business philosophy would not change and he had a committment from Colgate that it would not meddle with product formulas. Among the other demands were that the business would still be run independently from Maine. Still, he acknowledged, “I think some of our customers are obviously going to wonder.”
