Have they sold their souls?

Faith Glasgow reports on the quandary faced by the founders of small ethical companies when it comes to bringing their products into the mainstream by accessing the superior marketing and distribution network of a multi-national

Thirty years ago, when Anita Roddick launched the Body Shop in Brighton, “caring consumerism” was a marginal middle-class niche. Since then, and particularly in the last few years, a remarkable sea change has occurred and ethical consumerism is steadily moving mainstream. Around £25bn is now spent by UK consumers on ethical goods and services ranging from cosmetics to financial services, according to industry estimates - and that figure is growing at 15% a year.

So it’s hardly surprising that consumers took it hard when the Body Shop - which defined itself in the marketplace largely through its ethical stances on animal testing, human rights, community trade and the environment - agreed in March to sell to the French cosmetics giant L’Oréal for a cool £652m. It seems an uncomfortable fit: not only are some L’Oréal ingredients still tested on animals, but the company is more than 25%-owned by Nestlé, the most boycotted company in the UK because of its aggressive baby-food marketing strategies in the developing world.

The Body Shop takeover is not the first ethical sellout, nor will it be the last. In the US in 2000, Ben & Jerry’s ice cream melted into the Unilever empire. Last year, the organic and fairtrade chocolate producer, Green & Black’s, was snapped up by Cadbury Schweppes. At the time of writing, Colgate-Palmolive seems set to clean up on the American ethical toothpaste brand Tom’s of Maine.

From the ethical consumer’s perspective, there seems to be a universal sense of betrayal when relatively small independent firms, committed to high-quality products produced with integrity, take a corporate decision to get into bed with faceless conglomerates. The Body Shop’s reputation certainly appears to have suffered as a result, according to BrandIndex consumer ratings measured by YouGov. Two weeks after the sale was announced, the company’s buzz rating among the general public had dropped 10 points, while “satisfaction” was down 11 points.

Such takeovers also damage these companies’ former high standing with ethical pressure groups because even if the target company is allowed to continue with its own ethically sound policies, its profits will now be channelled into the larger corporate pot and could be used to fund unacceptable practices by the parent company.

On Ethical Consumer magazine’s on-line ethical rating system, Ethiscore (www.ethiscore.org), the Body Shop rating has plummeted from 11 out of 20 to just 2.5, on the grounds of the parent company’s rotten track record on animal testing, the use of pollutants and chemicals in its cosmetics, and associations with Nestlé. Indeed, some action groups, including Baby Milk Action and Naturewatch (which campaigns against animal cruelty), are now lobbying consumers to boycott Body Shop products altogether.

Green & Black’s, too, was faced with an Ethiscore downgrading, from an impressive 16 to the current level of 8.5 (9.5 for its fairtrade product, Maya Gold). Its parent, Cadbury Schweppes, does not suffer Nestlé’s blighted image, and indeed has been rolling out its Quaker roots as evidence of a longstanding socially responsible perspective, but it is by no means universally committed to organic or fairtrade practices.

As Rob Harrison, editor of Ethical Consumer magazine, pointed out at the time of the takeover: “Claims by Green & Black’s management that consumers don’t care about who the owner is are not borne out by survey evidence. Fifty percent claim to be keen to take a company’s corporate responsibility record into account, and there are issues for those who don’t believe that Cadbury’s have fully embraced the ideals of the fairtrade movement.”

Similarly, Tom’s of Maine, which hitherto has been highly rated for its environmental and animal testing policies, is set to see its Ethiscore fall from 16 out of 20 to just 5. Colgate has a poor record on both those issues and, in addition, operates in seven countries considered by Ethical Consumer to operate oppressive regimes.

So what’s the attraction for these and other strange bedfellows? Why should such companies even contemplate shacking up together, and what are the likely outcomes when they do?

The founders of small ethical firms face a challenging dilemma when it comes to bringing their products into the mainstream. Many of their supporters buy those products at least partly because they do care about the irresponsible behaviour of big corporations: sell out, and a proportion will walk away. On the other hand, the quickest and easiest way to reach and maybe raise the awareness of a much wider audience is undoubtedly by accessing the superior marketing and distribution network of a multi-national.

“I think they genuinely want to reach wider audiences with their products, and they see a takeover as the best way of accessing that market,” affirms Harrison. “They believe that the knock to their reputation will be outweighed by the boost to sales.

“Where you’re dealing with product-oriented standards such as fairtrade or organic certification, as is the case with Green & Black’s, those standards are very tightly regulated. So all Cadbury’s can do really is sell more of it, and that will benefit the cacao farmers who have been working with Craig Sams [Green & Black’s founder].”

Sams himself, clearly irked by the influential Ethiscore downgrade, defends the sale as a benefit for his cacao suppliers in a response on the Ethiscore website: “They welcomed the news of the acquisition, as it increased their sense of security that the partnership we developed with them will continue. Shouldn’t you wait to see whether Cadbury’s erodes the radicalism of its new acquisition before condemning the brand and the producers who have supplied it for more than a decade? Nothing has changed at Green & Black’s except for the identities of its shareholders.”

More such partnerships are likely to emerge, driven in part by the need to expand distribution. “I visited Innocent Drinks and interviewed one of the founders, Jon Wright,” says the environmental consultant John Elkington. “They are trying to get into supermarket giants like Tesco, but are up against bigger companies like Ocean Spray and PJ’s, owned by PepsiCo. They say they don’t want to sell out, but it’s hard to scale up without getting money from somewhere.” Hilary Cook, director of investment strategies at Barclays Stockbrokers, agrees that the firm is a hot tip to “sell out for a fortune at some point”. So watch this space.

And what about the parent company’s perspective? Basically, says Cook, it’s a response to changing times: buying in an ethical brand is the cheap and easy alternative to building their own. “While these products remain niche, the big companies won’t worry about them - they will just buy in a brand when they want to, and slot it into their massive distribution network.”

She points to Cadbury’s new acquisition as a prime example. “Should Cadbury’s have built its own brand? Maybe, but the Green & Black’s brand was already well established and highly rated in the organic market. Cadbury’s brand is OK, but its real strength is its awesome distribution network. From the shareholders’ viewpoint the takeover looks quite clever - certainly much better than ignoring the organic market on grounds that it’s not that important.”

Inconsistent values

The question in the end is whether the parent company genuinely does embrace the newcomer’s high standards, or simply allows the brand values to continue as the ethical corner of its corporate empire. Harrison argues that it’s inconsistent for an organisation to maintain several differing ethical values - “but corporations probably recognise that they can’t sustain that position indefinitely, which increases pressure on them to make more effort to change.”

Of course, relative size plays a part in this process. Ben & Jerry’s ethical influence within the vast and disparate Unilever empire is likely to be pretty restricted, agrees Harrison, despite the somewhat oblique comment in the takeover announcement that “an opportunity has been offered for Ben & Jerry’s to contribute to Unilever’s social practices worldwide”.

Things could be more promising at Cadbury’s, where external affairs director Neil Makin claims: “Green & Black’s is reinforcing our commitment to all parts of the ethical supply chain. We’re particularly interested in harnessing the ideas and passion that the Green & Black’s team bring to our business.”

L’Oréal is making similar noises about the Body Shop acquisition. “I can’t overnight use the Body Shop approach in all of the L’Oréal companies, but our long-term commitment is to join the Body Shop on this issue,” comments L’Oréal CEO, Sir Lindsay Owen-Jones. “The most exciting thing is about them asking us to teach L’Oréal about community trade,” coos Roddick, who is to remain as a consultant to both brands.

But Cook is sceptical about the match. “It’s a very funny mix, and it brings a real risk to the Body Shop image. This could be a value-destroying acquisition,” she says. It remains to be seen whether the Body Shop does prove to be worth it for L’Oréal, and whether other ethical brands can grow their principles as well as their profits when they sell out.

Faith Glasgow is a freelance journalist, writing mainly on property and finance. She has contributed to a wide range of publications, including most of the broadsheets, Vogue, Country Life and Investors Chronicle.