It is no surprise that traditional CPG companies are diversifying and bringing purpose to their brand acquisition strategies: purpose-driven brands build stronger consumer connections, their employees are happier, they generate positive impact on communities and the environment, and they consistently outperform the market . Case after case shows that purpose-driven companies are critical growth drivers for well-established, legacy CPG brands.
But there have also been plenty of failed acquisitions and much to learn from them. Take cereal-maker Kellogg’s acquisition of organic upstart Kashi in 2000 as an example. While initially successful by allowing Kashi to operate autonomously, Kellogg’s eventually began taking over various operations and driving their way onto Kashi’s business. This resulted in Kashi sales dropping 35% between 2010 and 2014. There is also the case of P&G’s acquisition of leading natural vitamin company New Chapter in 2012. New Chapter looked to P&G for research funding, but were met with increased pressure for profitability, as they were fully integrated into P&G’s business, and vetoed plans to develop innovative products. The founders of New Chapter left the company in early 2018.
It is not enough to acquire and optimize smaller, niche brands to reap the benefits. There is a right way to nurture them and achieve synergy and growth on both sides. In particular, Clarkston’s research has uncovered four principles to be followed for a successful brand acquisition of a purpose-driven business:
1. You’ve acquired. Now leave them alone.
Purpose-driven companies are different. Their cultures are different, their strategies are different, how they operate is different. So it rarely works well for a purpose-driven company to be rapidly and fully integrated into the parent company. Rather, the most successful acquisitions of purpose-driven companies provide some level of autonomy and a gradual integration.
Insights in Action: Danone followed a phased approach in its acquisition of Stonyfield, and ultimately integrated it as a wholly-owned subsidiary. The result was that Stonyfield was able to continue its strong growth trajectory, while Danone had time to learn about Stonyfield’s unique operations – allowing it to capture social and financial impact simultaneously. Ultimately, Stonyfield grew from an $85M company in 2001 to being sold for $875M in 2017, while managing to remain consistent to its mission throughout.
Takeaway: Since a critical differentiator of purpose-driven companies lies largely in their unique value proposition and culture, new acquisitions are more likely to be successful if allowed to operate independently, at least in the short term. Too much integration (and too fast) can result in misalignment with the company mission, loss of customer trust, higher employee turnover, and ultimately value dilution.
2. Champion the culture champions.
Within every purpose-driven organization there is a ‘secret sauce’ of key leaders, employees, customs, or practices driving the company’s mission and culture. To carry out a successful acquisition of a purpose-driven company, the acquirer must identify these cultural drivers and ensure they remain post-acquisition. Lose these, and the culture erodes.
Insights in Action: When Clorox acquired Burt’s Bees in 2008, John Replogle was kept on as CEO because he was a powerful proponent of the culture and rallied employees for the company’s mission. Furthermore, Clorox retained and even adopted several Burt’s Bees traditions that exemplified the company mission like Dumpster Drive, during which employees sift through the dumpster at company headquarters and remove anything that can be recycled or composted.
Takeaway: Maintaining the key advocates and customs that promote the company’s purpose allows for the culture to survive.
3. Don’t be a commitment-phobe.
One of the greatest challenges in acquiring a purpose-driven company is retaining consumers’ and employees’ trust. The most successful acquirers recognize that they must legitimately commit to upholding the subsidiary’s mission and values in order to reap benefits of the acquisition over the long term.
Insights in Action: As part of its acquisition agreement with Unilever, Ben and Jerry’s established an external board whose sole responsibility is to oversee the company’s alignment with its mission. It has the ability to block any decisions that it deems misaligned with Ben and Jerry’s mission or values, and even has the ability to sue Unilever if there is a dispute over any decision.
Takeaway: A purpose-driven company’s brand equity hinges on the unique value proposition its mission provides. Without firm commitments to uphold those values, the mission might become diluted over time. The stronger the commitment, the stronger the mission, and the stronger the company.
Think long-term. Purpose-driven acquisitions require a longer-term view than traditional M&A. They are, by definition, long-term oriented, continuously working to achieve a greater goal, not to deliver short-lasting value. Thus, when evaluating economies-of-scale initiatives for purpose-driven companies, it is important to keep a long-term perspective.
Insights in Action: When Coca-Cola acquired Honest Tea, it offered an opportunity for distribution through Wendy’s fast-food chain. At first consideration, it seems counter-intuitive for Honest Tea—whose mission is to promote a healthy lifestyle—to be associated with fast food. However, by partnering with Wendy’s, Honest Tea is able to impact more consumers to slowly change their eating habits by choosing a healthier option. Thus, this unlikely partnership and strategy creates the right value: the potential for financial results and the amplification of Honest Tea’s mission in the long term.
Takeaway: Purpose-driven organizations focus on longer-term thinking and are often willing to forgo short-term profits to set the course for what they believe in (see REI “opt-outside” campaign). However, aligning growth initiatives to their long-term horizon can prove to be right move towards longevity.
The (triple) bottom line.
With rising trends of wellness and sustainability, as well as greater consumer consciousness and desire to connect with brands on a higher cause, purpose-driven companies are attractive brand acquisition targets. But it takes more than the sticker price to capitalize on these investments. Purpose-driven companies need freedom to independently operate, commitment to uphold their values, consistency in their motivational leaders, and a long-term horizon to truly deliver financially.
Co-author and contributions by Katerina Baduk, Allie Gordon, and Alex Schneider