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    NONFOODS: Category Management: Natural selection

    The Clorox-Burt's Bees deal shows how serious the majors are about penetrating the natural HBC market.

    First, Colgate bought Tom's of Maine just over a year ago. Now Clorox Co. is buying top natural HBC marketer Burt's Bees, in a move confirming that major mainstream brands intend to enter the natural personal care market in a big way, and scooping up a smaller yet iconic natural brand is the modus operandi of choice.

    With the extensive distribution capability the majors bring to the table, this could be the boost needed to get many more natural HBC products onto more grocers' shelves.

    Donald R. Knauss, chairman and c.e.o. of Oakland, Calif.-based Clorox, made that objective quite clear in a recent investors' conference call. "We think there is significant opportunity in grocery where Burt's Bees does less than $20 million of revenue," said Knauss.

    To support Burt's Bees' expansion into the grocery channel, Clorox will also inject the brand with the trade dollars and marketing it needs to move quickly.

    "Our valuation of the business is primarily based on expansion within the U.S. and the countries in which Burt's is currently marketed with anticipated ramp-up and marketing spending as the brand transitions to a more complete mass distribution model," says Clorox c.f.o. Daniel J. Heinrich.

    Heinrich isn't just talking about getting the product into more stores, but getting it into more places in those stores as well. "We see significant potential for building distribution," he says. "While not included in our base valuation for the business, expanding the brand into product adjacencies and seeking more aggressive international expansion offers significant upside potential beyond our valuation."

    There's also the potential for Burt's Bees to expand into additional subcategories, including baby care.

    Burt's Bees president and c.e.o. John Replogle, who will stay on to run the brand, says the acquisition provides the tools his brand needs to move on up. "Clorox brings tremendous brand-building, customer-facing, and product supply capabilities to Burt's Bees that can help us take our business to the next level," he says. "The combination of our two companies creates great opportunities for more innovation and even stronger growth platforms built on health and wellness and sustainability."

    Under the terms of the agreement, Clorox will acquire 100 percent of Burt's Bees from its stockholders in a transaction structured as a merger for $925 million net, with an additional $25 million payment for anticipated tax benefits.

    According to Clorox, the acquisition fits into its "Centennial Strategy" to pursue growth in areas aligned with consumer "megatrends" in health and wellness, sustainability, convenience, and a more multicultural marketplace.

    "With this transaction, we're entering into a new strategic phase for our company, enabling us to expand further into the natural/sustainable business platform," says Knauss. "The Burt's Bees brand is well anchored in sustainability and health and wellness, and we believe it will benefit from natural and 'green' tailwinds. It's in an economically attractive category, with a margin structure that will be highly accretive to Clorox. Combined with our new Green Works line of natural cleaning products, and Brita water-filtration products, we can leverage Burt's Bees' extensive capabilities and credibility to build a robust, higher-growth platform for Clorox."

    According to Beth Springer, Clorox e.v.p., strategy and growth, Clorox plans to operate Burt's Bees as a semi-independent unit, "leveraging its highly effective strategy and plan, its excellent trade practices, and organizational capabilities. Burt's is a wonderful, robust culture and esprit de corps that we want to build on and protect by minimizing the disruption to the business and the culture."

    At the same time, Clorox will explore opportunities to accelerate Burt's Bees' profitable growth, such as its capabilities in the food, drug, and mass merchandiser channels, its expertise in niche brand management, and its strength in advertising and sales promotion.

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