Big businesses control ethical food chain

Almost all large and medium overtly ethical companies have been bought by big corporate houses. (PATRICK CASTILLO)

You can play a game with the trendy food products on supermarket shelves. It's called "spot the owner". What you're looking for – when you scan the tin, tub or pack in your hand – is the actual owner of the company. Not the brand, you understand, but the business that ultimately collects the money you hand over at the till.

You can play it with big-name "ethical" products such as Green & Black's organic chocolate, Rachel's Organics yoghurts, Seeds of Change pasta, sauces and cereal bars, or Ben & Jerry's ice-cream. But, no matter how long you look at the label, you won't have much luck finding the owner.

All of the brands mentioned above are now owned by big business empires. Green & Black's, maker of gourmet high-cocoa bars, is owned by Cadbury, the makers of mass-market, low-cocoa bars. Ben & Jerry's groovy, often highly political, ice-creams belong to the Anglo-Dutch household-goods giant Unilever. Rachel's Organics, a big organic dairy brand, is owned by the United States largest dairy company, Dean Foods, which produces two billion gallons of milk a year

The trend is not limited to a few big players, either. Almost all the medium or large overtly ethical companies whose products are sold in supermarkets are owned by large international organisations. Big corporations have been buying consumer credibility since the mid-1990s, and have put their foot on the gas in the past two years, with the sharp rise in consumer spending on so-called ethical products – and their profitability.

Back in 1997, Seeds of Change, the organic pasta, sauce and cereal-bar outfit, was sold to the confectionery giant Mars, which does not make great play of its ownership of the business.

In 1999, Copella apple juice, the traditional Suffolk apple-juice company, was bought by the orange-juice brand Tropicana, now part of the Pepsi empire.

In 2000, Unilever scooped up Ben & Jerry's, whose funky flavours include Cherry Garcia and Bohemian Raspberry, for £175 million (Dh1.25 billion). A year later, a third of the Pret A Manger sandwich retailer, which shuns "obscure chemicals, additives and preservatives", was sold to McDonald's, which uses E-numbers 578 different ways. All of Pret went to the private-equity company Bridgepoint for £345m in February this year.

In 2003, Dean Foods bought out the remaining 87 per cent stake in Horizon Organics, owner of Rachel's Organics. Then, in 2005, for an undisclosed sum, former City broker Harry Cragoe sold his health-giving PJ Smoothies company to Pepsi. In the same year, the UK's biggest food manufacturer, Premier Foods, bought the fast-growing vegetarian brands Cauldron and Quorn, and the next year, Lion Capital, a private-equity company, took over Kettle Foods, the maker of premium hand-cooked crisps without monosodium glutamate.

In February 2008, one of the remaining stand-alone organic pioneers, the baby-food company Organix, was bought by the Swiss food firm Hero, giving its campaigning founder Lizzie Vann what is assumed to be a substantial but undisclosed payout. In March 2008, the health-food group Dorset Cereals, which makes muesli, porridge and chocolate bars, was bought for £50m by the private-equity company Lydian Capital.

So, the question is: why are these companies selling out? And does it matter? Are "ethical" companies owned by larger companies somehow less ethical – and are their ideas or business practices changed by the takeovers?

Jerry Greenfield, a 57-year-old millionaire social entrepreneur who started Ben and Jerry's, says: "I don't quite know. I don't know what we could have done. I have never come up with a good answer to that."

Him and Ben Cohen took a correspondence course in ice-cream making, bought a dilapidated shop and starting selling scoops of their ice-cream out of the back of a VW camper-van. Their company had ideals. Ben & Jerry's wasn't a normal business; it bought local milk from well-treated cows and donated 7.5 per cent of its profits to good causes. The duo could probably have fought off the Unilever bid if they had not sold a majority stake in the company to Wall Street in 1985 to fund expansion. When Unilever offered a bumper $43.60 a share, the new directors accepted.

"We always considered the company fiercely independent and wanted it to remain that way – primarily because we think the mission of Ben & Jerry's is very different to mainstream corporate thinking," Greenfield says. "We didn't want to be acquired by anyone."

The founders tried to mount an alternative buyout, but it failed.

Still, Ben and Jerry made £15m each from the sale of their 15-per-cent stake.

To find out why companies are bought out, you need only look around a supermarket. An out-of-town store is stocked from ceiling to floor with around 30,000 products. Some of them are unbranded, like carrots, or are the supermarket's own brand; and some are merely different sizes of the same line. But that still leaves hundreds upon hundreds of brands competing for attention, all with different identities, designs, colours, advertisements, slogans, stories.

Food brands are divvied up between a handful of big players, who have economies of scale and negotiating power with the supermarket chains, who, in turn, between them control 76 per cent of grocery shopping.

Pepsico has the top crisp company Walkers, and Tropicana, as well as Pepsi and other soft drinks and cereals.

Kraft, the American "chocolate, cheese and coffee" combine, has Toblerone and Côte d'Or, Dairylea and Philadelphia, and Kenco and Carte Noire.

Nestlé, the secretive Swiss company behind Nescafé, owns a vast chunk of prime chocolate estate including KitKat, Smarties and After Eight, as well as dozens of other brands such as the bottled waters Perrier and San Pellegrino.

Mars and Cadbury control much of those parts of the confectionery market not owned by Nestlé, while HJ Heinz, Unilever and Kellogg's are big in tinned or frozen food or cereals.

Premier Foods has 15 of the top 20 best-selling cake brands; three of the others are owned by United Biscuits. All of the top 15 washing powders are owned by Unilever or Procter & Gamble. (But let's stick to what we can digest.)

So it's hardly surprising, then, that multinationals with the money and the inclination are swallowing up rapidly expanding ethical or specialist brands.

"They all do it for similar reasons – they see the growth at the niche end of markets," says Tim Lang, professor of food policy at City University, London.

"They have seen that there are big areas with big social backing," he added.

Ethical retailing, he points out, amounts to the lucrative emergence of a "values for money" culture rather than a "value for money" one.

Green & Black's embodies this caring corporate culture. Founded in 1991 by Craig Sams and his wife Jo Fairley, the business set out to sell gourmet chocolate: organic (green) and high-cocoa (black). After they'd slogged away for years, the brand became a hit with discerning chocoholics. By 2005, though, Sams felt the business needed a sugar daddy to fund its expansion and help it compete with an emerging threat from organic rivals owned by Hershey and Mars' Seeds of Change. Cadbury, which had taken a five per- cent stake in Green & Black's in 2002 with an option to buy the rest in 2005, promised to run Green & Black's as a stand-alone operation.

Announcing the sale, Cadbury MD Todd Stitzer said the businesses shared "a passion for quality products and ethical values" although at the time Cadbury did not have a single organic or Fairtrade product. Buying Green & Black's gave it immediate ownership of the market leader in organic chocolate.

Cadbury acts like a management consultancy to its new subsidiary, supplying technical and legal advice, such as how to set up a factory in Canada or break into Japan. After being in debt for 30 years, Sams says the sale was good for him – and for Green & Black's.

Cadbury has built fermentation facilities in the Dominican Republic to allow growers to earn more from their beans and has challenged the level of pesticide use in Ghana.

Green & Black's itself is also vastly bigger. "Green & Black's is generating more benefits in a month than it was in two years when we owned it," he says.

Whether ethical brands become less ethical simply by virtue of being taken over is debatable. Ethical Consumer, the Manchester-based magazine, takes into account the standing of the parent firm when assessing the behaviour of its adopted subsidiary. Post-takeover, Ben & Jerry's "Ethiscore" rating slipped from 13 to 1.5 out of 20; P J Smoothies from 12 to 1.5; Pret A Manger from 13 to 7; and Green & Black's from 16 to 9.5. Ethical Consumer says the final destination of the money is important; there's no point buying Fairtrade bananas if the parent company is selling arms to banana republics.

"The trick for multinationals buying niche brands," says Ruth Mortimer, editor of Brand Strategy magazine, "is to achieve a good balance between supporting the smaller business and dominating it. Would Ben & Jerry's lose credibility with consumers as an ethical, trendy brand if it was merged fully into Unilever's ice-cream division? Possibly, which is why the unit is run separately, to protect its brand. As a result, most people probably don't even know that Unilever owns Ben & Jerry's."

Greenfield says that Unilever has kept all its promises. But Ben & Jerry's has to ask permission when it wants to question why 50 per cent of the US Federal discretionary budget goes to the military or why there are 10,000 nuclear bombs.

"If the company was independent, it would just go ahead and do it," Greenfield complains. Dominic Lowe, the Cadbury man who became Green & Black's managing director last year, moving from a £1bn-a-year business to a £40m-a-year one, believes the public is more concerned about the deeds of an ethical company than its ownership.

"Do customers think Green & Black's is independently owned?" he asks. "In the back of people's minds, some of our consumers do know. It's probably like Ben & Jerry's – people know it's part of Unilever. But to me, as long as you keep the product quality unchanged that's what they're concerned about," he says. "Cadbury have never interfered in product quality. They have never said: 'Can you reduce the amount of cocoa solids?''

Founded by three Cambridge graduates who decided to give up their day jobs, Innocent is one trendy company which has so far spurned the advances of suitors. Director Adam Balon says the trio will keep going it alone for now because they enjoy the buzz of overseeing the smoothie company's rapid expansion.

Innocent's turnover has mushroomed from £400,000 in 1999 to £115m in 2008. As well as refusing to use additives or concentrated juice, it gives 10 per cent of its profits to fund rural projects in countries that grow its fruit.

While Balon is careful never to say never, he and his fellow directors have not been tempted to sell.

"We have had conversations. When first interest is expressed you have a meeting because it's flattering. But then you realise there's no point doing it because it wastes everybody's time," says director of Innocent.

The founders retain 80 per cent of the business, with a business angel who provided £235,000 of funding having the remaining fifth. They have never given away any more, because they have kept tight control of costs and sales have soared.

By contrast, P J Smoothies' market share has shrunk sharply during its stay in the Pepsico empire, which is now heavily marketing smoothies made by its premium brand, Tropicana.

For entrepreneurs, perhaps, the message is: if you want to stay independent, keep hold of your company and grow organically.

For consumers, the message is: don't put too much faith in the label. It's not always the case, but when a company gets bought, its founding vision can get a little blurred. Food is big business – and ethical food is growing fastest of all.

(The Independent)

 

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