Talking of the need to diversify Innocent’s product range last autumn, founder Richard Reed spoke more truly than he knew when he said, “Our job is to find other things that hit the sweet spot.”
Well, he’s done it in the improbable form of Coca-Cola, the purveyor of sickly sweet carbonates, which last week acknowledged it is taking a £30m (up to 20%) stake in the smoothie maker.
Now it’s easy to be cynical, and assume that Innocent has sold out – sacrificing its wholesome brand values on the altar of Mammon. But you try taking your business to the next stage in the midst of the worst liquidity crisis in living memory and see how easy it is to get the credit injection you need for further growth.
One thing is for certain, Innocent could not afford to rest on its laurels. As its founders recognised some time ago, it is too narrowly based in its product range and too undercapitalised on its own for geographical expansion. The demise of PJ Smoothies, bought by PepsiCo and then folded with indecent haste into its Tropicana operation, and the summary decision by Nestlé to can its would-be smoothies brand contender are reminders of one form of collateral damage inflicted by the credit crunch. The fate of HBOS, which extended a £32m credit line to Innocent to underpin its original round of expansion – and might, in other circumstances, have been the preferred lender for its second – is another.
What matters now is the quality of the deal. Can Coca-Cola be trusted not to meddle given it is a strategic stakeholder? Clearly the sugary soft drinks manufacturer is desperate to appropriate as much of Innocent’s halo as it can lay its hands on, in terms of implied health benefits. Just how desperate may be seen in Coke’s recent Australian “Myth-busting” campaign, which sought with eye-popping naivety to portray its signature soft-drink as non-fattening and (relatively) harmless to teeth. Result: a stinging humiliation after the ad regulator intervened.
That may not seem the most auspicious of motives for getting involved with Innocent. Fortunately, there are other more soundly-based reasons for Coke leaving its integrity well alone. Coke is, of course, a formidable brand and an exceptional global distribution machine; but its record of innovation is indifferent. No need to go back as far as New Coke to demonstrate this; we’ll settle for the mediocrity of Dasani and the fumbling with Coke Zero instead. This is hardly a problem unique to Coke among multinational brand-owners; Nestlé’s difficulties in this area have, for instance, been well noted. The question is what to do about it.
One time-honoured route is simple acquisition. There comes a point in the lifecycle of any entrepreneurial brand, no matter how feisty, when it runs out of momentum. The founders want to sell out, or convince themselves that they cannot take their portfolio to the next stage alone. Such, over the years, has been the fate of fruit soda drink Snapple, originally sold to Quaker Oats in 1994, now owned by Dr Pepper; of Ben & Jerry’s ice cream, sold to Unilever in 2000; or the Body Shop, well past its best as an innovator when it was sold to L’Oréal in 2006; Phileas Fogg premium crisps, which was sold by Derwent Valley Foods to United Biscuits in 1993; Seeds of Change, sold to Mars in 1997; and Green & Black’s organic and fairtrade chocolate brands, acquired by Cadbury in 2005.
This deal does not have the same feel to it; it is probably not a precursor to a full buyout. In some ways it is reminiscent (though not in the scale of its ambition) to a tentative joint-venture partnership Coke struck with Procter & Gamble in 2001. In the event, the deal fizzled out quite quickly, but the idea behind it was illustrative of Coke’s mentality. Both companies agreed to contribute some of their soft drinks and snacks brands to the $4bn JV, P&G believing it could harness some of Coke’s distribution, merchandising and marketing capabilities, Coke hopeful that it would tap into P&G’s superior track-record in new product development.
The closest parallel to date, however, may be found in a deal concluded the same year between Pret A Manger and McDonald’s, which took a 33% stake in the additives-free, organic snack retailer. Then, as now, there was a furore over a supposed sell-out by the brand’s heretofore “idealistic” founders.
In fact, there is little to suggest that McDonald’s did interfere in the day-to-day running of Pret-A-Manger, nor that the association significantly damaged the integrity of the Pret brand. The founders got their money for international expansion and duly bought out McDonald’s in a complex recapitalisation deal with private equity house Bridgepoint completed last year. Which, in turn, is helping to fund a further round of expansion.
And what did McDonald’s get out of the deal during this time (apart from a profit)? Well, pretty much what I suspect Coke is hoping to get out of its deal with Innocent. It’s a laboratory – an insight into changing consumer tastes and approaches to innovation. I’m not talking about the trend towards healthy ingredients (that looks like a brand-stretch too far for Coke) so much as Innocent’s manifest skill at stimulating social engagement (seen in Fruitstock, for example, or the creation of a board game for schools promoting the health benefits of fruit and vegetables). Looked at in this light, £30m is an investment that’s cheap at the price. And one which, in due course, can be sold on for a profit.