Clorox’s Purchase Of Burt’s Bees Confirms Arrival Of Naturals To Mainstream

Clorox's acquisition of Burt's Bees is the latest example of a consumer products giant zeroing in on a small natural products company in order to hitch a ride on a trend that increasingly is infiltrating the mass market, research firm Kline and Company says.

Clorox announced Oct. 31 that it will purchase Burt's Bees for "$925 million net of an additional $25 million payment for anticipated tax benefits." The transaction is expected to close at the end of the calendar year, the firm says.

Under the terms of the deal, current Burt's Bees President and CEO John Replogle will remain at his post, and the company will continue to be based in Durham, N.C.

Clorox Chairman and CEO Donald R. Knauss states: "This acquisition allows us to enter a growing market that's consistent with consumer megatrends."

"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," the exec says.

In 2003, Burt's Bees co-founder Roxanne Quimby sold a controlling equity interest in the company to private equity firm AEA Investors (¹ 'The Rose Sheet' Oct. 27, 2003, In Brief).

At that time, Burt's Bees netted about $50 million in annual sales; the company is expected to book about $170 million in 2007.

Noting that Burt's Bees is "poised to capitalize on expanded distribution" in the U.S. and abroad, Clorox Senior VP and CFO Dan Heinrich states: "We believe we can add value and expand these trends over time through our strong customer capabilities, while maintaining Burt's Bees' higher margins."

Burt's Bees is expected to add nearly two points of top-line growth to Clorox in fiscal years 2008 and 2009, according to the release.

On its Web site, Burt's Bees states: "This new journey gives us the energy and the resources to do even more. Not only will we be able to accelerate our growth, but this will also help us to grow the natural personal care category in general, furthering our commitment to The Greater Good."

It remains to be seen whether consumers are prepared to accept the marriage between Burt's Bees and a brand perhaps best known for bleach and household cleaning products.

Clorox suggests that Burt's Bees is in fact considered by many consumers to be the "most natural" personal-care brand.

The company's Chief Marketing Officer Mike Indursky has been selected to chair a work group formed by the Natural Products Association to craft a standard definition for the word "natural" as it applies to health and personal care (² 'The Rose Sheet' July 30, 2007, In Brief).

Clorox suggests that Burt's Bees will fit in with its Green Works line of natural cleaning products and its Brita water-filtration products.

Natural personal care is roughly a $6.4 billion opportunity, and the market is growing about 9 percent annually, Clorox estimates.

Researcher Packaged Facts has projected that the naturals and organics market will reach $10.2 billion by 2012, with annual revenue gains at 8 percent to 11 percent (³ , p. 3).

More Acquisitions To Come, Kline Predicts

In an Oct. 31 release, Karen Doskow, project manager for Kline's Consumer Products practice, notes that "for a long time, natural products have been the domain of health and organic food stores - niche retailers with a core group of loyal customers."

"Naturals are now becoming commonplace in the aisles of national chain grocery and discount stores like Wal-Mart and Target. This will have a major impact on the competitive landscape of the personal care market," she says.

The shift could effect a "revival of sorts among long-established yet little-known natural products companies like Jason Natural Products and Avalon Natural Products," making them prime candidates for absorption by bigger players, Kline asserts, citing the Burt's Bees buy as the "perfect example."

Kline also suggests that such "key acquisitions" could bring about more intensive regulation of ingredients in the natural products ambit.

"Currently, the naturals market is virtually unregulated in the United States, which means that authentic natural manufacturers must face off against mainstream imitators and 'greenwashing' practices - slick marketing that only sounds natural," Kline says.

Kline's newly released report - Natural Personal Care 2007: Competitive Brand Assessment and Ingredient Analysis - profiles 26 players in the natural personal-care market and ranks the true "naturalness" of their brands and products, separating players from pretenders and "perception from reality" (⁴ (Also see "Coming Reports From Kline To Separate “Natural” Players From Pretenders" - HBW Insight, 28 May, 2007.), p. 4).

Other major personal-care manufacturers that have drawn up deals with smaller natural companies in order to secure a foothold include Estee Lauder, which acquired natural hair-care marketer Ojon in July (⁵ (Also see "Lauder To Buy Ojon, Gain Ingredients Harvested By “People Of Beautiful Hair”" - HBW Insight, 16 Jul, 2007.), p. 4). Additionally, last year L'Oreal acquired The Body Shop and Colgate-Palmolive purchased a stake in Tom's of Maine.

In October 2006, Clarins announced an agreement with French natural direct seller Kibio to create a line of natural and organic skin care. For $4.3 million, Clarins has acquired a 10 percent stake in the company and granted Kibio a loan that would allow Clarins to obtain an additional 50 percent of Kibio's capital. The arrangement will allow both parties to profit from synergies in research, production and international distribution, Kibio says.

As major firms continue to enter the naturals market, widespread adoption of natural ingredients by consumers and further incorporation of natural brands into the mainstream is likely to follow, Kline says.

- Molly Laas ([email protected])