Burt Bees Data Monitor

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Burt's Bees case study CSCM0164 / Published 04/2008

Datamonitor. This brief is a licensed product and is not to be photocopied Page 1

DATAMONITOR VIEW

CATALYST

In 2007 Burt's Bees was acquired by Clorox, leading many consumers to be concerned that the natural personal care

company would stray from its original beliefs under such a large owner known mainly for its brands of bleach. However,

Burt's is adamant it will remain faithful to its beliefs, utilizing Clorox's substantial budgets to help promote its brand and aid

distribution.

SUMMARY

Clorox's purchase of Burt's Bees follows other recent acquisitions of natural care companies by industry

heavyweights, including L'Oreal's purchase of the UK retailer The Body Shop, and Colgate Palmolive's

acquisition of Tom's of Maine. The fact that these companies want to enter the market highlights their desire to

capitalize on the growing health and wellness megatrends.

Burt's Bees has received criticism for agreeing to the sale, with people concerned the company will lose sight of

its original ethical focus under the new owner. However, the company claims it will continue to govern and self

regulate the business, and will benefit from Clorox's enhanced marketing and distribution capabilities.

Burt's Bee's marketing before the acquisition focused on grass roots level promotions such as national city tours.

However, it has since utilized Clorox's marketing budgets to form a national campaign promoting the correct

definition of 'natural' personal care.

Burt's Bee's product launches have been in touch with consumer and product trends, such as antioxidants and

enhanced men's interest in the sector. It seems likely to continue to keep up with consumer trends in future.

CASE STUDIES

Burt's Bees case study

Retaining brand values in natural personal care following acquisitionReference Code: CSCM0164

Publication Date: April 2008


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ANALYSIS

Introduction

The natural personal care market is a key growth segment

Consumers are increasingly seeking out cosmetics and toiletries with natural ingredients or properties. Although the

natural concept in the personal care market is not a new phenomenon, the last decade has seen a significant increase in

the sales of personal care products positioned as such. This is especially true in the US, which in 2006 was the largest

market for natural personal care, being valued at US$7.7 billion. The US market has grown from a value of US$5.2 billion in

2001, and is forecast to rise to over US$12 billion by 2011.

The increasing popularity of the market has prompted the launch of an increasing proportion of new natural products.

According to the Productscan database of new product launches, 22% of US personal care launches were touted 'natural'

in 2007, compared to 19% a decade earlier in 1997.

The natural personal care market can be categorized into three core classifications: Broad, Narrow and Organic natural

personal care. Broad definition natural personal care is the largest proportion of the market in all countries due to its less

stringent natural classification and mass-market position. Organic markets are the smallest in all countries due, in counter

balance to broad, to their much more stringent and regulated formulation and more specialized market position.

Narrow definition personal care products, which take the middle ground, include Burt's Bees and are forecast to see some

of the strongest growth in the next few years. Due to the nature of how personal care products are devised and formulated,

it is often impractical to manufacture 100% natural or organic products that can, for example, hold an adequate shelf life.

Broad definition natural personal care products often receive criticism for their lack of adherence to stringent ingredients

used in the manufacture of the product while often using marketing to align their products as such. Therefore the narrow

definition represents the core market for natural personal care that consumers are more likely to find available, switch to

and use more of in the future.

The growth of the natural personal care market highlights how ethical consumerism has hit the mainstream; capitalizing on

consumers' growing awareness of ethical issues and the fact they are using their purchasing power to express their political

and social concerns. However, ethical business practices need not be the core focus of natural personal care

manufacturers, as consumers buy natural personal care for a number of different reasons. Some of the major drivers

behind natural consumption come from more egocentric needs and attitudes such as health. Therefore consumers are

embracing natural personal care for their own health as well as the greater good of the environment.


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Figure 1: Natural personal care is best analyzed from the perspective of broad, narrow and organic

definitions

Source: Datamonitor D A T A M O N I T O R

Large companies are looking to capitalize on the growing natural and ethical segment bypurchasing successful natural personal care players

Colgate-Palmolive and L'Oreal have recently purchased natural personal care companies

The growing natural personal care market has prompted industry heavyweights to enhance their position in the market

through the purchase of leaders within the sector. In 2006, Colgate-Palmolive acquired natural personal care provider

Tom's of Maine for US$100 million, while L'Oreal purchase the UK natural personal care retailer The Body Shop in the

same year for 625 million (US$1.3 billion).

Purchasing existing, successful companies within the sector is an easier way for industry leaders to gain a foothold into the

market. It enables them to exploit the enhanced consumer interest in natural products without having to undergo the harder

path of introducing their own green versions of existing product lines, which could prove a costly failure.


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Clorox follows their lead by purchasing Burt's Bees, in order to improve its 'natural' focus

Leading bleach company Clorox has followed the path taken by Colgate-Palmolive and L'Oreal by acquiring its own natural

personal care company, Burt's Bees. Clorox agreed to pay US$925 million for Burt's in October 2007, stating that the

company would enable it to expand further into the natural/sustainable business platform.

Burt's is a well established natural personal care company, which has gained a loyal following since its foundation in 1984

by Roxanne Quimby and Burt Shavitz. It is this customer loyalty which Clorox aims to expand on. The original Burt's

company sold candles made from the beeswax created as a by-product of Burt's honey business, before branching out into

personal care products in the late 1980s, adding its best selling lip balm to its portfolio in 1991.

A key reason Clorox targeted Burt's was, it stated, that Burt's is regarded by consumers as the leading natural brand in the

US, and one of the most 'natural'. As a company which is best known for its range of bleach products (which are often

criticized for containing ingredients that are bad for the environment) Clorox's entry into the natural personal care market

appears to mark a new direction for the company and a difficult fit. However, the company notes that it is entering a "new

strategic phase", hinting that it aims to delve further into the natural market in future.

"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 Burt's Bees brand is well-anchored in sustainability and health and wellness, and we believe it wil l

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."Clorox Chairman and CEO Donald R. Knauss, press release, 2007

The purchase price far exceeds Burt's sales, showing how much the company believes in Burt's future

sales potential

At US$925 million, the sales price for Burt's Bees is far greater the Burt's recent sales levels generating US$250 million in

2006 highlighting how Clorox expects the company to grow substantially in the future. This faith in the potential of Burt's

future earnings is based upon Burt's quick growth in the past. Ten years ago, Burt's only had annual sales of around US$8

million and 100 products in its portfolio. Its substantial sales in 2006 were generated by an expanded product line 150

products in categories including face care, body care, hair care, lip care, men's grooming, baby care and outdoor remedies

and a growing distribution base; around 30,000 retail outlets sold its products in 2006 (mainly the US, but also the UK,

Ireland, Canada, Hong Kong, and Taiwan). Clorox aims to expand this distribution abroad and in the US to generate

increased sales in future.


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The company also produces a 'green' Clorox line, which has caused criticism that it is jumping on the

bandwagon

Shortly after the purchase of Burt's Bees, Clorox introduced a line of natural based cleaning products called Green Works,

showing that the company intends to go 'green' through internal product development as well as acquisitions. Green Works

is labeled as a 99% natural line the last 1% consists of preservatives and fragrances.

Companies that offer 'green' extensions to their existing product lines have been criticized by producers of natural product

as jumping on the green bandwagon. Tom Fishburne, UK marketing director of natural cleaning products producer method,

comments that "it's interesting that they chose to use Clorox as the brand (for Green Works), given that Clorox is

synonymous with chlorine bleach, which is a big culprit on Method's 'dirty ingredient' list,"(Contagious magazine 2007).

Clorox comments that the use of its name on the new green line is a positive, not a negative, as it gives it the Clorox stamp

of approval that it is effective. Beth Springer, vice president for strategy and growth at Clorox stated that "we would initially

bring it out with the Clorox brand name endorsing it because it gave people a belief in its efficacy, (New York Times,

2008).

What cannot be argued with, however, is the fact that the line will provide Clorox with an excuse to charge a price premium,

providing a big reason Clorox has introduced the Green Works line. Although these cost more to make, they are also more

profitable than standard lines, as consumers are willing to pay more for products they perceive to be good for the

environment. Clorox has noted that its research found that 53% of consumers planned to buy more eco-friendly products

this year and that 47% were willing to pay 20% - 25% premiums for them, highlighting the potential for greener ranges

(New York Times, 2008).

Figure 2: Clorox highlighted its interest in green products with the introduction of an environmentally-

friendly household product range at the beginning of 2008

Source: Clorox/ Datamonitor analysis D A T A M O N I T O R

The sale of Burt's caused criticism from Burt's core enthusiasts

Critics fear the sale will dilute Burt's ethical focus

Like Clorox's new Green Works eco-friendly line, the sale of Burt's Bees has also generated criticism for Clorox, which is

accused of jumping on the green bandwagon while still selling a high proportion of bleached-based (and therefore eco-


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unfriendly) products. In particular, critics feared the sale would dilute Burt's' ethical focus. Alison Stewart, a host on National

Public Radio, said in November: "Who likes Burts Bees now that its been bought by Clorox? You know, just slap some

bleach on your lips, itll all be good,"(NY Times, 2008).

The Toronto Star highlighted its cynicism at the purchase by pointing out that, "other ethically conscious takeover targets

have found it tough, if not impossible, to be at the leading edge of social initiatives once they've been eaten up by the

multinationals. When that happens, the very DNA of companies such as Burt's Bees is lost,"(The Toronto Star, 2008).

Such opinions conveyed the attitude of many of Burt's customers, many of whom wrote in to express their anger on Burt's

blog on the company website. In order to try and placate this anger, the company's CEO John Replogle, wrote his own blog

on the company's website, stating that: "I assure you that the brand and products we all know and love will not change!...

Im not asking you to judge us by our words, rather by our continued actions and commitments to our principles. In the

months ahead, our actions will reflect our commitment to great natural personal care as well as bring to life our passion for

people and the environment,"(November 2007 posting).

This novel method of response highlights how companies can utilize modern communication methods to suit their own

ends, to effectively convey an honest reaction to a situation that has generated impassioned responses.

But Burt's plans to operate as a separate entity in order to retain original ethical philosophy

Like other natural companies before it, Burt's Bees intends to operate a separate entity under its new multinational owner,

retaining its original ethical focus by continuing to be governed by the same CEO and management team. Burt's CEO John

Replogle said that six months after the sale he will post a blog on the company's website about whether he thinks Clorox is

making enough progress on its green initiatives, noting that its 380 employees will have an opportunity to influence the

direction of Clorox. This shows that the company still believes it has the power to govern its own, and Clorox's, future

direction.

The company continues to self-regulate its products to assure consumers that their naturalness is

authentic, which could reassure critics of the sale

Although there is no official regulation of the use of the term 'natural' on personal care products, Burt's Bees has its own

comprehensive, self-governing guidelines of what it means to be a natural product. These guidelines have been retained

under its new ownership, which could offer reassurance to consumers that it intends to maintain the same standards of

production under its new owners, and they will not be diluted.

Burt's Bees Setting the Natural Standard guidelines state that all products that are labeled "Natural" must:

Be made with at least 95% truly natural ingredients;

contain no ingredients with any potential suspected human health risks;

use no processes that significantly or adversely alter the purity/effect of the natural ingredients.


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The company believes "natural" accounts for:

Ingredients that come from a purposeful, renewable/plentiful source found in nature (flora, fauna, mineral);

processes that are minimal and don't use synthetic/harsh chemicals, or otherwise dilute purity.

And that non-natural ingredient can only be used when:

There is no viable natural alternative ingredient available;

there are absolutely no suspected potential human health risks.

Figure 3: Burt's Bees The Greater Good Business Model, highlighting its main areas of focus

Source: Burt's Bees D A T A M O N I T O R

Burt's markets its ethical business through novel initiatives

The company relied on grass roots level marketing prior to its acquisition, including touring the US with the'Bee-utify Your World' tour

Prior to its acquisition by Clorox, Burt's Bees formed innovative ways to market its ethical business, one of the most prolific

of which was the 'Bee-utify Your World' tour. The event, which toured the US in 2006 and again in 2007, stopped at 15 US

cities and featured a Burt's Bee themed tent, along with a honeycomb shaped vehicle, which allowed consumers to try


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product samples and get beauty advice. Around 500,000 coupons money-off coupons were also handed out. The tour

enabled the company to market its brand and beliefs to consumers at a grass roots level, an effective means of marketing

that can help garner consumer trust in a company.

Figure 4: Burt's Bees US tour tent at the Earth Day event in New York, 2007

Source: Earth Day New York website D A T A M O N I T O R

Post acquisition, the company has utilized Clorox's extensive marketing budget by forming a national

campaign, clamping down on 'natural' products that aren't natural

The company forms a national print campaign to promote 'real' natural products

Being part of Clorox has given Burt's Bees access to greater marketing budgets, allowing Burt's to create national

campaigns, which otherwise it would not have been able to afford. This is one benefit of being owned by an industry giant.

The first campaign the company introduced after its acquisition was one that aimed to clamp down on the use of the term

'natural' on products that use sulphates and parabens, ingredients that it deems unacceptable.

As part of the US$10 million campaign, the company intends to release six printed adverts throughout 2008, the first two of

which came out in March in various magazines. One of the adverts (shown in Figure 5) compares the ingredients in Burt's'

lip balm which is made of beeswax to a petrolatum based balm, describing petrolatum as a "nonrenewable hydrocarbon

made from crude oil sometimes used to stop corrosion on car batteries". The other advert features body lotion and


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compares Burt's' milk and honey based lotion to those that contain DMDM Hydantoin, which it describes as "a chemical

preservative linked to skin i rritation".

The adverts avoid naming the companies that use these chemicals, instead aiming to educate consumers on what to look

out for in 'natural' products. Mike Indursky, the firm's chief marketing and strategic officer, emphasized the educational

elements of the campaign. "All we want is to focus on educating the consumer. We have no intention at all to impugn the

integrity of any other brand. All the ingredients named in the ads are approved, but they shouldn't be in products that call

themselves natural,"(Women's Wear Daily, 2008).

Burt's chaired a meeting with the NPA to attempt to form industry standards on natural products

As part of this campaign, in early 2008 Burt's chaired a meeting with the Natural Products Association (NPA) to attempt to

create guidelines for what constitutes a natural product. Its aim is to make the concept of natural comprehensible to

consumers and to develop a seal to identify natural products.

While consumers remain interested and eager to try natural products, some confusion occurs with what is natural and what

is not. This is highlighted in a survey commissioned by Burt's on people's opinions on natural personal care. It found that

78% of US women think natural personal care is regulated in the US (when it is not), while 97% of women think the 'natural'

term should be regulated. In addition, it found that 86% of the women it surveyed think there should be a symbol to certify

'natural' on personal-care products.

Because of the lack of regulation, finding products that are "all-natural" can present problems because many companies

manipulate the term to benefit their sales. Some marketers include the words "pure" or "natural" in a products name, which

can cause consumers to believe that the product is made from natural ingredients when, in reality, it is not. Many products

even claim to be natural, although they only include some natural ingredients. In addition, there is no satisfactory natural

preservative, which therefore limits the shelf-life of 'truly' natural personal care products.

Burt's Bees admits itself that is does not use 100% natural ingredients in its products, but it has developed a "natural bar"

which it presents on its products, showing what it natural and what is man-made in its products. This provides consumers

with clarity and with an honesty which its customers could appreciate.

If Burt's and the NPA can agree on the makeup of the standard guidelines, the seal will be launched later in 2008. The fact

that after its acquisition Burt's is campaigning for industry standards to be introduced on what constitutes a natural product

highlights how the company is successfully retaining its original ethos under its new owner.


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Figure 5: Burt's Bees' campaign aimed to educate consumers on the ingredients they should look for in

natural products

Source: Datamonitor D A T A M O N I T O R

Burts new product introductions are well aligned with consumer and product trends in theindustry as a whole

Burt's Bees achieved success as a stand-alone company partly by launching new products that conform to consumer

trends in product ingredients, a strategy it looks likely to continue under its new owner.

The company gains an understanding of what of the 'hot' trends in personal care partly by listening to its customers. In an

interview in 2006 with BusinessWeek, CEO John Replogle acknowledged the importance of customer communication in

developing new product lines. "We receive over a thousand phone calls and e-mails a week from consumers. It's through

that dialogue that we know where to take our brand. For example, consumers tell us they absolutely adore products in our

hand- and foot-care line. And they say, 'Can you help me by giving me a product like that that's good for all over my body?'

That's what really led to our recent launches of a full range of body lotions."

The popular pomegranate ingredient is used in some of Burt's' products

A recent ingredient trend the company has capitalized on is pomegranate, which has become popular in not only food and

drink products, but personal care items too. This is mainly due to reports of its high concentration of antioxidants, in

particular, the polyphenol antioxidant, ellagic acid. Productscan records that there were only 14 new personal care

launches in the US containing pomegranate in 2002, compared to 128 in 2007, highlighting its growing popularity with

manufacturers.


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Burt's Bee's products containing pomegranate include lip balm, shampoo, and skin serum, showing that the company has

introduced the ingredient into a range of personal care products.

The company has added an anti-aging range with on-trend antioxidant ingredients

Antioxidant ingredients have also been utilized by the company to develop a personal care range designed for older skin,

which capitalizes on the consumer belief that antioxidants are anti-aging. The Naturally Ageless line contains pomegranate

as well as other ingredients such as borage and evening primrose oils, to help diminish the appearance of fine lines and

wrinkles.

Burt's has also developed a men's range to capture this growing market

The company developed a men's range in 2006 as part of a strategy to "meet consumer needs from head to toe",

(BusinessWeek, 2006). The range includes cologne, shaving soap and foam, and aftershave and taps into the growing

men's personal care market.

The company's expanding men's range conforms to changing attitudes amongst men in regards to personal care.

According to a 2007 AC Nielsen survey, globally 78% of men said they thought it was ok for men to spend time and money

enhancing their looks, with the US spearheading acceptance of the male beauty trend (84%). While females do still account

for more consumption of these products, the growing relevance of the male consumer in the wellness arena is

unquestionable.

With the company now owned by Clorox, Burt's Bees can capitalize on the substantial investment reserves held by the

company to continue to launch innovative new lines that fit with consumer trends, while adhering to its natural ingredients

philosophy.


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APPENDIX

Case study series

This report forms part of Datamonitor's case studies series, which explores business practices across a variety of

disciplines and business sectors. The series covers a range of markets including food and drink, retail, banking and

insurance, pharmaceuticals and software.

Each case study provides a concise evaluation of a company that stands out in some area of its strategic operations,

highlighting the ways in which the company has become one of the best in its field or how it deals with different problems

encountered within that sector.

Methodology

A variety of secondary research was carried out for this case study. This included researching the natural personal care

market on Datamonitor's Interactive Consumer Database and the Productscan Online Database of new products, alongside

an extensive review of secondary literature and other in-house sources of information.

Secondary sources

Burt's Bees Ads Aim To Sting Fakes; Women's Wear Daily (February 2008)

Can Burts Bees Turn Clorox Green?; New York Times (January 2008)

Can Burt's survive a bleaching?; The Toronto Star (January 2008)

Method: progressive domestic; Contagious magazine (December 2007)

Burt's Bees: Up From Craft Fairs; BusinessWeek (August 2006)

Further reading

The Next Step in the Ethical Consumerism Revolution (Datamonitor, BFCM0233, February 2008)

Anti-Aging & Beauty Attitudes And Behaviors NCI (Datamonitor, DMCM4605, January 2008)

Natural Personal Care Consumers: Unlocking Future Potential (Datamonitor, DMCM4584, March 2007)

Ask the analyst

The ConsumerKnowledge Center Writing team [email protected]

Datamonitor consulting

We hope that the data and analysis in this brief will help you make informed and imaginative business decisions. If you

have further requirements, Datamonitors consulting team may be able to help you. For more information about

Datamonitors consulting capabilities, please contact us directly at [email protected].


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Disclaimer

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The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that the

findings, conclusions and recommendations that Datamonitor delivers will be based on information gathered in good faith

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Datamonitor can accept no liability whatever for actions taken based on any information that may subsequently prove to be

incorrect.


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