Burt's Bees To Expand In Food Channel

WENDY TOTH

OAKLAND, Calif. — Clorox Co. will acquire Burt's Bees, Morrisville, N.C., for $925 million by the end of the year.

With that, the CPG giant said, its priority will be to increase distribution of the natural personal care brand in the U.S. and internationally, particularly in the grocery channel.

“We think there is significant opportunity in grocery, where Burt's Bees does less than $20 million of revenue,” Donald Knauss, chairman and chief executive officer of Clorox, told analysts late last month.

Burt's Bees' net customer sales for 2007 are an estimated $170 million for all channels, which include “Target, Walgreens, the chain drug channel in general, grocery — clearly there's opportunity to accelerate in grocery,” Knauss said.

The sale itself is not a surprise, since natural personal care is a rapidly growing area with significant upside potential. However, “it is intriguing that Clorox is paying an amazing sum in a product area they don't currently play in,” said Jim Wisner, president, Wisner Marketing Group, Libertyville, Ill.

In reference to synergies between the two companies, Knauss said that with Burt's Bees' current distribution, the natural products manufacturer already shares some customers with Clorox. “A lot of these customers are the same types of customers that we call on every day.”

John Repogle, president and CEO of Burt's Bees, said the products will continue to be available in the natural and specialty retailers where the business began, but the brand is increasingly reaching new consumers and channels.

Household penetration and consumer adoption of natural personal care has doubled in the past three years, and Repogle expects it to double again in the next three to five years. “So this is really becoming a mainstream consumer choice; we are just moving with the consumer,” he said.

The company itself will not be moving. Repogle will keep his position, and the Burt's Bees headquarters will remain in North Carolina.

“Our plan is to operate Burt's Bees as a semi-independent unit, leveraging its highly effective strategy and plan, its excellent trade practices and organizational capabilities, and Burt's has 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,” Knauss said.

Asked if some Burt's Bees faithful might be alienated by the products going mainstream, Wisner conceded it's possible, but “if you really believe in the natural lifestyle, you want it to become widespread,” he said. The brand has been “quietly marketed until now, and Clorox is sure to sink enough money into it to make sure it goes mainstream.” This in turn will increase consumer awareness of the natural HBC product category, and likely increase sales for Burt's Bees and other brands, he said.

The deal, which will enable Clorox to enter into the $6.4 billion U.S. natural personal care market, is reminiscent of last year's acquisition of Tom's of Maine, Kennebunk, Maine, by Colgate-Palmolive, New York.

“This acquisition allows us to enter a growing market that's consistent with consumer megatrends,” said Knauss, referring to Clorox's strategy to pursue growth in areas aligned with health and wellness, sustainability, convenience and a more multicultural marketplace.

Clorox has also stepped up public relations efforts for its Brita water filtration brand, which the company believes is benefiting from the consumer desire for sustainability. The consumer packaged goods company is also planning the launch of a natural cleaning line called Green Works.

With these and other brands in mind, Knauss said the grocery channel has strong economic growth potential for Clorox in general. “We've added staff to focus accelerating growth within this channel, through improved assortment in shelving, primarily.”