UNILEVER ’S ACQUISITION OF BEN & J & JERRY’S UNILEVER ’S ACQUISITION OF BEN & J & JERRY’S: BACKGROUND, MOTIVE, AND IMPACT
HITE P APER P REPARED REPARED BY MBA STUDENTS W HITE AT THE U NIVERSITY NIVERSITY OF N ORTH ORTH C AROLINA’ S ENAN -F LAGLER BUSINESS SCHOOL K ENAN -F LAGLER
Authors Manish Bisaria (MBA 2006) Ryusuke Nakagiri (MBA 2006) Jitschak Rosenbloom Rosenbloom (MBA 2006) Laura Worcester (MBA 2006)
Abstract Ben & Jerry’s started as a homemade ice cream shop in Burlington, VT in 1978. Since then the company has grown in popularity, both for its ice cream flavors and for its determination to generate not just financial, but environmental and social benefits. The company’s three part mission statement highlights its goal of running a successful company using sustainable practices. In April 2000, giant multinational Unilever acquired Ben & Jerry’s in order to enter the premium ice cream market quickly and powerfully. Ben & Jerry’s loyalists feared the Unilever acquisition would dampen the small company’s progressive environmental and social activities. Unilever however allowed Ben & Jerry’s to operate as an autonomous entity and openly pledged support for its charitable and sustainable initiatives.
This paper analyzes the impact of Unilever’s acquisition strategy on both the Unilever and Ben & Jerry’s brands. It also reviews key lessons learned from this successful acquisition and recommends Unilever’s strategy as a good model for other multinational companies seeking to acquire sustainable organizations that have an established brand.
Publication Date 2005 ©2005 Kenan-Flagler Business School, University of North Carolina, Chapel Hill, NC, USA. Reprinted by permission. Available online at www.cse.unc.edu. www.cse.unc.edu. This white paper was prepared by MBA students for class MBA251B Sustainable Enterprise, taught by professors Albert H. Segars and James H. Johnson. It is reprinted for educational purposes. Citations and source accuracy have been reviewed, but cannot be guaranteed; clarifications or comments may be directed to
[email protected].
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Keyw ords:
Unilever, Ben & Jerry's, merger, acquisition, integration, cause marketing
UNILEVER ’S ACQUISITION OF BEN & JERRY’S: BACKGROUND, MOTIVE, AND IMPACT Table of Contents
1. Introduction 2. Company Histories Unilever Ben & Jerry 3. Motives for Acquisition Unilever’s Perspective Ben & Jerry’s Perspective 4. Impact of Acquisition Unilever’s Perspective Ben & Jerry’s Perspective 5. Lessons Learned
1. Introduction
Ben & Jerry’s started as a homemade ice cream shop in Burlington, VT in 1978. Since then, it has grown in popularity not only for its ice cream flavors, but also for its determination to reap financial, environmental and social benefits. In April 2000, giant multinational Unilever acquired the Vermont hometown favorite Ben & Jerry’s. This white paper speculates on the lessons learned for both firms as they reconcile their oft-differing objectives, in the immediate aftermath of the acquisition and in practices going forward. We expect the paper to be of value to businesses already practicing sustainability, as well as to those considering an acquisition similar to Unilever’s.
2. Company Histories
Unilever Unilever was founded in 1929 when Margarine Unie merged with Lever Brothers. Both companies were in the business of supplying household goods, but were competing for supplies of oils and fats. 1 Since then, Unilever's growth has been fueled by its expansion of product lines and plant capacities as well as its continuing adaptation to new markets and technology. In the 1980s, Unilever undertook a major restructuring, which resulted in the creation of four core business areas: Home Care, Personal Care, Foods and Specialty Chemicals. Unilever’s plan was to focus on leading brands within its core business units and to emphasize growth within developing countries. 1 This plan challenged Unilever to improve operating margins and increase top-line growth by seeking promising new acquisitions. 2
Ben & Jerry The first Ben & Jerry's scoop shop was opened in 1978 in a renovated gas station in Burlington, VT. 3 By the end of 1988, Ben and Jerry had opened more than 80 ice-cream scoop shops in 18 states. In continuing with their success, sales reached more than $77 million in 1990, which represents a 95% increase over their sales in 1984 (which was $4 million). 4 It seems appropriate that Ben & Jerry’s first scoop shop was in a renovated gas station that was repaired using reused, refurbished, and secondhand materials, such as scrap sheets of aluminum. "Unilever" International Directory of Company Histories, Vol. 32. St. James Press, 2000. http://www.unilever.com/ourcompany/aboutunilever/history/2000s.asp 3 http://www.benandjerrys.com/our_company/research_library/timeline/index.cfm 4 Ibid. 1 2
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Since the formation of the company, Ben & Jerry’s has really gone above and beyond the norm with regards to social and environmental activism. In 1988, Ben and Jerry introduced the company’s 3part Mission Statement, which further highlighted their goal of running a successful company through sustainable practices.
In Ben & Jerry’s history, it has been responsible for a number of successful social and environmental initiatives including: denouncing the use of recombinant Bovine Growth Hormone (rBGH), sponsoring the EVermont initiative to test alternative fueled vehicles (AFVs), implementing environmentally friendly packaging and paper products, and fighting against global warming. Ben & Jerry’s numerous benevolent efforts have strengthened its brand identity and attracted many loyal customers.
3. Motives for acquisition
Unilever’s perspective In 2000, Unilever sought to acquire Ben & Jerry’s for four main reasons. First, Unilever wanted to enter the premium ice-cream market, quickly and powerfully. Richard Goldstein, President of Unilever Foods North America at the time of the acquisition, described his motive: “Unilever believes the super premium segment of the ice cream market will continue to grow and that the Ben & Jerry’s brand will lead that growth.” 5 Apparently Mr. Goldstein was no fool, as his prediction turned out to be true. Between 1999 and 2004, the ice cream category grew 14%, primarily due to premium products such as Ben & Jerry’s. 6 Secondly, Unilever needed strong ammunition in its battle against Nestle to become the world’s largest ice cream company. Nestle had one-upped Unilever through a strategic partnership with Häagen Dazs. An anonymous source, who spoke to Frozen Food Age, noted that Ben & Jerry’s international position against Häagen Dazs fit Unilever’s long-term vision so well, that just about any price could be justified. 7 The purchase rounded out Unilever’s product line so that each product offered by Nestle could be matched with a corresponding counterpart.
http://www.benjerry.com/our_company/press_center/press/join-forces.html http://www.researchandmarkets.com/reports/c23303/ 7 Unilever buy of Ben & Jerry's is 'strategic move'. Warren Thayer. Frozen Food Age. New York: May 2000.Vol.48, Iss. 10; p. 20. 5 6
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Unilever’s third reason to acquire was that it saw fantastic potential in Ben & Jerry’s global position and the potential synergies of that position after acquisition. Already spread across the globe, with brands like Breyers All Natural, Good-Humor, Popsicle, Klondike and Wall’s, Unilever looked to expand further 8 . The company saw tremendous unrealized value in Ben & Jerry’s, particularly because at the time, competitors such as Pillsbury and Dreyers distributed Ben & Jerry’s products internationally. Pillsbury had just partnered with Nestle, making Ben & Jerry’s reliant upon direct competitors.9 The acquisition would mitigate conflicts of interest by pairing Ben & Jerry’s with a distributor who had Ben & Jerry’s well being in its interest, ensuring certain gains. One final factor drove Unilever toward the acquisition: the incredible brand equity that the Ben & Jerry’s label commands. The hometown Vermont ice cream company possessed more personality than any amusement park, rock band, or clothing line. Unilever chairmen Antony Burgmans and Niall FitzGerald described their sentiment: “Ben & Jerry’s is an incredibly strong brand name with a unique consumer message. We are determined to nurture its commitment to community values." 10 The acquirers were acutely aware that while the brand value was extensive, it was also delicate. Should they quickly dispose of the feel-good equity drivers, the entire purchase could be in vain.
Ben & Jerry’s w rapped catchy, emotional packaging around their e v e r y e f f o r t , a st a r k d i f f e r e n t i a t o r t o Haagen-Dazs.
Ben & Jerry’s Perspective Although Unilever offered a large sum of money to Ben Cohen and Jerry Greenfield to acquire their company, neither of them wanted to sell due to the fear of Unilever not continuing forward with Ben & Jerry’s social and environmental causes. However, Ben & Jerry’s shareholders were not pleased with that decision, and thus sued Ben and Jerry until they agreed to sell. As a result, Ben & Jerry’s was acquired in the year 2000 by Unilever for $326 million. 11
In an attempt to not completely abandon Ben & Jerry’s core company values, the terms of the acquisition allowed Ben & Jerry’s to operate separately from Unilever's existing U.S. ice cream business, with an independent Board of Directors to provide leadership for its social mission and brand integrity. 12 Additionally, in order to publicly show its support for Ben & Jerry’s values, Unilever committed $1.1 million a year to charitable causes, made a $5 million one-time grant to the Ben & Jerry’s Foundation, and promised to continue Ben & Jerry’s practice of devoting 7.5 percent of Ben & Jerry’s pretax profits to a charitable foundation. 13 These terms gave Ben and Jerry some solace with regards to the acquisition and allowed Unilever the opportunity to continue forth with the strong brand image that Ben & Jerry’s had already established.
4. Impact of acquisition
Unilever’s perspective A multinational conglomerate of standard consumer products, Unilever had little experience with in-your-face cultures like those at Ben & Jerry’s. Yet, the giant saw great potential in the subsidiary, realized only through a listening ear and respectful bow. And to that extent, Unilever was positively impacted by the purchase. For one, the parent learned to value the integrity of their purchase. Michael Brockbank, vicepresident of brand communications at Unilever, described his sentiment in this respect: "Look at the price we pay for a major acquisition and the amount attributable to the value of the brands we are http://www.benjerry.com/our_company/press_center/press/join-forces.html Ben & Jerry's gets a licking. (Brief Article) Polly Devaney. Brand Strategy, April 2001 p16 10 http://www.unilever.com/ourcompany/newsandmedia/pressreleases/2000/jerry.asp 11 http://www.answers.com/topic/ben-jerry-s 12 Ibid. 13 http://www.workforce.com/section/09/feature/24/00/85/ and http://www.stanford.edu/group/SICD/BenJerry/benjerry.html 8 9
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buying, rather than the cost synergies we may be creating. You'll see that the brands are not an addon at the end... Within the framework of certain systems and the availability of certain tools, I would hate to think there is a single Unilever marketing culture.” 14 And with respect to Ben & Jerry’s, Mr. Brockbank’s colleagues have put their money where their mouths are. The ice cream company still holds its funky music festivals, like last month’s Sundae on London’s Clapham Common, where Irish indie bands played, attendees ate free ice cream, and proceeds benefited Clapham Common. In a poll that followed the event, none of the attendees knew that Ben & Jerry’s was even owned by conglomerate Unilever. 15 The brand had been intentionally abstracted from anything resembling less popular corporations. What’s more, Unilever employed this abstraction right down to its handling of Ben & Jerry’s internal workings. The parent wanted subsidiary employees to go through a standard Unilever exercise of creating a “brand key,” by identifying the company brand and subsequent marketing plan. But Chrystie Heimert, Ben & Jerry's "public e-lations" director demanded that the group Ben & Jerry-ize the process, and the group responded with the key “Joy for the Belly and Soul” and accompanying diagram in the shape of an ice cream cone. 16 The ultimate test of Unilever’s respect for Ben & Jerry’s integrity came in decisions over which of the previously-supported radical philanthropies the parent would continue to support. Amazingly enough, Unilever forced absolutely no compromises. Even the Ruckus Foundation and Global Exchange, which had trained protestors to shut down the 1999 meeting of the World Trade Organization and break the windows of Unilever’s London headquarters, continues to receive $1.1 million each year from Ben & Jerry’s. 17 Only through absolute respect and humility, could Unilever even dream of such a move. After working with Ben & Jerry’s for some time, Unilever saw fantastic financial gains that stemmed primarily from a well-defined culture. Ben & Jerry’s CEO Walt Freese best summed up the gutsy marketing strategy in his interview with Advertising Age: “We try to create trial, too, but loyal customers are the most profitable because we're spending nothing to acquire them... Half the people will love it, half the people will hate it, we don't try to pretend we're anything we're not. You shouldn't be afraid of who you are." Proof: Ben & Jerry’s spends nearly 50% less marketing dollars than Häagen Dazs, yet sells the same ice cream quantity. 18 After the finance-driven parent saw the fantastic gains possible with such a forward campaign, they attempted replication, particularly in their Dove soap line. The crowded grooming category had seen slow growth and slim margins, so Dove’s “Campaign for Real Beauty” addressed an unserved niche by featuring curvaceous women on a website and in TV spots. A shocking novelty, the ads received extensive press and word of mouth, which really paid off. In just one year, Dove’s U.S. dollar sales rose 6 percent. 19 Ben-and-Jerry’s-like values started popping up all over the company after the acquisition. The Unilever corporate website is replete with social and environmental language, 20 company ice cream freezers have been converted from hydroflorocarbon to air-friendly hydrocarbon, 21 and the
D o v e ’ s “ Ca m p a i g n f o r R e a l Be a u t y ” turned heads w ith non traditional m odels, and dro ve great sales gains.
The Trouble with Takeovers. Laura Mazur. Marketing. London: Feb 8, 2001. pg. 26. http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2005/08/21/ccunil21.xml 16 Corporate Crunch. Patrick J. Kiger. Workforce Management; Apr 2005, Vol. 84 Issue 4, p 32-38. 17 It's not easy being P.C.: Funding anti-globalization protesters is one price Unilever pays for Ben & Jerry's.Food Processing, Jack Neff. Feb 2002 v63 i2 p16(2) 18 Ben & Jerry's secret formula for marketing: no apologies. Jonah Bloom.Advertising Age, 8/8/2005, Vol. 76, Issue 32 19 Behind Dove's 'Real Beauty'. Michelle Jeffers. Adweek. New York: Sep 12, 2005.Vol.46, Iss. 35; pg. 34. 20 http://www.unilever.com/ourvalues/environmentandsociety/ 21 http://www.unilever.com/ourcompany/newsandmedia/pressreleases/2000/freezer.asp 14 15
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company shapes cow diets in order to reduce saturated fat in milk 22 . But while these new initiatives seem to correlate with Unilever’s purchase of Ben & Jerry’s, there are still signs that Unilever hasn’t truly taken to heart all of its lessons learned. For example, Slim Fast was acquired at around the same time as Ben and Jerry’s, but with a seemingly opposite approach. Unilever spokeswoman Jennifer Stalzer described the strategy: close up Slim Fast’s West Palm Beach office and fold it into the other U.S. food operations. Instead of respecting the integrity of the acquisition, Unilever chose to cut costs. 23 By discounting the inherent value of its acquisition, it is no wonder that Slim Fast performance has been widely blamed for a 26 percent fall in Unillever profits. 24 Another example of Unilever failing to learn from Ben & Jerry’s involves Yves Couette, a long time Unilever executive who joined Ben and Jerry’s for several years as the CEO- Chief Euphoria Officer. While at Ben & Jerry’s, Yves took on much of the funky culture, including togas, Birkenstocks, berets and dark glasses. But upon returning to manage Unilever’s beverage division in late 2004, Couette took none of culture with him. 25 For that reason, we speculate on the extent to which Unilever is truly embracing all of the lessons that they are learning from Ben & Jerry’s success.
Ben & Jerry’s Perspective As mentioned above, Unilever’s acquisition of Ben & Jerry’s has been a financially successful endeavor. At the time of the acquisition, Ben & Jerry’s had $237 million in sales and earnings of $3.4 million. During the first three years following Unilever’s acquisition, Ben & Jerry’s increased its global sales by 37 percent, tripled its operating margins and expanded into 13 new countries. 26 In addition to the financial benefits of the acquisition, Ben & Jerry’s improved its organizational structure and the employees’ financial awareness under Unilever’s leadership. In a 1994 internal Ben & Jerry’s survey, only 29 percent of employees felt that the business ran smoothly, and just half said their supervisors were good at planning and gave them adequate feedback. 26 Unilever’s management helped guide the Ben & Jerry’s business to be more organized and operate in a financially viable manner. From a social and environmental impact standpoint, Unilever is still trying to maintain the Ben & Jerry’s culture of giving back to the community and saving natural resources. Neither Ben Cohen nor Jerry Greenfield feel that Unilever is being as active on that front as they would like it to be, but as far as large corporations go, Unilever is making strides in the right direction. Under Unilever's management, Ben & Jerry’s continues to publish an annual social and environmental audit, which is performed by an independent auditor. 27 Unilever also has been actively fighting against global warming by investing in thermo-acoustic research, an alternative refrigeration technology that uses sound waves to create cooling and could eliminate the environmentally harmful gases used in mechanical refrigeration. 27 Additionally, Unilever has continued Ben & Jerry’s “PartnerShop Programs”, which allows nonprofit organizations to own and operate a Ben & Jerry’s scoop shop and retain all proceeds for their organization. Ben & Jerry’s even waives the franchise fees and provides support to increase the likelihood of business success.
5. Lessons Learned
For the most part, Unilever’s acquisition of Ben & Jerry’s has been a success from both companies’ points of view. Financially, the acquisition was, thus far, an excellent move. From a sustainability perspective, Unilever has been allowing Ben & Jerry to continue with its philanthropic culture while http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2005/08/21/ccunil21.xml Slim-Fast leaving West Palm. Paul Owers. Palm Beach Post. July 21, 2005 24 Analysis: Slim-Fast wastes away in Unilever's hands. Marketing Week. London: Aug 11, 2005. pg. 9 25 Corporate Crunch. Patrick J. Kiger. Workforce Management; Apr 2005, Vol. 84 Issue 4, p 32-38. 26 http://www.workforce.com/section/09/feature/24/00/85/ 27 http://www.guardian.co.uk/ethicalbusiness/story/0,14713,1471663,00.html 22 23
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learning a few lessons from the small company in the process. Overall, this acquisition is a good model for other companies to follow. The major lessons that we would like other companies to take away from this whitepaper are as follows: 1. 2. 3. 4. 5. 6. 7.
Money is the bottom line Financial profits must be the target Doing good (socially & environmentally) does help to sustain profits Corporate "goodness" is contagious Small divisions (such as Ben & Jerry’s) can make a difference within large corporations (Unilever) Large conglomerates should respect the identity of their acquired firms Sustainable companies should not fear acquisition since their acquirer has financial incentives to continue those practices Sustainability helps drive reputation (Ben & Jerry’s vs. Häagen Dazs marketing dollars example)
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