Can Burt’s Bees Turn Clorox Green?

http://www.nytimes.com/2008/01/06/business/06bees.html

January 6, 2008
Can Burt’s Bees Turn Clorox Green?
By LOUISE STORY

IN the summer of 1984, Burt Shavitz, a beekeeper in Maine, picked up Roxanne Quimby, a 33-year-old single mother down on her luck, as she hitchhiked to the post office in Dexter, Me. More than a dozen years Ms. Quimby’s senior, the guy locals called “the bee-man” sold honey in pickle jars from the back of his pickup truck. To Ms. Quimby, he seemed to be living an idyllic life in the wilderness (including making his home inside a small turkey coop).

She offered to help Mr. Shavitz tend to his beehives. The two became lovers and eventually birthed Burt’s Bees, a niche company famous for beeswax lip balm, lotions, soaps and shampoos, as well as for its homespun packaging and feel-good, eco-friendly marketing. The bearded man whose image is used to peddle the products is modeled after Mr. Shavitz.

Today, the couple’s quirky enterprise is owned by the Clorox Company, a consumer products giant best known for making bleach, which bought it for $913 million in November. Clorox plans to turn Burt’s Bees into a mainstream American brand sold in big-box stores like Wal-Mart. Along the way, Clorox executives say, they plan to learn from unusual business practices at Burt’s Bees — many centered on environmental sustainability. Clorox, the company promises, is going green.

But not even Clorox can sanitize the details of a fallout between Mr. Shavitz and Ms. Quimby that began in the late 1990s — when Ms. Quimby managed to buy out the bee-man for a low, six-figure sum. She has been paid more than $300 million for her stake in Burt’s Bees, and she spends her time traveling, refurbishing fancy homes in Florida and preserving large tracts of land in Maine. Burt himself, now 72, makes his home again in the converted turkey coop — expanded but without running water or electricity — but with $4 million or so to his name.

As unlikely as their journeys have been, Ms. Quimby and Mr. Shavitz are pioneers in an entrepreneurial movement that has lately won the affection of corporate behemoths.

Clorox was willing to pay almost $1 billion for Burt’s Bees because big companies see big opportunities in the market for green products. From 2000 to 2007, Burt’s Bees’ annual revenue soared to $164 million from $23 million. Analysts say there is far more growth to be had by it and its competitors as consumers keep gravitating toward products that promise organic and environmental benefits.

In the last couple of years, L’Oréal paid $1.4 billion for the Body Shop and Colgate-Palmolive bought 84 percent of Tom’s of Maine, which makes natural toothpaste and deodorant, for $100 million. Clorox is also creating eco-friendly product lines of its own.

Many corporate leaders have sold their shareholders on green initiatives by pointing out that they help cut costs — an argument that is more persuasive now, while energy costs are sky high. But as companies rush to put out more and more “natural,” “organic” or “green” products, consumers and advocacy groups are increasingly questioning the meaning of these labels.

Clorox, for one, will face plenty of skepticism. Environmentalists have long said that bleach is harmful when drained into city sewers. The disinfectant has become a stand-in for jokes about chemicals and the environment, and a new round seems to have begun this fall when the company acquired Burt’s Bees.

“Who likes Burt’s Bees now that it’s been bought by Clorox?” Alison Stewart, a host on National Public Radio, said in November. “You know, just slap some bleach on your lips, it’ll all be good.”

Clorox executives have been fighting what they call “misinformation” about bleach for years. The company says that 95 to 98 percent of its bleach breaks into salt and water and that the remaining byproduct is safe for sewer systems. And Clorox sells many products that have nothing to do with bleach — including Brita water filters, Glad trash bags and Hidden Valley salad dressings.

Still, after Clorox agreed to buy Burt’s Bees last fall, scores of customers called Burt’s Bees and accused the company of selling out. John Replogle, the chief executive of Burt’s Bees, says he personally responded to customers who left their phone numbers.

“Don’t judge Clorox as much by where they’ve been as much as where they intend to go,” Mr. Replogle says he told them.

For her part, Ms. Quimby is at peace with the Clorox deal. “I feel the fact that I was able to sell the company accelerated the process of land conservation in terms of what I could do,” she says. “So if there is any negative karma, I’m neutral.”

BACK in 1984, at the end of their first summer together, Mr. Shavitz suggested that Ms. Quimby use some of his beeswax to make candles. She did, and the candles sold for $3 a pair at a crafts fair. Ms. Quimby then started experimenting, making beeswax polishes for shoes and furniture from recipes she found in an old farmer’s manual. Those products found some fans, but didn’t sell well.

When the pair incorporated as a company — in 1989 or 1991, no one can quite remember when — Mr. Shavitz owned one-third and Ms. Quimby owned two-thirds, she says. The famous Burt’s Bees lip balm was born in 1991, and that item, a combination of beeswax and sweet almond oil, helped the company find a niche in personal care products.

Mr. Shavitz was still active in the company in 1993, when they moved its base to North Carolina. Sales had reached $3 million a year, and they wanted to find a state with lower taxes and more workers to keep their business growing, Ms. Quimby says.

During this time, the couple had a falling-out, their romance became strained, and Mr. Shavitz decided to return to Maine. It is unclear exactly when he moved back permanently; Ms. Quimby said it was in 1993, but in a written response to questions, Mr. Shavitz implied that it was later.

What is clear is that Mr. Shavitz lost out on a huge payday. In 1999, Ms. Quimby bought out his one-third share in Burt’s Bees by buying him a house in Maine. Much grander than a turkey coop, the home cost $130,000, Ms. Quimby says. She now calls that figure “embarrassing” considering how much she made from the company.

Mr. Shavitz did not respond when asked if he hired advisers to determine whether he had been paid a fair valuation for his stake. He sold the house in Maine a few months after Ms. Quimby bought it for him because, she says, he missed his turkey coop. (He has since enlarged it to about 12 feet by 20 feet.)

By 2000, Burt’s Bees was pulling in $23 million in revenue, according to the company. Ms. Quimby said she had always intended to sell the company and had received offers for quite some time before she put it up for auction in 2003. That year, AEA Investors, a private equity firm in New York, paid Ms. Quimby $141.6 million for an 80 percent stake in Burt’s Bees. If Mr. Shavitz had held onto the stake he traded to Ms. Quimby for $130,000, it would have been worth about $59 million.

At the time of that deal, Mr. Shavitz demanded more money and Ms. Quimby said she agreed to pay him $4 million. Burt’s Bees also pays Mr. Shavitz an undisclosed amount each year for using his name and image on its products. Through a Burt’s Bees spokeswoman, Mr. Shavitz declined to comment on any payments he had received or the reasons for his fallout with Ms. Quimby. When asked if he and Ms. Quimby were still friends, Mr. Shavitz said, “Sure.”

“What happened between us in our personal relationship in the past is history,” he said in a statement. “The magic of living life for me is, and always has been, the magic of living on the land, not in the magic of money.”

Under AEA’s watch, Burt’s Bees products expanded into stores like CVS, Walgreens and Target. AEA hired Mr. Replogle from Unilever, where he was general manager for the company’s North American skin care business, to be chief executive. This fall, AEA accepted Clorox’s bid. Ms. Quimby sold her remaining 20 percent share in Burt’s Bees to Clorox for about $183 million.

Ms. Quimby, 57, now runs Happy Green Bee, a company that makes organic clothing for children. She says she spent more than $50 million to buy 100,000 acres where she tries to restore the land to its natural state by blocking hunting, closing roads and dismantling bridges.

In the meantime, the task of defending Clorox’s purchase of Burt’s Bees has fallen on Mr. Replogle’s shoulders. He says that in six months, he will post a blog on the Burt’s Bees site about whether he thinks Clorox is making enough progress on its green initiatives. He says Burt’s Bees’ 380 employees have an opportunity to influence the direction of Clorox, a company that generated $4.8 billion in sales last year and employs 7,800 people.

Burt’s Bees maintains its founders’ green philosophies. Employees’ bonuses are based in part on how well the company meets energy conservation goals, and there are prime parking spaces for staff members who drive hybrid cars or carpool. It buys offsets for 100 percent of its carbon emissions and is working toward a goal of sending no trash to landfills by 2020.

Mr. Replogle calls his current job a “mission” and says he is trying to reinvent business with an idea he calls “the Greater Good,” based on the founders’ ideals. The premise is that if companies are socially responsible, profit will follow. Burt’s Bees not only prioritizes the natural origin of its ingredients but also emphasizes animal rights, responsible trade, employee benefits and the environment.

Like most natural-products companies, Burt’s Bees has the luxury of charging enough for its goods to pay for such causes. A 0.15-ounce tube of Burt’s Bees basic lip balm, for example, costs $3. The same-size tube of ChapStick, which uses synthetic ingredients, costs $1.69.

Burt’s Bees is not perfect, Mr. Replogle acknowledges. The company obtains all of its beeswax from hives in Ethiopia, so shipping the ingredient across the Atlantic adds to carbon emissions.

LATELY, Burt’s Bees has started to police its industry. The company’s research lab is full of competitors’ products labeled “natural,” and employees of Burt’s Bees test those assertions.

Burt’s Bees has also led a group of companies that have teamed up with the Natural Products Association to create a standard for natural personal care products, complete with stickers to label items that make the cut. To qualify, brands must create products that are at least 95 percent natural and contain no ingredients known to be harmful. The stickers will make their debut in April.

Consumers “walk down the aisle in the grocery stores’ health and beauty area, and they’re confronted with ‘natural’ at every turn,” says Daniel Fabricant, vice president for scientific and regulatory affairs at the association. “We just don’t want to see the term misused any longer.”

To prove his own bona fides, Mr. Replogle grabs a bottle of Burt’s Bees avocado butter hair treatment, squeezes some onto his finger and dramatically licks it off. He then passes the tube to two Clorox executives so they can have a taste.

“If you can’t put it into your mouth, you shouldn’t put it on your skin,” he says. “I’d like to see other companies do that.”

Clorox says it is reshaping its product mix so that more of its products will be eco-friendly by its 100th anniversary in 2013. Two weeks ago, the company introduced Green Works, household cleaning solutions labeled as 99 percent natural. The last 1 percent consists of preservatives and fragrances.

Clorox says Green Works is more natural than all other cleaning products.

“It is the standard-setter,” says Beth Springer, vice president for strategy and growth at Clorox.

Green Works products are so new that outside groups have had little time to evaluate the company’s assertions. But Clorox says it believes that consumers will pay more for natural products. So, while they may be more expensive to produce, they will also be more profitable. Clorox research recently found that 53 percent of consumers planned to buy more eco-friendly products this year and that 47 percent were willing to pay 20 percent to 25 percent premiums for them.

While Clorox has decided to keep its brand off of Burt’s Bees products, its name is on the Green Works cleaning line.

“We spent a lot of time talking with consumers who wanted to keep their homes clean and healthy but wanted more natural alternatives,” Ms. Springer says. “And they confessed in most cases they were disappointed with having to pay more for products that didn’t work. So we concluded that we would initially bring it out with the Clorox brand name endorsing it because it gave people a belief in its efficacy.”

Then she lapses into Burt’s Bees speak as she continues.

“If we think about the Greater Good,” Ms. Springer says, “one lesson we’ve learned is, if you set your mind to the goal of more natural and sustainable practices, you might actually surprise yourself with what you can accomplish.”