Green Business: Innocent
9th March, 2011
What does Coca Cola’s 58 per cent share in one of the UK’s most distinctive and ethical brands mean for the future of the company? If you believe Innocent Drinks founder, Richard Reed, nothing but good. Peter Salisbury went to find out more
A cool new product that has swallowed the lion’s share of its domestic market with clever branding, solid sellable ethics and green credentials are a mix, which everyone from the biggest multinational corporations to the smallest start-up firms would pretty much kill for. However, as the co-founders of Innocent Drinks found out during 2008 financial crisis, even this dream combination doesn’t mean that a company is untouchable.
When the global financial crisis brought banks and businesses around the world to their knees, credit dried up and consumers cut back on luxury items; among them, Innocent’s pure fruit smoothies. The company returned an overall loss of £8.6m in 2008, wiping out every penny of profit the company had made since it was founded by three friends a decade earlier. In a tough trading environment, it is yet to return to profit.
‘We say at the moment that we aren’t a business, we are a fruit distribution charity,’ says Richard Reed, one of the company’s three co-founders, current co-CEO and brand director. ‘It costs us more to run than we get from doing it. We lost money in 2008; we lost money in 2009; we lost money in 2010 and we are going to lose money again in 2011. Fact.’ Rare is the CEO, or co-CEOs for that matter, who will happily tell journalists that they expect their company to run four consecutive years of losses and still remain afloat. But then Innocent has never really been a conventional sort of business.
Founded in 1999 by Reed and two of his friends from Cambridge University, Adam Balon and Jon Wright, the trio were in their mid-20s, and already bored by the corporate grind, when they revisited the idea of starting up their own company. Innocent was born. ‘We had never done anything like this before, and everyone we knew was saying it wasn’t going to work,’ says Reed. ‘On our business plan we said that within six years we would be turning over £6m a year, and I thought there was no chance.’ Innocent made a £3.6m profit in 2005 on revenues of more than £37m.
‘It was started by three friends, properly close mates, and that sets a certain type of tone to the business,’ says Reed. ‘What you have with myself Adam and John, is that we have shared principles in our approach to life and business. So from the beginning there was always a sense that of course Innocent is a business and it absolutely will need to grow and to make a profit. But it will also have to be more than a business.’
Sitting in the meeting room of Innocent’s headquarters, Fruit Towers - in reality a slightly prosaic lot in a West London business park, which has been kitted out with grocer’s grass, medina sofas and park benches giving it the atmosphere of a hip dot-com era start-up - Reed exudes energy and enthusiasm. Veering off at tangents - better health means better sex; self-heating bathtubs are a bad business idea - he makes it easy to see where the company’s simple-yet-clever marketing nous comes from. Child-like enthusiasm meets a solid business brain; carefully thought-out lines are dropped carelessly into tirades against the UK’s VAT system which taxes Innocent for the smoothies it makes but doesn’t impose a levy on their ingredients.
In that first business plan, the three ‘hippies with calculators’ also outlined principles that the company has stuck by to this day. Innocent would produce natural drinks, using sustainable ingredients, packaging and production methods, and would share the profit wherever possible, donating 10 per cent of its profits to charity. Keeping those principles while growing the business has been a learning experience for the Innocent co-founders, who have watched the company expand from three people in 1999 to 260 today.
For its smoothies - Innocent has also produced orange juice and a range of ‘veg pot’ ready meals since 2008, and recently added apple juice to its range - the company has to source fruit from around 30 countries across the globe. Suppliers puree the fruit and freeze it in the country of origin. The puree is then shipped to the UK, where it is blended and packaged into those instantly recognisable Innocent cartons and bottles, before being distributed to shops across Europe, where the smoothies need to be chilled constantly. The drinks only have a shelf life of 30 to 40 days, so the potential for waste is high.
As a result, a can of Coca Cola has a lower carbon footprint. In 2009, the UK’s Carbon Trust found that 170 grams of carbon were emitted during the production of a 330ml can of Coke while a 250ml Innocent smoothie caused emissions of 209 grams. There have also been questions raised about Innocent's use of non-organic fruit in its products; a strange oversight for a company whose main selling point is its green credentials. So what does Innocent have to say? Not surprisingly, it’s something they’re working on. ‘We aim to be a sustainable business in what we do,’ says Jessica Sansom, head of sustainability at Innocent and one of two sustainability experts and four agronomists Innocent employs to advise its suppliers. ‘But we do have a product. We have chosen to produce smoothies, so it’s about asking how we can make sure that they are as sustainable as they can be in every aspect, from how you grow the fruit to how you transport it to how you produce it to what kind of packaging you put it in.’
This has meant a complete review of the manufacturing process for its food and drink products, from the way the fruit is grown - including the crucial question of water use - to lightweighting and increasing the recycled content of packaging, while working with blending and packing plants to help reduce their energy efficiency and waste. ‘We have a completely vested interest in doing what we can for fruit to be grown more sustainably because our business is 100 per cent based around fruit,’ says Reed. ‘If the fruit harvest fails, where are we then?’
The company’s suppliers shouldn’t mind the help on offer. According to Sansom, the manufacturer who packages Innocent’s children’s smoothies has increased its on-site recycling rate from 30 to 97 per cent. Working with their suppliers to encourage efficiencies in energy, water and waste has helped another contractor to cut energy usage by 10 per cent, producing significant cost savings.
Meanwhile, the company has turned some of its biggest problems into assets. Supply-chain management, for example, is a nightmare for any producer of perishable goods. Innocent has to order its fruit up to 18 months before it hits the shelf and needs to sell as many of the drinks it produces in little more than a month. But by using state-of-the-art software from US firm Oracle, it has developed what operations manager Steve Spall - a veteran of major superstores, including UK giant Tesco - describes as the most comprehensive and sophisticated forecasting operation he has ever seen. As a result, Innocent’s levels of waste are as little as one per cent - well above the industry standard, as well as being an environmental and business benefit.
The question of maintaining ethical and sustainable practices while a going commercial concern is likely to remain a major issue for the company, Reed says. But if someone is showing that it can be done - and he believes that it can - then that can only be a good thing. What can also only be a good thing, in Reed’s estimation, is the investment the soft drinks giant Coca Cola made in Innocent in 2009 which effectively saved the company from going under and indeed secured its future.
By the end of Innocent’s annus horribilis, 2008, its parent company Fresh Trading, which also owns the This Water brand, had £2.3m of cash in hand and was owed £17.1m by its customers, with £21.7m of debts to pay off by the end of the year. To continue trading, it needed cash, and quickly, or it would need to shut down all of its operations abroad - the UK business remained profitable, while the company’s losses largely stemmed from its German, French and Dutch subsidiaries. It was a question of massive retrenchment or bringing in another investor.
‘We needed a sugar daddy,’ says Reed. ‘We have a 30 year vision for the company and we aren’t done yet.’ Coca-Cola offered £30m for an 18 per cent share of Fresh Trading. It also promised, unlike other potential suitors, to remain a hands-off investor, and agreed to a contractual stipulation that it would not interfere with the way the business was run. The deal was announced in April 2009, and in 2010 Coca Cola took a further 40 per cent of the company, although the partners remain in charge of the business and its strategy.
It was, Reed says, the best deal on the table, and he maintains that the partners had had no ethical qualms about working with the company after an investigation into them, despite recurring claims by organisations and publications, including The Ecologist, that Coca Cola has caused major environmental damage at factories in India and Mexico among others.
Reed says that he is hugely impressed by Coke’s charitable donations and commitment to sustainable principles. Today, the company, which gives away around $100m to charity every year, is working with Greenpeace to change the way it refrigerates its soft drinks and is committed to using only hydrofluorocarbon-free fridges by 2015.
The difference between the early months of 2008 and today, Reed explains, is that the company didn’t expect to lose money and, crucially, it couldn’t afford it. Now, with the investment from Coca Cola, it can, and it plans to grow its business abroad. Innocent will return to profit in 2012, says Reed, and will continue to pursue its 30 year plan: to become Europe’s favourite little food and drinks company by 2020 and the world’s favourite food and drinks company by 2030 while retaining its core principles.
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I’m sitting opposite the large Coca-Cola bottling plant next to the village of Plachimada in the southern Indian state of Kerala. Plachimada is a farming village of about 800 families, many of them tribal. The ugly factory looks rather out of place in such a beautiful setting, the Western Ghats mountains clearly visible in the distance.
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