The risk in brands

Last week Nestlé, the world’s biggest food packaging company—and by far the world’s biggest retail coffee company—paid a rumoured $425 million for a 68% stake in Blue Bottle Coffee Co, a specialist, single-origin coffee company. There is probably little that Blue Bottle can teach Nestlé about how to make coffee, so I guess that Nestlé is paying for the brand.

Nestlé is not only the biggest coffee company, it is also one of the world’s biggest manager of brands—they currently own more than 2,000 of them. Nestlé probably know even more about brand management than they do about making a good cup of coffee. But as the NY Times pointed out in July, traditional brands are under pressure as more people buy their groceries online. Sales of classic brands have plateaued, and small start-ups are grabbing market share, leaving companies like Nestlé struggling to adjust. Hence their purchase of Blue Bottle Coffee Co.

Blue Bottle was founded in 2002 by a former professional clarinet player, and has a strong following among customers concerned about where their coffee comes from, and its impact on the environment and human rights. The company optimistically argues that that being taken over by Nestlé won’t change a thing.

In an article on the acquisition, the Guardian newspaper quoted a customer—a yoga instructor—at one of Blue Bottle’s branches in Manhattan as saying, “Where you buy anything right now – especially now – is part of a large point of view around how conscious you want to be about your impact on the world. Nestlé is not an ethical company.”

Although it is not explicit in the article, the yoga instructor appeared to be referring to a time in the 1970s when Nestlé was selling powdered baby formula to developing countries. There was nothing wrong with the milk powder; the problem was the unhealthy water that mothers mixed with it. But Nestlé was obviously not without blame.

Having said that, I would take issue with the claim that Nestlé is not an ethical company. Although there is always room for improvement, the company is an industry leader in terms of sustainable supply chains, human rights and living wages for the farmers that feed us. As in most big companies, the people that run Nestlé are not faceless individuals but human beings that want to make the world a better place for their children.

The price that Nestlé paid for Blue Bottle clearly shows how important it is for the big companies to remain “brand relevant”—to move with the times and reach out to younger consumers. But it also highlights that the money in the agricultural supply chain lies firmly with the retail brands.

However, the yoga teacher’s comments show how easily brands can become damaged and lose value—and how long what is perceived as unethical behaviour stays in people’s minds. The milk powder controversy occurred almost half a century ago, but it is still recent enough to discourage a potential customer from consuming Nestlé’s coffee.

Even if brands are “where the money is” in the food supply chain, the risks involved in protecting the brand probably justify the returns. Brand managers are now the guardians of a food company’s value; they increasing feel under siege from a civil society that views them as “easy targets”.

Three recent examples highlight how quickly brands can become damaged goods. The first is Bell Pottinger, which was ironically one of the world’s top public relations companies. Caught up in claims that it stirred up racial tension in South Africa, the company is now fighting for survival. Clients have deserted them and the company might soon cease to exist as a result of the scandal.

The second example involves smallholder encroachment on tropical rainforest and national parks in Ivory Coast and Ghana. Mighty Earth, an NGO, claims (almost certainly correctly) that “dirty” (unsustainable and/or illegal) cocoa is finding its way into the supply chains of Mars, Nestle, Hershey’s, Godiva, and other major chocolate companies. The brands were quick to respond.

The third example is a recent New York Times article that blames Nestlé (again) and the other processed food companies for increased obesity in Brazil.

Negative media coverage such as this can cause significant damage to brands, and take decades to recover.

The fact that brands have become so valuable—and capture so much of the value in today’s food chains—is not great news for farmers and commodity merchandisers faced with meagre profit margins. But at the same time the value that is inherent in those brands increases the leverage that civil society has over the big food companies. And to the extent that this encourages the food companies to be even more ethical and sustainable, it is probably good news for the planet.

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