{"id":46,"date":"2017-09-22T12:29:16","date_gmt":"2017-09-22T12:29:16","guid":{"rendered":"http:\/\/commodityconversations.com\/wordpress2\/?p=46"},"modified":"2018-10-31T09:51:21","modified_gmt":"2018-10-31T09:51:21","slug":"the-risk-in-brands","status":"publish","type":"post","link":"https:\/\/commodityconversations.com\/wordpress2\/2017\/09\/22\/the-risk-in-brands\/","title":{"rendered":"The risk in brands"},"content":{"rendered":"
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Last week Nestl\u00e9, the world\u2019s biggest food packaging company\u2014and by far the world\u2019s biggest retail coffee company\u2014paid a rumoured $425 million\u00a0<\/a>for a 68% stake in Blue Bottle Coffee Co, a specialist, single-origin coffee company. There is probably little that Blue Bottle can teach Nestl\u00e9 about how to make coffee, so I guess that Nestl\u00e9 is paying for the brand.<\/p>\n

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Nestl\u00e9 is not only\u00a0the biggest coffee company<\/a>, it is also one of the world\u2019s biggest manager of brands\u2014they currently own\u00a0more than 2,000 of them. Nestl\u00e9 probably know even more about brand management than they do about making a good cup of coffee. But as the\u00a0NY Times<\/a>\u00a0pointed 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 Nestl\u00e9 struggling to adjust. Hence their purchase of Blue Bottle Coffee Co.<\/p>\n

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\u00a0argues<\/a>\u00a0that that being taken over by Nestl\u00e9 won’t change a thing.<\/p>\n

In an\u00a0article<\/a>\u00a0on the acquisition, the Guardian newspaper quoted a customer\u2014a yoga instructor\u2014at one of Blue Bottle\u2019s branches in Manhattan as saying, \u201cWhere you buy anything right now \u2013 especially now \u2013 is part of a large point of view around how conscious you want to be about your impact on the world. Nestl\u00e9 is not an ethical company.\u201d<\/p>\n

Although it is not explicit in the article, the yoga instructor appeared to be referring to a time in the 1970s when Nestl\u00e9 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 Nestl\u00e9 was obviously not without blame.<\/p>\n

Having said that, I would take issue with the claim that Nestl\u00e9 is not an ethical company. Although there is always room for improvement, the company is an industry leader\u00a0in terms of sustainable supply chains, human rights and living wages for the farmers that feed us. As in most\u00a0big companies, the people that run Nestl\u00e9\u00a0are not faceless individuals but human beings that want to make\u00a0the world a better place for their children.<\/p>\n

The price that Nestl\u00e9 paid for Blue Bottle clearly shows how important it is for the big companies to remain \u201cbrand relevant\u201d\u2014to move with the times and reach out to younger consumers. But it also highlights\u00a0that\u00a0the money in the agricultural supply chain\u00a0lies firmly with the retail brands.<\/p>\n

However, the yoga teacher\u2019s comments show how easily brands can become damaged and lose value\u2014and how long what is perceived as unethical behaviour stays in people\u2019s minds. The milk powder controversy occurred almost half a century ago, but it is still recent enough to discourage a potential customer from consuming Nestl\u00e9\u2019s coffee.<\/p>\n

Even if brands are \u201cwhere the money is\u201d 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\u2019s value; they\u00a0increasing feel under siege from a civil society that views them as \u201ceasy targets\u201d.<\/p>\n

Three recent examples highlight how quickly brands can become damaged goods. The first is Bell Pottinger, which was ironically one of the world\u2019s top public relations companies. Caught up in claims that it stirred up racial tension in South Africa, the company\u00a0is now fighting for survival<\/a>.\u00a0Clients have deserted them and the company might soon cease to exist as a result of the scandal.<\/p>\n

The second example\u00a0involves smallholder encroachment on tropical rainforest and national parks in Ivory Coast and Ghana.\u00a0Mighty Earth<\/a>, an NGO, claims (almost certainly correctly) that \u201cdirty\u201d (unsustainable and\/or illegal) cocoa is finding its way into the supply chains of Mars, Nestle, Hershey\u2019s, Godiva, and other major chocolate companies. The brands were\u00a0quick to respond<\/a>.<\/p>\n

The third example is a recent New York Times\u00a0article<\/a>\u00a0that blames Nestl\u00e9 (again) and the other processed food companies for increased obesity in Brazil.<\/p>\n

Negative media coverage such as this can cause significant damage to brands, and\u00a0take decades to recover.<\/p>\n

The fact that brands have become so valuable\u2014and capture so much of the value in today\u2019s food chains\u2014is not great\u00a0news for farmers and commodity merchandisers faced with\u00a0meagre profit margins. But at the same time the value that is inherent in\u00a0those brands increases the leverage that civil society has over the big food companies. And to the extent that this\u00a0encourages the food companies\u00a0to be even more ethical and sustainable, it is probably good news for the planet.<\/p>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Last week Nestl\u00e9, the world\u2019s biggest food packaging company\u2014and by far the world\u2019s biggest retail coffee company\u2014paid a rumoured $425 million\u00a0for a 68% stake in Blue Bottle Coffee Co, a specialist, single-origin coffee company. There is probably little that Blue Bottle can teach Nestl\u00e9 about how to make coffee, so I guess that Nestl\u00e9 is … <\/p>\n

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