• by Karlene Lukovitz  @KLmarketdaily, November 2, 2007

Can a company that's built its success on a scrupulously natural image find happiness in the embrace of a company best-known by consumers for bleach and household cleaning products?

Absolutely, according to Clorox, which says it will be taking a largely "hands-off" approach to Burt's Bees.

While it was in some ways surprising that Clorox turned out to be the buyer (for $925 million in cash) of the sought-after brand, the acquisition is a smart strategic move for the very reason that Clorox currently has no presence in personal care products, and it immediately gains a foothold in the category's fastest-growing, highest-margin segment--natural "green" products, says Carrie Mellage, director/consumer products practice for consulting and research firm Kline & Co. Kline recently released a comprehensive study on the category, "Natural Personal Care 2007: Competitive Brand Assessment and Ingredient Analysis."

"For the most part, Clorox is in home products categories that are not growing quickly," Mellage points out, adding that Clorox will not only leverage its position in mass channels to greatly expand Burt's Bee's distribution in the U.S., but will capitalize on the substantial opportunity for introducing the brand into international markets.

Clorox executives confirmed those intentions during the company's fiscal Q1 earnings conference call on Wednesday. But the company stressed to Marketing Daily that while providing synergies and support to further grow the brand, Clorox will be in a "watch, listen and learn" mode with Burt's Bees.

"We plan to run the business semi-independently," says Clorox spokesperson Dan Staublin. "We will be bringing our skills and strengths to the relationship, but we know that we have a lot to learn from Burt's Bees about personal products, sustainability and the green platform."

That approach will extend to marketing. "We will bring our expertise in brand building and building retail relationships, but Burt's Bees will continue to work with the creative agencies it currently works with, and its overall marketing approach and direction will continue going forward," Staublin says.

Derek Gordon, vice president/marketing for Clorox, summed up the relationship this way: "Burt's Bees has been doing a great job developing their business, which is why we are interested in them. We fully expect this to continue to drive the success that they've delivered to date."

The hands-off approach confirms Clorox's savvy as a marketer, in Mellage's view. "Burt's Bees is a truly natural product in its ingredients, as our research confirms, and this is, of course, its strength, so you would hope that Clorox would maintain and preserve that image, not change it," she says.

"There is a potential conflict in that consumers would view Clorox as anything but natural," she adds, noting that there have been instances of consumer alienation when a large, multinational company buys a smaller brand that's perceived as a family-owned business.

For example, when L'Oreal purchased Kiehl's, a personal care brand whose image was based in its origins as an old-world apothecary in New York's East village, "some loyal consumers were not happy," Mellage says, "although L'Oreal has been very successful with the brand."

And while Burt's Bees founders had already sold the business to the AEA Investors private equity group, that acquisition would not generate the type of visibility that the Clorox acquisition might, she says.

The Clorox/Burt's Bees match is also a prime example of a trend that will continue to gather momentum in the coming years: Mainstream companies absorbing small, green-oriented brands and expanding them into mass channels, points out Karen Doskow, project manager for the consumer products practice at Kline.

"Naturals are now becoming commonplace in the aisles of national chain grocery and discount stores like Wal-Mart and Target," Doskow says. "Small, natural companies could pose a threat to the major consumer product marketers, but rather than try to compete with each other, it's likely we will see strategic acquisitions." This will have a major impact on the competitive landscape of the personal care market, she stressed.

During the earnings conference, Clorox chairman and Donald R. Krauss pointed out that Burt's Bees currently does less than $20 million in sales in grocery chains (where a new, focused initiative resulted in 3% sales growth for Clorox's existing portfolio during its first fiscal quarter), and that Burt's Bees currently also has relatively little presence in mass, drug and convenience stores.

Clorox execs also said that they're confident that Burt's Bees will experience no margin erosion as a result of expanding into mass--or "ramping up" the brand's marketing support. "We think price margins are extremely healthy and will stay that way," said Krauss, adding that Clorox's ability to bring cost synergies through its purchasing leverage will also serve to protect profit margins.

If "ramping up" marketing support implies introducing more advertising in traditional media at some point while preserving the core marketing strategy, that would certainly seem to make sense, says Mellage. "Burt's Bees has of course been very successful without TV, but adding TV would probably fuel its sales growth."