What Unilever's Seventh Generation Deal Means for Sustainable Consumer Brands
Jeffrey Hollender has had a wild ride in the sustainable consumer products business. He co-founded natural laundry-detergent and diaper Seventh Generation in 1988, only to be fired from the company in 2010. Now that Unilever NV is set to acquire the brand in a deal announced last week, he's been invited back onto the Seventh Generation's "social mission board." Hollender, who currently runs Sustain, an all natural condom and sexual wellness company, with his daughter, sat down to talk about the challenges and benefits of investing in smaller consumer sustainable companies. Comments have been edited and condensed.
Q: How did you start Seventh Generation?
A: There was a nonprofit called Renew America that was trying to sell water and energy conservation products, and they were not all that successful, so we basically took over that mail-order catalog and started selling products that would use less water and energy. The Seventh Generation Brand was started in that catalog. We struggled initially because we were just very early into the marketplace. This whole notion of sustainable, responsible business and green products didn't exist back in 1988. The language didn't exist. The business grew as the natural food industry grew, and then expanded to specialty retailers and grocery stores. As important as the product was the company's values and culture. We gave away one percent of the ownership of the company to our employees every year. We decided rather than buy offsets for carbon emissions, it was a better investment to help our employees buy their own hybrid cars, so we would finance their purchases up to $5,000.
Q: Do startups have an advantage over bigger companies in building up sustainable consumer brands?
A: When you are little, you can go after smaller niches in the marketplace that a large company would just not be interested in because there aren’t sales.
When you look at [big consumer conglomerates] they want billion-dollar brands. A $100 million idea is not an idea that is particularly interesting to them. Going after those emerging market niches — creating products for people that want sustainable products and don’t want their products tested on animals — those niches are cultivated by smaller companies that are going to go after those smaller segments in the market. As a smaller company, you’re willing to innovate and take chances where larger companies wouldn’t.
Q: What are the challenges for investors in sustainable consumer companies?
A: The good news is that more companies are being created than ever before. The challenge is that if we are going to address issues like climate change and social inequity a lot of little companies are nice, but they do not have the influence in the marketplace to move things as quickly as they need things to be moved. We have to get the largest companies on the planet to move in a more sustainable direction.
Q: Do you expect more global companies to acquire smaller sustainable consumer companies?
A: There are not a lot left to sell. They have mostly been bought. There are very few companies that are over $100 million that are still independent. When you get to $100 million to $200 million in sales, there is a tipping point in which a global company can create value at an accelerated rate that that company can’t create on its own. That is why you see very few companies get past the $100 million to $200 million without being sold.
Q: The Unilever acquisition could help Seventh Generation expand globally. How difficult is global expansion for small sustainable brands?
A: The biggest benefit of the deal will be being able to expand Seventh Generation to a global market. When we look at consumer data, there is a very strong commitment to sustainability in some developing countries like Brazil and China, as well as places like Europe. There are some terrific markets Seventh Generation could enter with Unilever's help. It's not easy to do alone. It's very challenging to become a global company without a base of operations in that country.
Q: What are the benefits of being in a conglomerate versus being in a pure-play natural products company?
A: Global expansion has to be the biggest value created because you are ramping up sales at a pace that you could not do on your own. The world has become a very competitive place. You are probably in a better competitive situation having a large parent company that has financial resources. When I was at Seventh Generation I spent half my time raising money. That is not necessarily the best use of senior management’s time. The CEO of Seventh Generation will not have to go out and raise money because they have the ability to internally finance the growth of the company.
This interview originally ran in Bloomberg Brief: Sustainable Finance. Read the full edition here.