When Brands Collide: Dietary Supplements in the New M&A Universe

The headline read, “New Chapter founders leave brand, saying Proctor & Gamble’s profit pressure threatens to undermine mission.” Like many in the natural products industry, I’ve watched P&G’s acquisition of New Chapter in 2012 with great interest because it involved one of the world’s largest CPG companies and one of the US natural products industry’s most beloved supplement brands. I wondered what would happen to a brand with such a passionate following once it became part of the P&G portfolio of over sixty individual brands.

M&A is paying attention to the supplement sector precisely because of the current state of maturity, viability, and growth in our industry.

This article is not an “I told you so.” It is more of a cautionary reminder of what may happen when brands collide and one brand’s most engaged consumer segment may have reservations about its purchase by a large multinational corporation. That is not to say that New Chapter consumers aren’t engaged with P&G’s brands that include Bounty, Charmin, Crest, Gillette, and Pampers. But what is striking about this recent news is that P&G is one of the more socially-conscious corporations to purchase a natural supplement brand.

These Fortune 500 acquisitions have been happening at a rapid clip within the natural foods industry for the past two decades, including Coca-Cola’s acquisition of Honest Tea, General Mills’ purchase of Cascadian Farm, and Kellogg’s purchase of Kashi, just to name a few. Professor Philip Howard of Michigan State University has a great data visualization of the organic sector acquisition map alone.

But the dietary supplement sector has largely flown under the radar until the past few years when larger CPGs have begun to move aggressively into the natural supplement sector. M&A is paying attention to the supplement sector precisely because of the current state of maturity, viability, and growth in our industry. From a buyer’s perspective, many of the founding brands are being sought after by equity players, Fortune 500 companies, and strategic buyers because the financial opportunity is now considered established and “safe.” On the owner side, founders of these legacy brands are more than two or three decades in. They are ready for a life change and happy to reap some reward for their hard work.

Clorox cleans up with dietary supplements

Let’s look at a few other fairly recent examples in the dietary supplement space.

In 2016 Clorox announced its acquisition of the digestive health brand Renew Life and, in March of 2018, purchased the slate of Nutranext dietary supplement brands (all acquisitions themselves) that include Rainbow Light, Natural Vitality, and NeoCell. Although most consumers only know of Clorox’s conventional household cleaning brands, it has a growing portfolio of natural product brands including Burt’s Bees. When Clorox purchased Burt’s Bees for almost $1 billion in 2007, it followed closely on the heels of Colgate Palmolive’s purchase of Tom’s of Maine and L’Oréal’s purchase of The Body Shop, both in 2006.

This Clorox acquisition is what I would call watch and wait. So far, there appear to be few negatives, especially given its history with Burt’s Bees which, under its new owner, has expanded its mission of furthering sustainability in the personal care sector as well as within the Clorox culture as a whole.

Nestlé: It’s not your father’s candy bar

But watch and wait is not the case with Nestlé’s acquisitions.

In March of this year, the Swiss multinational Nestlé Health Science bought the Atrium Innovations dietary supplement portfolio for $2.3 billion. A few weeks later, Nestlé, its parent company, announced it was selling off its entire US candy business. The Atrium portfolio includes the Garden of Life consumer brand and a family of professional brands that include Pure Encapsulations and Douglas Labs. Nestlé has a controversial history, to say the least, due to issues regarding its baby formula, water rights, pollution, and child labor. It is the largest food company in the world, thus representing to many all that’s wrong with the modern, industrial food system.

Garden of Life, on the other hand, is a brand that has made its mark by being passionate about real, whole foods. It has been built on the vision of its founder, Jordan Rubin, who is deeply committed to creating a new food system. Some would say the brand attracts cult-like devotees who are skeptical of Big Ag, processed foods, and what brands like Nestlé represent. (Case in point: Garden of Life consumers’ current Facebook comments continue to be vociferously negative about the acquisition.)

Integrative and complementary healthcare practitioners often passionately self-identify as the underdog or rebel, and they consciously — or unconsciously — want to see that reflected in the brands they choose.

In the professional supplement space, there is mixed chatter: Because the professional brands will now sit under the mantle of Nestlé Health Science, it further legitimizes the dietary supplement industry and will bring the extensive power of the parent company’s sales infrastructure within the medical channel as well as its scientific, R&D, and innovation prowess. However, it remains to be seen how integrative and complementary healthcare practitioners — the core supplement advocates in the space — will embrace that new reality. Many of these professionals may view the past practices of the parent company as being at philosophical odds with their own health and wellness values. Although all these healthcare providers may wish to see their philosophy of health and wellness brought more into the mainstream, any acquisition of such size is bound to elicit mixed feelings. Integrative and complementary healthcare practitioners often passionately self-identify as the underdog or rebel, and they consciously — or unconsciously — want to see that reflected in the brands they choose.

Turning over a New Chapter

As a brand strategy and market research agency, we pay close attention to customer research and insights. We are always looking at how key targets of a brand respond to positioning. We are also acutely aware that loyal customers who align with a brand will switch if they feel betrayed. In fact, the more vociferous brand supporters are, the more strident critics they could become. That’s because they are far more loyal to their beliefs — and what motivates them to buy — than to any brand itself.

The more vociferous brand supporters are, the more strident critics they could become. That’s because they are far more loyal to their beliefs — and what motivates them to buy — than to any brand itself.

So, when P&G bought New Chapter, we were initially surprised when we heard from retailers how many of them — and their customers — were alienated by the purchase. We assumed that a sophisticated CPG giant with over sixty brands under its belt would know how to position its acquisition for both retailers and consumers. But what I saw was a company blindsided by highly skeptical natural retailers and shoppers. Because of the negative publicity around the acquisition, many retailers removed the brand or relegated it to less desirable positions on their shelves. It also created openings for independent brands, including Gaia Herbs, which leveraged its authentic stories for better placement and increased loyalty at the expense of New Chapter’s hard-earned brand equity.

New Chapter has weathered the storm until, perhaps, this new negative publicity. Publicly, the founders pointed out how much P&G had honored their mission. P&G is known as a company that believes in the “no change” approach to brand acquisition. With no change, the signal to the public is that there will be continuity with the goal being to preserve brand equity.

And so New Chapter went on for six years — until this recent public statement. What I would be concerned about is how this recent news could impact those core customers whose suspicions have remained dormant. Those customers trusted what the founders said while they were still working within New Chapter. There is no reason to believe the customers won’t continue to trust what the founders say, now that they have left. For them, the founders are the brand, and that’s not the best news for New Chapter.

What does all this mean for supplement brands and the companies that might acquire them?

Ultimately, a brand’s connection with a customer, whether a consumer or a healthcare professional, is built through empathy, and empathy is uncovered through understanding.

Big companies coming in from outside the dietary supplement industry need to understand that this industry is different from others. It’s not that dietary supplement companies are averse to acquisitions by larger CPGs — it’s the perception of who is taking over that matters.

For big companies to understand the impact their brand image will have on the target supplement brand’s customers, I would recommend the following steps:

1. Field a comprehensive market research study of the acquisition brand’s customers before the acquisition.

By conducting quantitative interviews with at least 1,000 customers (and then analyzing through market segmentation), you’ll learn what motivates them — not just to buy the brand, but what motivates them in their search for better health. You’ll also test what kinds of positioning within the brand resonate with the key segments and uncover each segment’s sentiment toward the acquiring company.

Then you’ll have objective data from which to craft the acquisition communication strategy (step 3). It will also serve as a benchmark for a year later when you’ll field another research study.

Key, though, will be the questions you ask. There are subtle nuances within the dietary supplement industry and its consumers that need to be addressed.

2. Convene a strategic gathering of the two cultures to discover and reach consensus on opportunities and challenges for the brand going forward.

We personally utilize our proprietary 5 Forces™ process that identifies opportunities and challenges within the five categories of Organization, Offering, Trade, Category, and Participant. Focus on the smaller company that has been acquired recently because it is the most at risk. Portfolio or corporate brands are inherently different from start-up, stand-alone brands. Understanding the common link in a portfolio and articulating that correctly around a successful acquisition for target is essential.

New Chapter may have initiated something similar six years ago in that it believed P&G supported its mission. However, based on my anecdotal information, I don’t think the two companies fully thought through the opportunity for the trade, nor did they evaluate correctly the brand’s evolving relationship within the category. Also, the comprehensive research (step 1) would have informed the participant (consumer/customer) force and, thus, have influenced the final strategy.

3. Develop a communications map and brand narrative, complete with brand voice.

First revise and/or develop a brand strategy that considers the brand values of the two companies and where they overlap and diverge.

Next, address how to transparently communicate the gaps and what the brand aspires to do about it. Articulate this new story within a clear communication map and brand narrative so everyone will have a singular story to tell. That way, if the founders say something unscripted, the foundational story can stay intact.

Those are three critical steps that all large CPGs wishing to acquire a dietary supplement brand should undertake. The investment needed for these steps may be equivalent to a rounding error on the parent company’s P&L, but in terms of mitigating risk, they are essential.

These M&A trends are forcing us to see the future of our industry. And this article is not about waxing nostalgic. Actually, done right, the positives are plentiful. By embracing the resources, professionalism, credibility, and reach these Fortune 500s can bring to bear, our industry will continue to infiltrate the mainstream in ways that the early founders of these companies never could have contemplated.

The methodical steps I’ve recommended will help the involved companies better anticipate potential challenges and grow. And those steps can be conducted in a way that honors the industry’s heritage while welcoming the future authentically, transparently, and profitably.