When I read the other day that the Honest Company, founded in 2011, was likely to be acquired by a large, established consumer packaged goods (CPG) company for nearly $2 billion, I initially was surprised. As a fan of the brand and its creator, Jessica Alba, my wife was not. After all, she pointed out, Alba started the company based on what she herself had experienced as a new mother: the need for a trusted supplier of safe, eco-friendly products for babies.
The more I thought about it, the more I realized that it made perfect sense for a large CPG company to make such an investment. Consider that Amazon is encroaching further and further into territory traditionally controlled by the CPG-retail ecosystem. According to Yahoo Finance, “Amazon now has a warehouse or delivery station within 20 miles of 44% of the U.S. population.” Amazon is also expanding its private-label business, now offering everything from food to diapers.
Yes, diapers. Which brings us back to Honest Company – a consumer-driven business built on an e-commerce-first model. As Alba describes the epiphany that led her to start the company, “[brick-and-mortar] stores should be for perishables, not products.” As traditional CPG-retail ecosystem players seek to keep pace with the rapidly changing marketplace, many will seek to acquire built-on-Web companies. Think of Walmart buying Jet for $3 billion, or Unilever picking up Dollar Shave Club for $1 billion.
It’s not only about acquiring a growing and trusted brand with a large base of repeat customers. It’s also a way of fending off niche players – Dollar Shave Club is a good example – that win customers based on an innovative service model and are then positioned to expand into other products and audiences. Even more important, legacy CPG companies seek to absorb e-commerce-first businesses in hopes that their success can be replicated throughout the enterprise.
Whoever acquires Honest Company will need to ensure, on the one hand, that they don’t disrupt a business model that is clearly working. On the other, they need to think holistically about their overall enterprise and how to bring the rest of their brands more directly to consumers. CPG companies that embrace this challenge will be well positioned in the years to come.
Learn more about the need for companies to bring physical and digital elements together to wow customers. See Customer Experience: OmniChannel. OmniNow. OmniWow and visit “Consumer Products: Reimagined for the New Economy.”