Thursday, January 19, 2012

Why Companies Reformulate

Right now the internet is all abuzz about a certain popular baby personal care company reformulating their products and adding the preservative sodium benzoate. The company in question has responded and defended their decision. But the question remains: WHY? Why would a company change their formulas when everything seemed to be just fine before?

Now, I can't speak for this company or their particular decisions. But, I can suggest a few ideas that could be a factor in their decision making process. And the answer is the same for this question: "Why are truly USDA organic products so hard to find in stores?"

It all has to do with the way the industry works...

Most of the time cosmetic manufacturers sell their products through distributors. Manufacturers sell their products to a distributor for below-wholesale prices. The distributor then sells the products to the store at wholesale, and the store sells the product for "retail" or the MSRP (manufacturer's suggested retail price.) The retail price is what you see on store shelves.

When a brand is carried in large retailers nationwide, there are a number of requirements that the manufacturer must meet. Some stores will charge for shelf space. Some stores require something called "free fill." This means the store gets a certain number of products for free from the manufacturer. In the cosmetics sector, this usually is six free units per item. So, say a chain of 300 stores came to a company like ours and said "we want to carry your products!" Well, we'd initially be thrilled....but then comes the free fill. Say the store wanted to carry ten different deodorants of ours. That would be 60 free deodorants per store that they'd receive...times that by 300 stores and that's 18 THOUSAND free deodorants that they'd require, just to be carried in their chain.

So, on top of the tens of thousands of dollars of free product, now you need to make sure that the product is selling so that the stores will order again and you can start to recoup the initial cost of the free fill. And the way that stores want you to do this is by a certain number of required "demos." A demo is when you send an employee out to the store with a table to hand out free samples or product information to try to sell the products. They typically require three demos per store in the first month, and then one every month following that. So, somehow you have to get employees to all three hundred stores, three times a you have employee labor costs and travel costs, and the costs of the free samples and product information, and you haven't made a single dime yet. Keep in mind that on top of all this, some retailers will actually charge the manufacturer for their shelf space.

So, in order for a company to be large enough to fulfill that initial order and cover all those costs, they would have to take on investors. The sole goal of an investor is to make money. They don't care about the quality of ingredients--they want to get their money back, plus some. So, if a company has taken on investors, they're going to have immense pressure to be as profitable as possible. This means cheapening the ingredients, eventually leading to the phasing out of organic content in favor of water, cheaper conventional ingredients and synthetic fillers.

Then there's demographics...

While the organic sector is growing exponentially, most people don't know the difference between a fake organic product and a certified organic product. So, of the perhaps 10 percent of people in a conventional grocery store looking for organic products, only a half of a percent are really looking for USDA organic certified. They're going to shop by price, packaging, scents, and other factors. So, because USDA organic products are typically priced higher because they cost more to make, their sales will be slower to the general public. Most people also don't pay attention to an ingredients list. They figure if it's in a health foods store, it must be okay.

Then, there are specials...

The manufacturer receives pressure from retailers to do specials all the time and there is always pressure to permanently lower their prices. And if a company is relying on that retailer for the majority of their business, they're going to basically have to do what they're told. In order to stay in business they have to find ways to make their products cheaper. Sometimes this means getting them produced overseas. Sometimes this means cheaper packaging. Other times, this means boosting the water content of the product and adding stronger preservatives.

As a company we have carefully chosen the stores we are in. In fact, every store that we are carried in has come to us wanting our products, not the other way around. Harmon's has been a fabulous local partner to support our local business, not charging for shelf space or requiring free fill. The Rocky Mountain region of Whole Foods has done the same. We love all the independent shops and salons around the country that carry our products and believe in the importance of USDA organic. If there is one near you, we encourage you to support them.

Bubble & Bee Organic has purposefully chosen to be a company that does most of our business by selling directly to customers, so we don't have immense pressure from retailers. This way, we can be flexible and offer fun new products for the seasons, package deals, and surprise sales. We have chosen to be completely self-funded, so we don't have pressure from investors to always be making a profit. (No matter how much they wanted in, but that's a story for another day.) In this way, we continue to keep our integrity and values, have control over which ingredients we use, and give customers truly certified organic products that they want! We're so happy with our customer base that sees the difference in what we do. As our little beehive grows you will never have to worry about us changing our standards or back-tracking on our morals. Support our business and we'll never let you down!

Read about our organic certification here.