Innocent Drinks – Case Study
Richard Reed, Jon Wright and adam Balon founded innocent drinks in 1998, having been friends since they met at Cambridge University in 1991. The business was successful, and in 2013 the founders sold most of their shares to Coca-Cola for an undisclosed amount, but which observers estimated at £100 million. They stressed the sale would not affect the character of the company, as Coca-Cola already owned a small stake in the company, which had helped to finance expansion and continues to enable the regular introduction of new products – such as the range of ‘nutritionally-powered’ smoothies in 2014. It now employs about 350 people.
After they graduated, Reed worked in advertising, while Balon and Wright worked in (different) management consultancies. They often joked about starting a company together, considering several ideas before deciding on ‘smoothies’ – which they built into one of the UK’s most successful entrepreneurial ventures of recent years.
Smoothies are blends of fruit that include the pulp and sometimes contain dairy products such as yoghurt. They tend to be thicker and fresher than ordinary juice. Some are made to order at juice bars and similar small outlets, but the trio decided to focus on pre-packaged smoothies sold through supermarkets and to offer a premium range. these contain no water or added sugar and cost more than the standard product.
Any new business requires capital and must also be assured of further cash for expansion. This is a challenge, as the product is usually unknown, and the business has no record to show whether the promoters can make a profit. If investors doubt that they will get their money back, they will not lend it. Even if the initial plan succeeds, growth will require more finds – launching a new product or entering a new geographical market inevitably drains cash before it becomes profitable. The founders eventually persuaded Maurice Pinto, a private investor, to put in £235,000 in return for a 20 per cent share.
The company succeeded and, as sales grew, Pinto advised the founders to consider expanding in Europe and/or extending the product ranges. They initially started selling the core range in continental Europe and are now active in 15 countries, mostly in Europe, but also Russia and Australia.
They also diversified the product range, which in 2016 included eight smoothies (including three ‘nutri- tionally enhanced’ varieties), juices, coconut water, bubbles (a mixture of fruit and spring water) and ‘kids range’.
The founders knew that their success would depend on the quality and commitment of their staff, including professional managers from other companies. Reed says:
we’ve always set out to attract people who are entrepreneurial – we want them to stay and be entrepreneurial with innocent. But the inevitable result is that some want to go and do their own thing by setting up their own new businesses. We help and support them with whatever we can. (Quoted in Director, June 2011)
The founders believe they are enlightened employers who look after staff well. All receive shares in the business, which means they share in profits.
Sources: Based on material from ‘innocent drinks’, a case prepared by William Sahlman (2004), Harvard Business School, Case no. 9-805-031; Germain and Reed (2009); company website.
Case questions: Visit the website and check on the latest news about developments in the company.
- In what ways are managers at innocent drinks adding value to the resources they use?
- As well as raising finance, what other issues would they need to decide once they had entered their chosen market?