The Power of Licensing #12: HOW WILL SMART CONSUMER PRODUCT COMPANIES MANAGE SUSTAINABILITY RISK, AND OPPORTUNITY, WHEN IT COMES TO THEIR LICENSEES?
February 9, 2020 | By: Michael Stone, Chairman and Co-founder of Beanstalk
“…the evidence now indicates that we are in the early stages of a sustainability revolution that will achieve the magnitude of the Industrial Revolution and the speed of the digital revolution…”. “It’s Not Too Late”, by Al Gore, The New York Times Sunday Review, p. 4, Sept. 22, 2019
For years, companies, including consumer products enterprises, paid little more than lip service to sustainability issues (with some notable exceptions). Today, that’s changing, at a reasonably fast clip. Giant companies have set themselves ambitious targets to cut carbon emissions, reduce water usage and recycle plastics and other materials. Many have hired chief sustainability officers to develop their corporate sustainability strategy, drive it forward and deliver on these targets. The proclamation by the Business Roundtable, which represents leaders of 181 of the world’s biggest companies, of new principles, including “protect[ing] the environment by embracing sustainable practices across our businesses,” is both emblematic of and an inspiration for this shift.
But amid all this activity, there is one dimension that appears to be getting less dedicated attention than it should – and that’s brand licensing.
Brand licensing – where a brand owner permits or licenses another company to create, market or sell a product featuring its brand name and logo – is becoming increasingly more prevalent as a marketing and brand enhancement strategy. It acts as a kind of loudspeaker, amplifying a brand’s message to target audiences at a time when brand owners are sorting through the many communications paths available to them in today’s marketing ecosystem. Many companies’ licensing programs have allowed brands to speak to a broader range of new consumers and to deepen their relationship with existing ones. Indeed, in the case of Polaroid, brand licensing allowed it to come back from the dead. If anything underlines the prominence of brand licensing, it’s the fact that licensed products accounted for $280.3 billion of retail sales in 2018.[1]
There are significant and recognized benefits for a brand when it engages in licensing. However, licensing carries risks too. And sustainability is fast becoming a subject that licensors must address with their licensees. What if licensed products are made from materials that come from threatened environments such as the Amazon rainforest? Or what if they simply don’t meet the same sustainability standards to which the brand owner holds its own products accountable? To put it mildly, this will be a problem for the brand owner, especially those that have established sustainability commitments. Consumers, for sure, would take a dim view. A highly visible licensed product that fails on the sustainability front could cast a pall over a company’s carefully constructed sustainability strategy and cause reputational damage. With some notable exceptions (which I’ll mention in a moment), most brand owners engaged in licensing have not yet reached down to their licensees to require or even suggest sustainability guidelines that are consistent with their own sustainability initiatives applied to their core products (or services). But I predict that will start changing soon. Before too long, those brand owners that do not pay attention to their licensees will be doing so at their own risk.
It’s heartening that so many consumers, especially young people, are putting the future of the planet front-and-center in their lives. Greta Thunberg, the gifted 16-year-old Swedish girl who recently berated world leaders for their lack of action in the face of mounting scientific evidence of looming environmental disaster and was recently named TIME’s Person of the Year, may be representative of a whole generation of people who are fast becoming the dominant consumers in the market. A recent study found that 70 percent of consumers want to know what the brands they support are doing to address social and environmental issues. And Millennials and Gen Z are more likely than both older and younger consumers to feel this way. That’s important as the Millennial generation’s purchasing power is projected to reach 30% of all retail sales this year.
Some companies have included their licensees in their broader approach to suppliers. In other words, the broad requirements they have imposed on their suppliers of raw materials, components and other goods and services are imposed on their licensees too. This makes sense. After all, licensee companies are suppliers, of sorts. But many have not even taken this step. And in any event, in my view, this does not go far enough. That’s because licensees are not simply suppliers. The products they produce for the brand owner are, to all intents and purposes, the brand owner’s products. Although not produced or marketed by the brand owner, licensed products are manufactured under contract with brand owner approvals along the way from product development to final production. Certainly, consumers generally do not distinguish between products that carry the same brand name – whether these are the brand owner’s core products or licensed products. To them, they are one and the same. And therein lies the risk if sustainability issues are not addressed.
Some major companies are taking the lead by creating specific sustainability targets for their licensees. Others will need to follow, particularly as retailers up their game. Earlier this year, for example, Walmart, the world’s biggest retailer, announced plans to reduce plastic waste in the packaging for its private brands such as George, its men’s clothing line, Sam’s Choice, its food and hard goods line, and Equate, its health and beauty line. Specifically, it committed to work with its U.S. private-brand suppliers to create 100 percent recyclable, reusable, or industrially compostable packaging in all its private brands in the United States by 2025, to target at least 20 percent post-consumer recycled content by 2025, and to label 100 percent of food and consumable private-brand packaging with the “How2Recycle” label by 2022.[2] And Walmart is trying to get a handle on its entire supply chain which has, by its own count, more than 100,000 suppliers! Target is another retailer that is taking significant action. Both retailers have robust guidelines aimed at reducing the environmental and social impact of packaging materials. Licensees who fail to catch up to these, and other retailers, do so at their peril.
Meanwhile, The Coca-Cola Company operates what may amount to the gold standard when it comes to licensing and sustainability. It has developed a broad set of guidelines relating to sustainability, and its Global Licensing department ensures that licensees follow them to the letter. It conducts a rigorous selection process when vetting potential licensees. Once a company becomes a licensee of The Coca-Cola Company, they are subject to a robust auditing program. For example, licensees claiming to use recycled materials are required to document their use of such materials, forming a chain of custody that goes back to the source of the recycled materials. Also, the licensees, many of which have been in the program for many years, are routinely given help to raise their game and meet Global Licensing’s strict standards on sustainability – with educational summits and other initiatives. And the company has packaging waste guidelines for merchandise, by product category. Very occasionally, the company will terminate a license if there is a continuing problem with compliance. When it comes to sustainability, Kate Dwyer, Senior VP, Global Licensing, remarks that “as a result of all of these requirements, due diligence and oversight, I can absolutely trust that every Coca-Cola licensed product meets Coca-Cola’s rigorous quality standards.” I’m not sure many brand licensors can make that assertion.
And, of course, as you might expect, Disney has a Smart Packaging Initiative (SPI) which was launched in 2016. SPI helps licensees and suppliers reduce the environmental impact of packaging, and even boasts a scorecard. Disney holds workshops for its licensees to help them with environmentally sound packaging. The SPI tool has been made available to The Toy Association (for distribution to its members) and to Disney licensees, such as Hasbro, Mattel and Lego, among others. Indeed, toy companies such as Hasbro and MGA, which are each a licensor of their proprietary brands and a licensee of properties owned by others, have adopted comprehensive sustainability guidelines for their products and are beginning to cascade those goals down to licensees. The “sustainability” theme was top-of-mind at the Nuremberg Toy Fair last week, including a panel discussion on the topic.
In the UK, there are some similar initiatives. For instance, London-headquartered Diageo, one of the world’s largest alcoholic beverage companies, is identifying companies with which it could partner to manage the carbon footprint of its supply chain. Last year, it identified 224, which accounted for approximately 80 percent of its global expenditure in the categories identified as having the highest impact – including companies that make its branded products under license. The pressure it is exerting seems to be paying off. Compared with 2018, Diageo’s licensees and its other suppliers integrating climate-related issues into their own long-term business objectives increased from 76 percent to 80 percent in 2019.[3]
Similarly, the BBC, the British public service broadcaster, is working to ensure that its lucrative licensing program is aligned with the content on its TV, radio and online channels. It was the landmark BBC TV program, Blue Planet II, narrated by David Attenborough, which alerted the world to the devastating impact of plastic on the natural world in 2017. The BBC Studios Consumer Products and Licensing Division is now developing a sustainability framework (a work in progress commenced in early 2019) to guide licensees and help them meet certain standards – although it is not imposing requirements on them. And they seek to engage with companies that have sustainability as one of their core principles. The BBC uses three filters when evaluating licensees – reduce, recycle and reuse.
The BBC owns some huge global entertainment brands, including Doctor Who, Top Gear, BBC Earth (which produces the Attenborough documentaries) and Strictly Come Dancing. Licensees produce a vast range of products. Doctor Who, which is the world’s longest-running sci-fi TV show, is watched in more than 240 countries and has nearly 70 longstanding global licensees that produce figurines, apparel, clocks, wall decor, pillows and other gifts and novelties. Rikesh Desai, BBC’s licensing director, said that it first looked at the apparel category, not least because the evidence suggests that three out of five T-shirts end up in landfill sites after just five months. The BBC does require information on transparency in a licensee’s supply chain. The feeling is that the more information they have the better the BBC will be at helping licensees become more sustainable. For instance, it recently introduced a licensee making stuffed toys to a Dutch firm that had pioneered a new environmentally friendly stuffing material.[4] A new, eco-conscious collection of plush will include 100% recycled post-consumer plastic from bottles and eco-friendly packaging.
Diageo and the BBC are not alone. A new group, Products of Change, which was launched in the U.K. in 2018, is aiming to establish some best practices on sustainability. There are 24 members – including licensors, licensees, trade media and Licensing International (the industry trade association) – and they are working in four groups that cover fashion, toys, publishing and carbon footprint. According to Trudi Bishop of Bee Licensing, one of the members, the group will issue a series of “bite-size” guides to sustainability as part of their mission to “educate and inform.”[5] The guidelines will be published on Licensing International’s website.
But if companies must consider ways to mitigate the risks of brand licensing in this age of sustainability, they should not forget about the potential for exciting opportunities too. Again, The Coca-Cola Company is one of the leading companies to realize that a high-profile brand licensing partnership can underscore its commitment to sustainability. In 2014, it collaborated with the pop star will.i.am to launch EKOCYCLE, a collection of licensed sustainable lifestyle products. Explaining the initiative, The Coca-Cola Company said: “Sustainability is at the heart of The Coca‑Cola Company and we are always looking at innovative ideas that link the vision of sustainability with our packaging, and encourage its collection and recycling in order to extend the valuable lifecycle of this resource.”[6]
It has now followed this with a tie-up with Diesel, the Italian fashion house, announced in 2019. The two companies have teamed up to create a 12-piece collection – including a unisex workwear jacket, a black zip tracksuit and hooded sweatshirts – that is partly made from recycled plastic bottles and recycled cotton. These garments were given a spectacular launch when they were unveiled at the Galleries Lafayette, the department store in Paris, in October 2019.[7] Indeed, fashion houses all have sustainability top of mind. Gucci, LVMH, Courreges, Stella McCarthy, Dior, Saint Laurent, Louis Vuitton, among others, are all taking steps to reduce their carbon footprint as well as other steps to protect the environment.
More companies would do well to follow the examples of The Coca-Cola Company, Diageo, the BBC and Walmart, among others. And the licensing industry as a whole must develop a comprehensive set of standards and best practices. Consumers are looking for brands to take action to protect the environment, to show them what they are doing, and that is not limited to a company’s core products but also includes licensed products. If you license your brand, make sure that your licensees are every bit as sustainable as you. If they are, that’s great, because this will help you emphasize your sustainability credentials (and will also help licensees meet the expectations of consumers and be more competitive). But if they’re not, then try to help them improve – or, failing that, find a new licensee. After all, it’s your brand they are using, not theirs. And it’s your brand message they are delivering too. Make sure it’s the message that you want delivered.
[1] Annual Global Licensing Industry Survey 2019 Report, p.4
[2] https://corporate.walmart.com/media-library/document/2019-environmental-social-governance-report/_proxyDocument?id=0000016a-9485-d766-abfb-fd8d84300000
[3]https://www.diageo.com/PR1346/aws/media/7961/diageo_srperf_add2019_final.pdf
[4] https://www.bbc.co.uk/mediacentre/bbcstudios/2018/global-licensing-show-brands
[5] https://licensinginternational.org/news/what-sustainability-really-means-for-licensing/
[6] https://www.coca-colacompany.com/press-center/press-releases/recycling-fashion-william-coca-cola-launch-new-brand; https://www.coca-cola.co.uk/stories/will-i-am-launches-ekocycle-in-harrods
[7] https://www.licensingsource.net/coca-cola-teams-with-diesel-on-recycled-collection-collab/