Green and Giant
When I started TerraCycle, we quickly came to a defining crossroads: Did we want to sell our made-from-waste products to independent retailers or to big-box retailers? Basically, we were told that if we sold to the big-box chains we would be blackballed by the independents.
At the time, going independent seemed the more tempting path, and that was also what our advisers suggested. We would have a broader range of small distributors who care about green issues and who would help us build our brand. A broad range of clients would also offer security against the risk of being dropped by a big-box client. Perhaps an even more important factor attempting to avoid potential damage to the brand. If you go big-box, you may face backlash from consumers who will accuse you of making a deal with “the man.” Still, we decided to go big-box from the beginning for a simple reason: scale.
Big-box retailers are significantly more desirable to most shoppers because of the prices they offer and the range of products they carry. Small, independent retailers have to charge more and carry fewer products, but they try to make up for it in many other ways, often by offering nicer ambiance, great customer service and hard-to-find products. And that’s why it makes sense that independent retailers want the brands they carry to be available only in other independent retailers. As an example, there was a big to-do last year when Seventh Generation started selling its products to Wal-Mart.
From my perspective, I believe that green companies should work with mega corporations because even a small change in a mega system can have a very large impact. Most important, big companies have massive volume potentials. If they are global conglomerates, they can take your business global incredibly fast. Our global partners, including Pepsico, have made it possible for us to introduce subsidiaries in more than 14 countries in just two years.
For me, the challenge isn’t whether to partner with mega companies; it’s how to find a way to partner with smaller companies, too. In this regard, TerraCycle has been partially successful. Our business model has two principal streams: getting garbage in and moving garbage out.
On the getting-garbage-in side, our main partners are all mega corporations that are able to absorb the costs of shipping and a 2-cent donation per unit of waste collected (which results in program costs that are six to seven figures a year). Small brands would have a hard time meeting that burden. But because we’d like to work with them, too, we have created pricing options that, for example, let small brands sponsor a brigade and cover the recycling costs directly related to research and development but not the shipping. While these programs effectively ask the consumer to subsidize the program, they have proven to be successful and allow smaller brands to play. So far so good.
On the getting-garbage-out side (making products from waste), we are stumped so far — other than making different products for big-box stores and independents. Other brands have done this for years, creating one product for the big boxes and then changing the size a little or adding the words “premium” or “select” and introducing it with independents. I don’t yet see a more interesting pathway. Any suggestions?
Of course, there are some downsides to our approach, namely that we have turned off some of our consumers. Some people feel that our programs promote the consumption of the brands that sponsor their waste collection. Some people don’t buy TerraCycle products because they believe that the work we do with big retailers helps them grow and strengthen their business — which these people believe is a bad thing. On the other hand, if we tried to please all consumers, we would be a much smaller company and we would collect and transform a fraction of the waste we do today.
Do you have any suggestions on how we could better handle this dilemma?