Tom's of Mainstream
The crunchy manufacturer of all-natural toothpaste has mastered the art of balancing its idealistic values with the realities of mass-market retailing.
By Sean Donahue

(Business 2.0) – Shoppers lining up for a cut of meat at the Wild Oats market in Portland, Maine, first have to dodge a big Tom's of Maine kiosk that's nearly blocking the aisle. Selling toothpaste and mouthwash alongside fresh chicken breasts is an unusual merchandising technique—but it's part of a new Tom's of Maine strategy to snare potential customers in unlikely places.

Even more incongruous, perhaps, is the fact that Tom's managed to persuade Wild Oats to break with the supermarket chain's own rules about positioning products according to particular categories. "We're challenging them to reconsider the profitability potential of that floor space," explains Tom Chappell, the founder and CEO of Tom's of Maine.

Tom's has been winning such challenges ever since it began selling its toothpaste in mainstream stores 20 years ago. Today, Tom's makes more than 90 all-natural products that are sold in both small health-food stores and sprawling chains like Rite-Aid and Wal-Mart. Revenue topped $40 million this year, up from about $35 million in 2003. Going forward, the privately held company says it plans to deliver annual growth of 20 to 25 percent while increasing its U.S. household penetration from 2 percent today to 13 percent—the segment of the population that shares Tom's socially conscious values, according to the firm's research.

Those are lofty goals for any company competing with the likes of Procter & Gamble and Colgate-Palmolive, but they're especially ambitious coming from a firm that positions itself as a company with a conscience—a sensibility that consigns many idealistic entrepreneurs to the margins of the marketplace. Yet Tom's has crossed into the mainstream without undermining the progressive practices that give its brand credibility—such as donating 10 percent of its pretax profit to charity and paying its Maine manufacturing employees about $14 per hour, 15 percent higher than the median local wage.

Indeed, rather than compromising as it grows, Tom's has figured out how to convince mass-market retailers that its values-centered business practices are good for the bottom line—a clever tactic that has helped the company expand its reach steadily over the course of three decades. As Chappell puts it, "Tom's gets far more attention from retailers than our volume would normally justify."

The Savvy Yankee

Tom's of Maine is headquartered in a renovated brick mill in Kennebunk, Maine, a typical New England town replete with white-steepled churches and historic houses. Chappell fits in here; with his lanky frame, gray hair, and metal-rim glasses, he looks less like an aging hippie than a staid Yankee squire.

Along with his wife, Kate, Chappell founded Tom's of Maine in 1970 to make a nonpolluting laundry detergent. The detergent failed, but Tom's then rolled out three products that remain company flagships: all-natural toothpaste, mouthwash, and deodorant.

With little competition, sales took off in health-food stores. As revenue reached $2 million in the early 1980s, Chappell set his sights on mainstream retailers. The company's first mass-market distribution deal, with the CVS drugstore chain, was cemented in 1984. Regional grocers like Stop & Shop soon began offering shelf space as a way to differentiate themselves from national chains. "Lots of companies foster sustainable business practices, but they don't make them relevant to consumers," says Gwynne Rogers, a strategic marketing consultant with the Natural Marketing Institute in Harleysville, Pa. With its distinctive, message-laden packaging, "Tom's has positioned its mission right at the point of sale."

This pays real dividends when managing relationships with retailers. For one, the all-natural ingredients and values-oriented positioning allow the company to sell at a premium, so Tom's generally offers higher profit margins than traditional personal care products. Meanwhile, a program called Common Good Partnerships, which builds product promotions around social or environmental causes, encourages retailers to bask in Tom's halo. In February, for example, Tom's partnered with Brooks Pharmacy, a New England chain, to launch a campaign to improve children's oral health through grants to dental clinics. Brooks created high-profile displays for Tom's of Maine products and gave Tom's front-page billing in newspaper coupon inserts. The result: Tom's met its community-oriented objectives while increasing its business with Brooks from about $300,000 in 2002 to more than $800,000 this year. Brooks, for its part, was able to promote its own philanthropic spirit—while selling more of Tom's high-margin products. Says Angela Aguiar, Brooks's health and beauty category manager, "There are compelling business reasons to participate."

The Art of Negotiation

To create new opportunities, Chappell and COO Tom O'Brien approach potential distributors by going right to the top, meeting with the retailer's CEO or COO. To prepare for these sessions, they dig through annual reports and press releases to find statements that describe the retailer's values—goals that can be cited during the meeting to establish a foundation of shared beliefs. Tom's execs then describe their customers, making the pitch that those shoppers—who O'Brien says spend more and shop more frequently than the average consumer—are looking for retailers who share their values.

Still, as Tom's moves into big-box retailers like Wal-Mart, it has had to adapt to the fact that national chains are less flexible than regional merchants. Wal-Mart, for example, has limited Tom's to selling 4-ounce tubes of toothpaste, rather than its standard 6 ounces, to keep the price low. Even the ever idealistic Chappell acknowledges that working with giant retailers can be difficult. "Whether or not we have the money and influence to increase market share in national chains is a big question," he says matter-of-factly.

That helps explain why Tom's isn't counting on Wal-Mart to bring in all the growth. New product development is a top priority; the 50 products introduced in the past two years—items such as liquid whitening toothpaste and natural anti-dandruff shampoo—already account for 25 percent of revenue. There's also a sampling program that puts Tom's products in yoga studios and other locations where like-minded consumers can often be found. In addition, Tom's kiosks, like the ones installed at Wild Oats and Walgreen's, function like Tom's of Maine stores-within-a-store. On average, they've boosted sales by 65 percent wherever they've been installed.

Still, the kiosk program is just an evolutionary step, Chappell says. He knows that his products will eventually migrate back to the health and beauty aisle. When they do, however, the increased exposure and sales could earn the products a bigger chunk of shelf space—making Tom's of Maine less the crunchy outsider than a member of the new establishment.

Ideals and Results

 

Source: Tom's of Maine