Inside Seventh Generation’s Quest to Blow Up Without Selling Out

A happy face made of Seventh Generation laundry detergent packs
Photograph by Dan Saelinger

The company is cracking the code on green cleaning products. But can it sell them to the masses?

It had become, suddenly, all about the pods. Ever since Tide’s breakout product landed on supermarket shelves in 2012, the brightly colored candy-size pillows of liquid detergent had surged in popularity, becoming the closest thing to a craze the laundry industry had seen since the stacked washer/dryer in the 1980s.

Here, in a realm of wash, rinse, and repeat, was a bona fide innovation—a new category of products that let consumers skip the sticky step of measuring out soap and that now accounted for about 15% of the laundry detergent market—and it had caught one of the most innovative companies in the sector flat-footed. And then some.

Seventh Generation, the green cleaning-products company based in Burlington, Vt., had been late to the liquid pillow party as it was. But almost from the minute it began to develop its own offering, in January 2015, it ran into a problem.

A Seventh Generation laundry detergent pack in waterPhotograph by Dan Saelinger

There was something about the packets that were already on the market that made them more dangerous than other liquid laundry detergent, it appeared. Data suggested they were responsible for more than half of the incidents reported to poison control centers related to kids’ exposure to detergent. And the outcomes in such cases were often more frightening too. Ingesting regular detergent rarely leads to more than an upset stomach. But kids who discovered the bright little packs and popped the morsels into their mouths were much more likely to experience excessive vomiting, wheezing, gasping, and sleepiness. More alarming was that no one could figure out what was happening chemically within the packets to make them so hazardous. (Procter & Gamble, the maker of Tide, says that since it has made changes to its packaging and begun an educational campaign, accidental-exposure rates to its liquid pods have dropped 27%.)

Seventh Generation, which since 1988 had grown its business on the promise of nontoxic green products, thought it could sidestep the problem. For the first half of 2015 the company’s formulation team worked on the recipe at its Burlington headquarters, using a roster of ingredients primarily derived from plants rather than petroleum, the industry norm.

But then Martin Wolf, the company’s director of sustainability and authenticity, sounded the alarm. All the ingredients that Seventh Generation used in its detergent capsules met the company’s safety standards, but Wolf thought there was not enough evidence that their interaction within the small water-soluble film packs would be any better than what was already on the market. “We just don’t understand enough about the toxicity,” says Wolf, who internally is referred to as “Scienceman.” “We’re still trying to figure it out.”

Wolf and his team decided to pull the plug on the project and sent the company’s scientists back to the drawing board with a mandate to scrap the liquid ingredients. This past July, Seventh Generation’s new laundry packs—made this time with powder—went on sale at Target tgt and Amazon amzn .

The company’s deliberateness and caution may seem out of step in an age when management gurus celebrate a “fail fast” ethos. But for nearly three decades it has been a pace that has seemed to sit well with health-minded and environmentally conscious consumers, who have made Seventh Generation the biggest green cleaning brand in the U.S. market, with some $250 million in annual sales. In a relatively sleepy industry, the company’s revenues have averaged double-digit growth rates since 2006.

The biggest endorsement yet of Seventh Generation’s prospects came in October, when Unilever completed its acquisition of the company for a reported $600 million to $700 million in cash. Seventh Generation CEO John Replogle, who says Unilever approached him without solicitation, believes the company’s new parent can help it become a multibillion-dollar enterprise over the next 25 years. For Unilever, it’s a “value-added brand in a category where consumers are not going to be fooled by a revamp in packaging,” says Morningstar analyst Philip Gorham. “It’s truly differentiated in a category that’s hard to differentiate in.”

For more on the Seventh Generation acquisition deal, watch this Fortune video:

The deal is a bet by Unilever on the continued evolution of a species: the eco-conscious consumer—an alert, premium-paying shopper. Initially that group was concerned only (or mostly) with what they put inside their bodies. Next they became more selective about what they put on them—and finally with what’s around them. In other words, says Nitin Paranjpe, president of Unilever’s home-care business, “it started off first in food, then moved to personal care, and now to home care as well. The entire natural segment is clearly on trend.”

These shoppers, the theory goes, don’t just want cleaners that sound as though they’ve got a whiff of sage and citrus, but ones that are actually free of ingredients that consumers can barely pronounce and don’t understand. This demand for purity and simplicity, after all, has been one of the biggest drivers in the food industry for the past few years. But it’s one that has been slow coming to the cleaning side of the consumer packaged goods (CPG) world.

Seventh Generation learned that the hard way. The brand started as a catalog business that lost money for more than a decade selling products free of things like phosphates and volatile organic compounds before consumers had any awareness of such chemicals. The company’s early base of customers—best described as Earth Day enthusiasts—was passionate, sure, but small in numbers.

The question now is whether the company can substantially grow its ranks of customers without losing the passionate core—what’s more, while being owned by a global $59-billion-a-year CPG giant that sells everything from Axe deodorant to Vaseline. Seventh Generation’s faithful customers tend to be wary of big business to begin with (perhaps even one well-regarded for its commitment to sustainability, as Unilever is).

Replogle, for his part, is sensitive to any suggestion that the deal was a compromise of principles. “We’re not selling out,” he says. “We’re moving forward.”

Joey Bergstein, Seventh Generation’s chief marketing officer and general manager, was speaking at a conference six months after joining the company when someone in the audience raised his hand and said, “I just want to tell you I love Seventh Generation. I’ve been using your brand since long before it ever worked.”

Even the company’s cofounder and onetime CEO Jeffrey Hollender used to quip that when Seventh Generation debuted its laundry detergent, he could sell it only to people who wanted to pay twice as much to walk around in dirty clothes.

There was a little too much truth behind Hollender’s jest for most shoppers. So in the past decade Seventh Generation has started to operate more like a traditional CPG company by working continuously on improving both its operating margins and its product efficacy.

Seventh Generation CEO John Replogle looks out over Lake Champlain at the company’s Burlington, VT. headquartersPhotograph by Mike McGregor

Surprisingly, the margin challenge in many ways has been easier—thanks in part to the declining cost of green ingredients. Seventh Generation, for instance, uses a lot of palm kernel oil—certified sustainable, of course—which largely comes from the kernel of the African oil palm tree. It has gotten more plentiful and cheaper as palm oil (which derives from the tree’s fruit) is increasingly used in the food industry.

Addressing the issue of making cleaning products that actually, well, clean has been harder. It’s no longer enough for sprays and detergents to just be nontoxic; they have to work if they’re going to appeal to folks beyond the type employed by the Vermont company—a place where there are four separate trash-sorting containers in the bathrooms and Patagonia-wearing eco-warriors argue about whether black plastic can be recycled in the first place.

In some cases the company’s R&D team has clearly hit the mark on product performance. In its May issue, Consumer Reports rated the brand’s all-purpose spray cleaner best in class among all spray cleaners, natural and otherwise.

But Seventh Generation executives acknowledge—indeed, with remarkable candor—that they’re not aiming for perfection when it comes to cleaning prowess. Rather, they try to get all products to within about 90% of the effectiveness of the leading conventional brands, such as Procter & Gamble’s Tide laundry detergent or its Cascade dishwasher liquid and powder. Tim Fowler, Seventh Generation’s senior vice president of R&D and operations, says it’s not worth it to try to match those products’ efficacy. “What you have to spend to go from 90% to 100% doesn’t pay back for the consumer,” he says. “It’s not noticeable.”

Still, they’ve got to get close to that 90% threshold—and, in some cases, they simply haven’t yet. In that same May buying guide, Consumer Reports—which measures only a product’s cleaning performance, not the toxicity of its ingredients—gave some Seventh Generation offerings rather middling reviews. Its Natural Dishwasher Detergent Packs earned a rating of “very good” but came in 17th place out of 25 products reviewed. Its so-called Energy Smart dishwasher capsules, meanwhile, came in dead last in the category.

“What you have to spend to go from 90% effectiveness to 100% doesn’t pay back for the consumer—it’s not noticeable.”

The big challenge is that the company has long had a limited arsenal with which to work: The natural ingredients that Seventh Generation has used since the late 1980s can’t match the cleaning power of chemically abrasive agents. Typically four out of five chemicals used in a conventional laundry detergent wouldn’t be allowed in a Seventh Generation product, according to its current standards. (“Cleaning products are pretty gnarly,” says Errol Schweizer, a former Whole Foods wfm executive who is now an industry adviser.) So the company has doubled down on its investment in discovering new natural cleaning elements. The laundry packs, for example, now include two additional plant-derived enzymes—one that works on gums that are in things like salad dressing and ice cream, and the other that removes pills on clothes that entrap soil and give the appearance of dinginess.

Unlike with food and personal care items, manufacturers are not required to list ingredients on cleaning products. Seventh Generation does it anyway. But until (or unless) the competition follows suit, full disclosure doesn’t give the Vermont company much of an edge in the marketplace because consumers simply have nothing to compare its ingredient list to when they’re browsing the supermarket aisles. Says Joel Makower, chairman and executive editor of GreenBiz Group, a media and events company focusing on sustainable business: “The value proposition for most green products is doing less bad.” And that is not as easy a sell as you might think.

Yet another challenge for Seventh Generation now isn’t getting things clean, necessarily, but changing shoppers’ minds about what clean means. Consumers typically evaluate a detergent based not only on whether it removes stains and brightens clothes but also on whether it leaves them smelling “clean.” The problem is, clean isn’t supposed to smell like anything. “Consumers aren’t thinking, ‘Did you remove odor out of my clothes,’ but rather, ‘Did you deposit the smell of Tide on my clothes?’ ” says Fowler. “It’s about the addition, not about the removal.” That right there—the subjective feelings people have about what clean should look and smell like—may be the biggest hurdle to the mass adoption of green cleaners, even more so than price and efficacy.

But the company’s managers acknowledge they can’t change such deeply ingrained assumptions overnight. So in recent years Seventh Generation has begun catering at least in some part to this sensory bias. Scented products now account for about 60% of the company’s sales—although those fragrances come from natural oils and botanical extracts.

In the same way, the company has given in to another apparent consumer crutch: the need for color. Though Seventh Generation doesn’t add any dyes to its liquids that would give them the electric-blue hue we associate with cleaners, it has lately taken to brightening up their packaging. Many consumers would prefer to buy a green product—just as long as it doesn’t look too different from what they’re used to. That’s why, in the case of the laundry packs, the company is still trying to come up with a liquid solution because “consumers don’t find the aesthetics as pleasing” with powder, Wolf says.

Even when the technological means are at hand to make a product more eco-friendly, the customers aren’t always ready for it, however. Take the case of laundry detergent. The company sells a liquid soap that’s twice as concentrated as the industry standard—but it has the means to market a detergent that’s four times as concentrated as that (or eight times the norm). But consumers may be thrown by how little they have to use per laundry load and may feel cheated by the small size of the bottle.

For more on Seventh Generation, watch this Fortune video:

“We can’t get that far out ahead from a technology standpoint, even though we can deliver it,” Replogle says. Seventh Generation made that mistake when it rolled out spray cleaner that was 10 times as concentrated as usual. The product was sold in miniature vials, with the idea that consumers would pour the powerful liquid into a larger spray bottle and top off with water. The company marketing team discounted the price of the super-concentrated cleaner by a third—figuring that it would be difficult for shoppers to spend the same price for a tiny container. That worked just fine for customers in natural-food stores, who seemed to appreciate the value proposition. But the product utterly flopped in traditional grocery stores—so much so, in fact, that the company killed it.

Mainstream consumers just aren’t there yet, says Replogle. And getting them there will require them to accept a tenet of sustainability that’s at odds with how most Americans shop: that less can be more.

“That consumer science is really hard to crack,” says Replogle. “We haven’t figured it out yet.”

A version of this article appears in the December 1, 2016 issue of Fortune with the headline “It’s Not Easy Being Green.”

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