Honest Tea stays true to its roots as it grows

Seth Goldman is trying to take honesty mainstream.

A year after selling a 40% stake to Coca-Cola ko, his Honest Tea is going national with Coke distribution support. The bottled organic brewed teas with natural fruit sweetening, such as mango and pomegranate, is getting a mass-market presence, beyond natural and organic products stores.

"We're not just about creating a high-end frou-frou brand," says Goldman, 43, who co-founded Honest Tea in 1998, at the loftlike headquarters here. His "office" is a desk in a corner of the open room. "We want to provide our product wherever beverages are sold. Once you get beyond the natural store shelf, it's much harder for consumers to get it. We weren't getting distribution."

That began to change a year ago, with Coke's $43 million investment and option to buy it all by 2011. The deal brought more than cash to expand — it brought support and access to new markets.

"When you have a pure financial investment ... that's very distracting for management and often very bad for the brand," says Gary Hirshberg, 54, an Honest Tea board member and CEO of organic yogurt company Stonyfield Farm. "This makes happier employees, which makes a better-quality product, which makes a difference in tough times."

Yogurt giant Danone bought 85% of Hirshberg's Stonyfield in 2001. He knows that distribution is key to success.

"You can have the healthiest and best drink, but if you can't get it to store shelves, you're just another has-been," he says.

While bottled tea sales were $1.1 billion, down 1.7%, for the 52 weeks ended Jan. 25 vs. a year earlier, according to Information Resources, Honest products, including its Honest Kids juices, were up 66%, to $38.1 million — despite prices about 20% higher than rivals such as Snapple and Arizona.

The growth potential for organic tea drew the interest of Coca-Cola's Venturing and Emerging Brands (VEB) group.

"We are less than one-half of one percent of tea that's sold," says Goldman, who co-founded Honest Tea with Barry Nalebuff, a Yale University School of Management professor. "We're confident that within the next three years, organic tea will be 5% to 10% of beverage sales."

Honest Tea, whose flavors include Mango Green Tea and Pomegranate White Tea with Acai, has built a solid image through organic ingredients, being less sweet and promoting social responsibility through buying tea leaves that are certified Fair Trade, a program for Third World farmers.

Honest "represents the intersection of three megatrends," says Deryck van Rensburg, president of the Coke's VEB group. "It's not just about offering a product, but it's the way (Goldman) does business. Consumers are increasingly concerned not only about products but also the kind of company the products come from and what it stands for."

What Honest Tea stands for includes buying bicycles for employees to commute to work, putting recycling bins in schools to collect used foil packs from its kids' drinks and organizing tea garden farm cooperatives in supplier nations.

Some organic enthusiasts have criticized Goldman for selling a stake to Coca-Cola. Goldman also has had to buy out dozens of contracts with independent distributors, who helped grow Honest Tea, only to lose the business to Coke's network.

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