More Than Tea, "Honestly"
By SARAH THEODORE
Honest Tea built itself a tall order when it came up
with such a virtuous name. But this growing brand on the cusp of a
nationwide breakthrough is out to prove it can stay true to its socially
conscious mission while accomplishing an aggressive distribution push that
will bring better-for-you, organic products to a mainstream audience.
During the past two years, Honest Tea has grown at a
rate of 50 percent a year, and its products are available nationwide
through natural foods retailers. This year, with the organic movement in
full swing and an infusion of cash from investors, company executives have
been criss-crossing the country to build its direct-store-delivery
presence, thus solidifying its place in the rest of the retail world. Their
efforts have paid off. The company has signed on five new Coca-Cola
distributors during the past year, as well as a number of independent soft
drink bottlers, such as Polar Beverages, and beer wholesalers. Just this
spring, the company opened 2,000 new, decidedly mainstream, retail
accounts, including Wawa, Duane Reade, Circle-K and Smart & Final.
Based in Bethesda, Md., Honest Tea was founded in 1998
when President and “TeaEO” Seth Goldman and his former
professor at the Yale School of Management, Barry Nalebuff, teamed up with
the idea of creating a low-sugar beverage product.
“There seemed to be a large hole in the beverage
market,” says Nalebuff, who still teaches at Yale while serving as
chairman of Honest Tea. “Given how many thousands of products are
introduced each year, you would have thought that there couldn’t be
any holes. Despite all the flavors, caffeine levels and carbonation levels,
there was essentially no difference in the sweetness levels."
During a trip to India, Nalebuff discovered the broad
range that exists between varieties and qualities of tea, and decided there
was not only a market for low-sugar beverages, but there also was a void in ready-to-drink teas made from high-quality
“Just like there are all these different
varieties of grapes and wine, there was that same type of range for
tea,” he says.
At the time, Goldman was working with the Calvert
Group, a financial firm that specializes in socially responsible
investment. The former teacher and student decided they had the seeds of a
business idea in a company that would focus on better-for-you tea products
with a social message.
“Before we launched Honest Tea, when Barry and I
were talking, one of the things I suggested was putting a little logo on
the back of the bottle that said, ‘Plant a tree,’”
Goldman says. “Barry said, ‘What does that mean?’ and I
said, ‘I’m not sure yet, but I know it’s going to be a
sort of placeholder for saying we have a commitment to doing more than just
selling a lot of tea. It’s going to be in a way that we’ll be
able to consider the environmental impact of our decisions, and beyond
The first batches of Honest Tea were brewed in
Goldman’s kitchen and bottled in a Thermos for the pitch to natural
foods retailer Fresh Fields, which was the predecessor to Whole Foods.
According to Goldman, they walked away with an order for 15,000 bottles,
and they were in business.
“We told them we would deliver it by the end of
May — then we had to find a plant,” he says.
A natural progression
Honest Tea did not start out as an all-organic product
line, but as the organic movement took hold, and the United States
Department of Agriculture developed certification standards for organic
products, the company transitioned all of its products to be USDA
certified. Today, the company carries 20 varieties of organic tea,
including black, green, red, white and peppermint offerings. Last year, it
introduced Heavenly Honey Green Tea, which quickly became one of its top
sellers. This year, the company rolls out Sublime Maté, it’s
first maté offering, and Pomegranate White Tea with Acaí. The
tea products contain zero calories for the unsweetened varieties, and 17 to
35 calories per serving for the rest of the line.
In 2004, the company launched a line of fruit drinks
under the Honest Ade brand, with the goal of producing a line of juice
drinks that had less sugar than traditional fruit drinks on the market.
Today the line consists of Cranberry Lemonade, Limeade, Pomegranate Blue
and the new Orange Mango with Mangosteen. Each variety has about 50
calories per serving.
Goldman says the lack of competitive products on the
organic market, as well as the appeal of the “Honest” brand
allowed it to make the progression from teas into fruit drinks.
“We realized it wasn’t as much about tea
as it was about ‘Honest,’ where ‘Honest’ really
comes to stand for organic, authentic and healthier,” he says.
“There are other products that fit that umbrella. Honest Ade was the
Beginning this month, the company is expanding the
brand again, this time into kids’ drinks with the rollout of Honest
Kids juice pouches. Available in Berry Berry Good Lemonade, Goodness
Grapeness and Tropical Tango Punch, the products contain about half the
sugar of similar products on the market, and have about 40 calories per
Goldman says the company has the potential to take the
“Honest” theme in any number of directions, but says all
products have to meet three key criteria.
“The first is it has to be authentic,” he
says. “It has to have the taste of the natural products. We’re
not going to make a Bubble Gum flavor or a Blue Raspberry. We’re not
going to make something that isn’t found [in nature]. “It also has to be authentic in terms of the way
it’s marketed and presented,” he adds. “We’re not
going to make claims on the package about curing cancer or renewing sex
drive. We’re not going to make claims we can’t substantiate. It
has to be organic — has to be USDA certified. And it has to be
healthier than the mainstream alternative. What we sell, in general, has to
have less than half the calories of the mainstream options that are out
In many ways, Goldman says, the beverage industry is
still feeling the effects of the low-carb trend. “Even though
it’s not called the low-carb trend anymore, I think it sent tremors
throughout the industry,” he says. “Consumers are looking for
lower-carb, lower-sugar offerings.”
According to Nalebuff, one of the challenges Honest
Tea faces is getting consumers to understand that the products are lower in
sugar and calories, without branding them as diet drinks.
“We’ve got to get people to understand
what our category is,” he says. “We’ve created a category
of the 30-calorie beverage; it did not exist before this. We could call it
a diet drink, but that’s not right because it’s not that
you’re giving something up.
“Sugar, in moderation, is OK,” he adds.
“But people have taken this to an extreme. Once you’re below 30
calories or so, it doesn’t make much of a difference. But that
category hasn’t been there for them.”
From niche to mainstream
While he is motivated by environmental concerns
himself, Goldman is the first to recognize that most consumers are turning
to organic products for more selfish, health-conscious reasons. “As
much as it used to be that people chose organic 15 years ago because they
wanted to help save the earth, now they’re doing it because they want
to help save themselves,” he says. “Organic is another way to
talk about a healthier product as well as a higher quality
Honest Tea is following in the footsteps of other
organic companies that have gone mainstream, such as Stonyfield Farm,
Londonderry, N.H. Stonyfield president Gary Hirshberg sits on Honest
Tea’s board of directors, and Stonyfield was part of a group —
which also included several of the company’s top distributors and
private equity firm Inventages Venture Capital — that announced a $12
million equity infusion in the company earlier this year.
“Gary Hirshberg has been a great mentor to us
and to me since we started,” Goldman says. “Gary had taken a
direct interest in our business, partly because he has a restaurant called
O’Naturals, where they’re selling our product, but also because
he saw a lot of similarities in what we were trying to do and what he had
done — a lot of the same challenges in distribution, and obviously in
financing as well. It’s especially helpful when you’ve got
people who have been through a lot of the same phases that we’ve been
Goldman draws comparisons between Stonyfield’s
yogurt business and Honest Tea’s business, and says his company
sought the additional funding this year because it wants to establish
itself as the leader while the category still is in high-growth mode.
“To pull a page out of the yogurt industry
… that’s about a $3 billion industry in the United States, and
about 10 percent is organic,” Goldman says. “We believe that in
bottled tea, [organic will] get to 10 percent of the market. Right now
it’s less than 1 percent.
“With 60 percent or better of the organic
bottled tea market, Honest Tea is the brand that is best positioned to
capture that opportunity, and we want to make sure that as it grows, we are
positioned as the category leader,” he says.
The companies also have a lot in common when it comes
to balancing the growth necessary to become a major national brand while
adhering to the socially responsible practices they preach.
Honest Tea carries several products that are Fair
Trade certified by Trans Fair International. To be certified, companies
pledge that growers receive a fair share of profits and reinvest some of
those profits for community development projects. When it rolled out its
First Nation Peppermint Tea, the company teamed with I’tchik Herb, a
woman-owned company on the Crow reservation in Montana, to supply the
peppermint. And its Community Green Tea supports the City Year AmeriCorps
program, in which 17- to 24-year-olds commit to a year of community service
in underprivileged areas.
Nalebuff says the balance is not as difficult as one
might imagine. “Our social responsibility is rooted in the products
we create,” he says. “The fact is, they are great for people,
so the more products we sell, the more people drink, and the more of a
difference we make in this world.
“It’s true that we go farther and we have
teas that are organic and teas that are Fair Trade,” he adds.
“We’ve worked with the Crow Nation, with farmers in South
Africa, and we want all of our practices to reflect the same type of
integrity that goes into our product. But it starts with the
Social responsibility also is built into the
company’s marketing. Through a partnership with Ford Motor Co.,
Honest Tea uses a fleet of Escape hybrid vehicles for its sampling tours.
This summer it plans to have 10 hybrids on the road, decked out bumper to
bumper with Honest Tea graphics. The company also is a sponsor of this
month’s Earth Fest in Boston, and plans to give away 500 Jamis
bicycles as part of a retail promotion.
Just as it has expanded from tea into a variety of
beverage products, Honest Tea believes its brand has the ability to go even
farther in the future. And Goldman believes organic might be less of a
defining quality in the years ahead.
“We feel organic is an important point of
differentiation for us now, but three to five years from now, that might
not be the case,” he says.
That’s not to say the company plans to stray
from organic products, but as organic becomes more common in the
marketplace, Goldman says the company may find its point of differentiation
in its other attributes.
Both Goldman and Nalebuff say future products will not
be limited to the beverage arena.
“We want the Honest brand to be a major national
brand,” Goldman says. “Those three words — authentic,
organic and healthy — will be the foundation for whatever we offer.
We do think, although we’re certainly focused on beverage now,
there’s the potential to do something much broader than that.
“There clearly is the opportunity to expand what
we’re doing, but first we need to make sure we’ve created
something powerful in the beverage market. That means we need to be
available wherever beverages are sold. We need to be able to provide
healthier products for consumers across the range of beverage options. That
has to happen through distribution, and that’s something we’re
working on very aggressively right now.
There’s wonderful potential to go beyond that.”