Honest Tea scales new opportunities
Honest Tea realizes growth since joining the Coca-Cola family
The innovative, entrepreneurial spirit that helped Honest Tea, Bethesda, Md., establish its roots in 1998 can still be found within the company 14 years later. Just more than one year after Atlanta-based The Coca-Cola Co. purchased the organic ready-to-drink (RTD) tea and juice manufacturer, the company has seen its sales and distribution grow, but day-to-day operations still revert back to the mission-driven mindset that started it all.
“Our mindset is still that of a challenger brand,” says Seth Goldman, president and TeaEO of Honest Tea.
In addition to its challenger status, Goldman continues to be inspired by the company’s opportunities.
“My urgency is there’s a competitive instinct [that] you want to be able to scale this brand to be a top-selling tea brand, and there’s also an urgency around our mission,” he says. “When you look at the American diet, you look at agriculture in the developing world … you see the needs and you see the opportunity we have to affect that change; it’s dramatic and it’s important and it needs to happen.”
Although Honest Tea officially joined the Coca-Cola family in March 2011, Goldman says the relationship dates back to 2008 when Coca-Cola’s Venturing and Emerging Brands (VEB) unit first invested in Honest Tea.
“When [VEB] invested in us in 2008, we had about 15,000 accounts nationally,” he says. “We were the best-selling tea in the natural foods channel. Today we’re in over 100,000 accounts. We’re still the best-selling tea in the natural foods channel, which is important to us, but our reach is so much broader now and we’re reaching new customers.”
Chuck Muth, vice president of direct store distribution (DSD) and warehouse sales with Honest Tea, says the 100,000 accounts are more than triple the number of accounts the company had two years ago. Honest Tea also has more than doubled its DSD volume in revenue since 2010, he adds.
Because the equities of Honest Tea products include health and wellness as well as sustainable aspects, Honest Tea was able to establish itself within specialty stores. As the company grows, it also wants to expand those equities to a larger audience, Goldman says.
“We’re available in your office cafeteria, we’re available in convenience stores, we’re available in grocery stores or in a mass market store, so from our perspective, our mission is to bring health and wellness to as wide an audience as we can,” he says.
With a few exceptions, Muth says, Honest Tea’s RTD tea and Honest Ade juice drink products are available at every major retailer. Its latest major account launch was the June addition of its PET-bottled portfolio in Target stores, which previously only carried the Honest Kids brand of juice drinks.
Although supermarkets are important because of their high buying potential, Honest Tea has found much of its success within the on-premise channel, Muth says.
“On-premise is far and away our most successful channel, which is great because it’s the most important channel for building brands, so it’s a very good fit for us,” he says.
The company also is excited about its latest venture into the foodservice market with its brewed tea introduction in restaurants.
“When you look at restaurant competition, brewed [tea] is the most consumed drink in on-premise these days,” Goldman says. “That’s a great opportunity and it makes sense for us: what we sell is brewed tea, so we should be capitalizing on that.”
The foodservice brewed tea will launch in four varieties: Classic Green Tea, Raspberry Tea, Lemon Herbal Tea and Just Iced Tea.
In the mainstream channels, Honest Tea is just emerging, but based on sales data from market research firm SPINS, Honest Tea’s market share is about 31 percent in the natural specialty products channel, excluding Whole Foods Market stores, Goldman says.
Given its high penetration, the natural specialty retail channel remains an important part of Honest Tea’s business. Although its relationship with The Coca-Cola Co. has provided Honest Tea with access to the mainstream channels, the company still strives to ensure it maintains its credibility within the natural specialty channel as well, Goldman explains.
“The presumption [in the natural foods industry] is always when you get a big company to invest in a mission-driven company, it gets lost,” he says. “Honest Tea has proven that doesn’t have to be the case.”
As an example, Goldman highlights that one month after The Coca-Cola Co. purchased Honest Tea, the company officially transitioned all of its tea products to being Fair Trade certified — an important aspect of its mission-driven mindset.
Goldman suggests that when a large company acquires a small company, it is important to develop a partnership that is based on support, patience, trust and humility — all aspects of the relationship between Honest Tea and Coca-Cola’s VEB unit. Another important part of that relationship is Honest Tea staying true to its soul and growth pattern, he says.
With that partnership, Honest Tea has been able to grow its user base, but still remain strong within the natural specialty channel.
“We’re stronger than ever … and I think that Coke has been a wonderful partner for us,” says Melanie Knitzer, vice president of sales with Honest Tea.
In the natural specialty channel, Honest Tea features its glass-bottled line, which includes varieties such as Black Forest Berry, Green Dragon Tea and Heavenly Lemon Tulsi Herbal Tea. The company’s Honest Kids account sales also are handled by the natural specialty division as well as through The Coca-Cola Co.’s Minute Maid division.
Since its integration with The Coca-Cola Co., Knitzer says the natural specialty sales division operates similar to how it did before; however, her team has expanded its responsibilities to include selling some of The Coca-Cola Co. products in the natural foods channel, including Illy Issimo and Cascal.
Tipping the scales
In order to meet the growing demands of both its new and more established accounts, Honest Tea also had to scale its production to match its distribution.
“On a good day, we’d make 10,000 cases a day,” Goldman says. “Now, we can make 80,000 cases a day, so that’s dramatically different.”
Because of its brewing process and organic certification, scaling its production can be a challenge, Goldman says.
“One of the things that is essential to our brand is the fact that we use real tea leaves, but it also could be a potential impediment to growth. Because we use real tea leaves, we can’t just make it anywhere,” he says.
To make tea using real tea leaves, a brewing system is required for production, which can be a large investment, Goldman notes. Since joining The Coca-Cola Co., production has seen improvements.
“In a way, it’s gotten easier because the Coca-Cola quality control and the system are just so much more developed than ours was, and the tea brewing and producing has much better consistency as well. For us, it’s certainly evolved,” Goldman says.
All of the production facilities that produce Honest Tea’s products are certified organic and include a combination of Coca-Cola bottlers and independent bottlers, Goldman says. Honest Tea is just beginning production with contract packer Nor-Cal Beverages, West Sacramento, Calif., which installed a brewing system for the account.
“The Nor-Cal plant is a huge development and that is literally happening now,” Goldman says. “We’re still doing the first runs of building up the inventory, so that’s the biggest new development and that’s going to be helpful for cost and location reasons, as well as sales and quality.”
As Honest Tea ramps up its efforts to offer its products to a wider consumer base, the company also uses its innovative spirit to explore new varieties and usage occasions.
“For us, the tea is the business — it’s in the name, it’s what we started with, it’s what we lead with and we see continued opportunity for tea,” Goldman says. “Whether it’s the health trends taking people toward tea, the trend toward lower-calorie drinks that is taking people toward tea [or] the interest in antioxidants, we just continue to see interest in tea and are very bullish on it.”
Honey Green Tea remains the company’s top seller and it also has seen large success with its Half & Half, a lemonade-and-tea variety. In order to reach a broader audience, the company has developed some new varieties, such as this year’s release of Not Too Sweet Tea.
“Not Too Sweet Tea was our entry to expand our user base. [It’s] a product that has wider appeal,” Goldman says.
The 100-calorie product is well suited for the convenience-retail consumer, Muth says, which is a channel that the company hopes to strengthen. “We have good hopes and high expectations for [Not Too Sweet Tea],” he says.
When developing new products, Honest Tea isn’t just focusing on emerging trends, it also is releasing varieties that are more commonly associated with tea.
“The other new products that we just brought out are two new raspberry teas,” Goldman says. “One is called Raspberry Fields and it’s a product we sell exclusively in Whole Foods, and this was great [because] we’ve been partners with Whole Foods for 14 years, they were our first account, and a great way to celebrate the partnership with them was we’d give them a product sold only in their store that’s Fair Trade. … We also launched a Raspberry Tea in New York with Big Geyser [Inc.] and if that does well, we will expand it.”
Goldman says the company finds inspiration for its new products through numerous avenues including traveling, trade shows and supplier outreach.
“If we see something that we think does have potential, [we think], ‘What can we do to bring it out as an Honest product?’” he says.
An example of applying those values is Honest Tea’s Heavenly Lemon Tulsi Herbal Tea that launched in 2010. Formulated with a blend of herbs, Heavenly Lemon Tulsi Herbal Tea features organic tulsi, which is known as “holy basil” in India. Honest Tea works with independent farmers that are part of a co-op in India for its tulsi supply, Goldman says. Earlier this year, Goldman and his supplier cut the ribbon on a tulsi drying shed that will allow the community to sell the dried version of the tulsi herb, capturing a higher price for the crop. Available at Whole Foods Market stores and other natural food retailers, Goldman sees broader potential for the Lemon Herbal Tea in Honest Tea’s future.
“I’m confident that there will be an opportunity for that in the mainstream,” he says.
Also important to the development process for Honest Tea beverages is the company’s use of Fair Trade-certified ingredients.
“I think that sustainability for us is creating [innovative] healthy beverages,” says Cheryl Newman, vice president and deputy chief of mission at Honest Tea. “It’s making sure that our partners all along the supply chain are aware of our mission and that we’re doing what we can to support them. That’s why organic and Fair Trade are so important to us.”
Last month, the company announced a commitment to its partnership with Fair Trade USA as its certification partner. Honest Tea has worked with Fair Trade USA since 2003 to source its Fair Trade-certified ingredients and has doubled its purchases every year since 2009, the company says.
More than just tea
Although a majority of the innovation and new products are taking place in the tea category, Honest Tea also continues to develop its juice drink brand Honest Ade.
“Honest Ade has done incredibly well; it’s really grown in tandem with the tea,” Goldman says.
Pomegranate Blue Honest Ade has grown alongside the company’s overall top-seller Honey Green Tea, but Goldman adds that the Honest Kids juice drinks brand was the company’s fastest-growing product in the last year.
“It’s just such a big opportunity, and Honest Kids is a great example of a brand growing in a category usually driven by price promotions,” he says.
Striving to find new ways to offer consumers low-calorie beverages, Honest Tea is in the process of reformulating its existing Honest Kids formula to be sweetened with only organic fruit juice versus the organic cane sugar with which they are currently sweetened.
“We’ll be launching the same varieties, but sweetened with fruit juice so there won’t be any sugar added,” Goldman says. “That’s a big innovation and we’re really excited about it.”
Tapping into another user base, Honest Tea has developed Honest Zero Calorie Lemonade, which is sweetened with stevia.
As the company continues to explore new opportunities, Goldman sees more occasions for Honest Tea to offer consumers additional low-calorie choices.
“We’re always looking at wherever there are categories where we think there’s potential and we have a chance to make an ‘Honest’ version of it, so I think we’ve got a very broad mindset about what we can do,” he says.
Keeping in line with its innovative spirit when developing new products, Honest Tea creates that same enthusiasm around its packaging. Maintaining its sustainable values, Honest Tea set out to enhance its 12 SKUs that are packaged in PET bottles. With assistance from The Coca-Cola Co., the company was able to develop packaging that meets its core brand equities.
“The impetus for the change really was to do two things much better than we were: No. 1 is stand out on the shelf, and No. 2 is drive taste appeal,” says Peter Kaye, vice president of marketing. “Our prior packaging we thought was very good, but was not quite as bold and impactful and did not stand out on the shelf.”
The company made the brand name bolder and transitioned to black text on a white background versus the previous white text on a black background for the redesign, Kaye says. The new design also highlights the flavor varieties with images of cut-open fruit and other integral ingredients.
“As important, if not more important in my opinion, is
the appetite appeal,” he says. “… We wanted to really try and communicate the great taste because that’s what consumers tell you when they taste it and they haven’t had it before, they say, ‘Wow, this really tastes great.’”
Part of the PET bottle makeover also included the removal of the dome-shaped bottom, while still maintaining its lower weight.
“Our first bottle was a heavier plastic bottle; it was 35 grams, it was heavy and it held its structure,” Goldman says. “Then we moved to a bottle that has this ‘dome’ and it was 22 percent lighter. Environmentally, it was a good development, but the problem was consumers thought, ‘You’re selling me air and that’s not honest.’ It’s the same liquid but they saw [the dome] and thought we were trying to hold back on them.”
Working with Graham Packaging, Chicago, Honest Tea was able to develop a bottle that maintained a lighter weight but also removed the dome at the bottom.
The new bottle has provided some important opportunities for Honest Tea. “It looks more honest,” Goldman says. “It also says ‘Established 1998 Bethesda, Md.,’ on the bottom, which is really fun because that way we’re giving a local shout-out to our roots, and it enables us to produce at any plant.”
With the bottles with the dome-shaped bottom, Honest Tea was limited to using plants that had invested in an activation system to create the dome in the bottle. Removing the dome opened the company to more production options, it says. The company also is seeing its packaging sizes grow in the form of a multi-serve option. Presently, its Just Green Tea and Just Black Tea are offered in proprietary 64-ounce multi-serve options, and the company is working on adding more varieties into the mix, it says.
Marketing its mission
Well-known for its guerilla marketing efforts, Honest Tea has become synonymous with mission-driven events.
“What’s interesting and leads to great discussions in the office is to try to figure out what the balance is between a marketing focus or a more mission-driven focus, and we always end up finding a way to blend them in a way that I think is really easy to talk about because that’s what we need to be able to do with a name like Honest Tea,” Newman says. “Our customers and our consumers have really high expectations and we try to live up to those.”
Its latest venture was The Great Recycle, an event it hosted in New York City’s Times Square at the end of April. More than 15,000 empty plastic, glass and aluminum beverage containers were collected in a 30-foot-tall inflatable recycling bin. The plastic bottles collected were recycled into pieces of plastic lumber that GrowNYC will use to build raised beds in urban gardens for New York City public schools as part of its Grow to Learn program. The other items donated during the event were responsibly recycled by 5-Boro Green Services, the company said.
The company also took to social media to get consumers involved who couldn’t attend the event.
“For The Great Recycle, we created a fun app where you could recycle one of your old Facebook posts as a demonstration of your support to recycle more while also pledging a certain amount of bottles that you’re going to commit to recycling every week,” Kaye says. “It was a digital expression of your commitment even if you couldn’t be there at the event.”
Because of Honest Tea’s commitment to sustainability, the company saw The Great Recycle as an opportunity to share that message.
“We’ve always felt like Earth Month and Earth Day are kind of our Super Bowl,” Kaye says. “Sustainability is such a big part of how we run the business, how thoughtful we are in terms of our supply chain and our packaging, and yet we’re still a small brand, so we said, ‘How do we really try and change consumer attitudes and behaviors around the environment?’
“We recognize that, like a lot of beverage manufacturers, we sell our products in packages and unfortunately not enough consumers recycle … so we said let’s be part of the solution and let’s be true to who we are as a brand,” he continues. “Let’s be ‘Honest’ and say we wish every bottle that we sold was recycled — it’s not — so let’s try to create change.”
Given the event’s success, Kaye says the company is already thinking about where the next big bin event will be.
The Great Recycle wasn’t Honest Tea’s first venture into guerilla marketing efforts. Last summer, the company hosted Honest Cities, a social experiment that set up pop-up stores in 12 cities across the United States. Consumers were asked to leave $1 for a bottle of Honest Tea and were visually tracked as to whether they left $1 or just took the bottle.
Honest Tea developed the idea from an experience with its field marketing team after it placed a sign on an Honest cooler that said, “Be back in a few minutes. Don’t touch.” When the team returned, all of the product was gone, which inspired the Honest Cities promotion, Kaye says.
The company also set up a website asking people online to pledge whether they would leave $1 or just take a bottle. Participants received a coupon for a bottle of Honest Tea. Online consumers also could watch streaming video of the pop-up stores.
“The engagement we had on that was fantastic,” Kaye says. “The Twitter chatter was phenomenal. We more than doubled Facebook fans in a day, which I’ve never heard of a brand doing. We went from 30,000 to over 60,000 in a day, and we continue to grow.”
Kaye notes that consumers can be on the lookout for Honest Cities 3.0, an evolution designed to expand this experiment to more consumers.
“Our product is simple: organic ingredients that taste great,” he says. “So this simple social experiment where we can allow consumers to demonstrate their honesty very much reflects how we make our product and how we market our product.” BI