Coke Closes Deal With Honest Tea

Here are the key takeaways from the press release:

1) As expected, co-founder and “TeaEO” Seth Goldman will remain with the brand and run it out of current home base of Bethesda, MD “as a stand-alone business.”

2) Other key players, including co-founder Barry Nalebuff (Goldman’s professor at the Yale School of Organization and Management) and board member/role model Gary Hirshberg, the founder of Stonyfield Farm, will remain as part of an informal Advisory Council.

3) Honest Tea will apparently be used as a way to sell other brands from Coke’s Venturing and Emerging Brands Unit into natural accounts. Note that current VEB brands besides Honest Tea include Sokenbicha, a Japanese tea that has been well-received in the U.S.; Illy Issimo, a line of espresso-based drinks co-developed by Coke and the massive Italian coffee company Illycaffe; ZICO, a fast-growing coconut water brand in which VEB has purchased a minority stake; and Cascal, a fermented soda.

Additionally, the release seems to be something of a coming out party for VEB. The unit has launched a new web site and is attempting a crowd-sourced model in which it invites consumers to take part in a “Healthy Beverage Innovation Panel.”

Here’s the release:

Bethesda, MD – March 1, 2011 –Honest Tea and The Coca-Cola Company announced today that The Coca-Cola Company has exercised its option to acquire the remaining portion of Honest Tea.  The move completes a transaction which began three years ago when Coca-Cola, led by the Venturing and Emerging Brands (VEB) unit of Coca-Cola North America, purchased a minority stake in the company.  Financial terms of the transaction were not disclosed.

Honest Tea, the leading organic bottled tea company, will continue to be based out of Bethesda, MD.  In order to retain its entrepreneurial culture, it will operate as a stand-alone business under current TeaEO Seth Goldman, his management team, and current Honest Tea employees.  Goldman and VEB have developed a unique operating model that allows Honest Tea autonomy to continue to run its day-to-day operations while accessing the scale benefits of the Coca-Cola system in various areas, including manufacturing and distribution.  As part of the VEB team, Honest Tea will also begin to sell current VEB brands to the natural channel.

Under an innovative arrangement with The Coca-Cola Company, Goldman has chosen to reinvest most of his proceeds from the sale back into Honest Tea.  Goldman’s co-founder, Barry Nalebuff and Gary Hirshberg, CE-YO of Stonyfield Farm, will continue to provide informal guidance to Honest Tea as part of the Advisory Council.

“We started Honest Tea thirteen years ago with an ambitious mission to create a delicious, healthy beverage alternative produced with the health of our planet and our consumers in mind,” said Seth Goldman, co-founder, President and TeaEO of Honest Tea. “Over the past three years, it has been exciting to see the reach and impact of our mission expand as a result of our partnership with The Coca-Cola Company.”

Since receiving an investment from Coca-Cola, Honest Tea has made exciting progress in a variety of areas, including the expansion of Honest Tea distribution from approximately 15,000 outlets  in 2008 to more than 75,000today, the introduction of a ground-breaking Honest Tea plastic bottle that uses 22 percent less material, and doubling the number of offerings as well as the sales of organic, zero-calorie drinks.  Additionally, Honest Tea has committed to transitioning its entire tea line of Honest Teas to Fair Trade Certified™ by the end of March 2011.

The consistently strong growth of Honest Tea, as well as its leadership in the natural foods channel, was among the many elements that attracted The Coca-Cola Company.  “When we made the investment in Honest Tea, we did so because we saw that it had great potential to be a significant brand of the future.  Three years after, the brand truly reflects where consumer demand is today and we are excited about being on the verge of still more growth,” said Deryck van Rensburg, President and General Manager, Venturing and Emerging Brands, Coca-Cola North America.  “Beyond growth, having the unique vantage point of a minority investee and watching Honest Tea has helped our company in many other ways, from encouraging Coca-Cola to obtain organic certification at three of our facilities, to establishing a state of the art tea brewing and filtration system at a bottling plant.  Additionally, it enabled us to participate with Honest in a number of sustainability initiatives on recycling.  All of these efforts reflect why VEB has chosen to invest in entrepreneurs like the team at Honest – they provide a source of innovative ideas and energy that enhance our own efforts.”

Honest Tea was started in 1998 when Goldman and his co-founder, Barry Nalebuff, brewed samples of tea in Goldman’s Bethesda, MD home and brought them to Fresh Fields (now Whole Foods Market).  Since then the brand has become the top-ranked tea brand in the natural foods channel and has expanded into mainstream grocery and convenience stores.  “This is our chance to bring organic beverages to the mainstream,” said Goldman.  “Consumers will discover that they can have it all – great taste, fewer calories, and organic. Honest.”