Heartbreak and Confusion. Those were the feelings that hit the builders of Honest Tea – hard – on Monday after the Coca-Cola Company announced its intention to discontinue the organic beverage brand by the end of the year.
In a series of social media posts this week, Honest’s co-founder and former CEO Seth Goldman called the decision a “a gut punch to all the sweat, tears and incredible passion that went into building our beloved brand.” On LinkedIn, the statement has since received over 800 comments and 7,000 reactions from former employees, customers, colleagues and fans of the brand expressing sympathy and dismay over the news.
However, the move by Coke – which purchased a 40% stake in Honest in 2008 and acquired the brand outright in 2011 – is in line with its ongoing campaign of SKU rationalization to remove underperforming products, brands and in some cases entire categories. In 2020, the company announced it would cease production of juice brand Odwalla and coconut water Zico, among many other brands. Both were high profile acquisitions with national distribution.
Speaking to BevNET this week, multiple former Honest Tea employees said the announcement still came as a shock, and some questioned the rationale behind the decision by suggesting the brand has brought in a loyal, health-minded consumer base that the rest of Coke’s tea portfolio doesn’t reach. But even in the context of Coke CEO James Quincey’s directive for the company to downsize its portfolio and focus on scalable brands, many Honest alumni never saw the brand as a likely candidate for the chopping block.
“That was worrisome,” Goldman said in reference to the Odwalla and Zico cuts. “I actually spoke to somebody who reassured me Honest Tea is fine. But that was before the pandemic. And then you get into the pandemic and it changes things.”
Unlike Odwalla and Zico, whose IPs were quickly sold off (the latter was reacquired by its founder Mark Rampolla last year), Coke still intends to keep the Honest brand alive through the Honest Kids juice subline, a low sugar product which has become a powerful growth driver in the kids drink category. But the loss of the core teas could reverberate through the beverage sector. Goldman noted that once Honest Tea is off shelves, there will be a void for a clean label, organic iced tea brand in the mainstream. As well, he added, the cut pushes Coke further away from its focus on better-for-you products and shows that the conglomerate is currently less interested in scaling a portfolio of smaller, niche brands – a goal that the company had previously pursued under the leadership of former CEO Muhtar Kent.
Goldman said Coke’s team reached out to him ahead of the announcement and explained the decision was simply a result of the new strategy. While he acknowledged that Honest’s performance in conventional retailers hasn’t been able to match the level of Coke’s mass-market iced tea brand Gold Peak, Goldman felt like axing Honest overlooked the brand’s success in the natural channel.
In a press release Monday, Coke stated that its goal is to “reflect consumer choice and promote growth as a company” by focusing on “bigger brands with the greatest potential for scale and profitable growth.” The Atlanta-based conglomerate will now focus its tea business around Gold Peak and Peace Tea, which is sold in 16 oz. cans.
“Shifting from a three-brand tea portfolio to a prioritized two-brand tea lineup will free up investment resources and supply chain capacity to better meet consumer needs and capture share in the category,” Sabrina Tandon, group director, RTD Tea, Coca-Cola North America Operating Unit, said in the release. “We believe Gold Peak and Peace Tea are best positioned to meet consumer preferences for high-quality brewed teas with different levels of sweetness and flavor.”
The Origins of Honest Tea
Honest Tea was founded in 1998 when Goldman, who was a student at the Yale School of Management, approached his professor Barry Nalebuff with a pitch for a lower calorie, healthy bottled beverage. The startup followed the scrappy, hustle-and-grow model that many entrepreneurial brands still follow today, brewing early tea batches in Goldman’s Bethesda, Maryland kitchen and packaging drinks in relabeled Snapple bottles.
Goldman noted that being an early mover in better-for-you beverages came with its pros and cons. Most often, he said, it was an uphill battle convincing buyers that consumers would purchase low sugar drinks; “The buyer would say, ‘Maybe there’s a reason everything’s so sweet, that’s what people like to drink.’” But Honest also had the advantage of being the only low calorie, organic option on shelf, he said, suggesting that he probably wouldn’t even attempt to start the company today given the plethora of healthy brands now saturating the market.
Backed by investors like Stonyfield Farms leader Gary Hirshberg and Timberland Co.’s Jeffrey B. Swartz, Honest Tea was vital to expanding the prominence of organic, healthy drinks in the mainstream U.S. market. Kelly Cardamone, who joined Honest as a marketing manager in 2006 and later served as its European senior brand manager under Coke from 2016 to 2017, recalled the mid-2000s era as a breakout moment for better-for-you that Honest Tea worked hard to promote.
“It really felt like there was a lot of excitement in that space,” Cardamone said. “Vitaminwater was that first brand [acquisition] that was major. I remember that day walking in and we were like ‘Oh my gosh, can you believe this?’ It just felt like this is real, like we were in the right moment.”
Patrick Jammet, currently the VP, Sales & Shopper for Meati Foods, joined Honest as a marketing intern in 2006 and ultimately served as the brand’s senior director of field marketing before departing in 2014. Jammet described the early company culture of Honest as positive, optimistic, and willing to nurture young talent.
“It was just an awesome ride, and I got to see it from about $10-$12 million in sales to I think $70 or $80 million by the time I left,” he said. “I mean, my intern orientation was at Seth’s house. Seth picked me up in his car, he’s driving a manual car, and I was sitting in the front seat going like ‘This is awesome.’ Seth was always, from the beginning, someone that was always willing to roll his sleeves up. And until the last day, he would jump up on the desk and change the light bulb if it needed to be.”
Jammet, who has also previously held the VP of Marketing positions at Sir Kensington’s and Good Culture, noted that Honest Tea was vital to launching numerous careers in the industry. Among them are Good Culture co-founder and CEO Jesse Merrill, Calicraft CEO Blaine Landberg, No Evil Foods and Simple Mills board member Cheryl Newman, and sales executive Melanie Knitzer, among others.
Cardamone and Knitzer currently work with Goldman at his latest venture, Eat the Change, a climate-friendly snack brand. Goldman has also co-founded vegan fast casual restaurant PLNT Burger and serves as the chairman of Beyond Meat. Nalebuff has remained a professor at Yale but over the past decade has co-founded multiple CPG brands including Kombrewcha and Real Made Overnight Oats.
Within the Coke System
After Coke acquired Honest Tea, the brand was placed under its Venturing and Emerging Brands unit (VEB). Honest’s approach to product and messaging did not change drastically, despite having access to a much wider distribution network and new directives from Coke leadership. However, some consumers – and buyers – feared the brand might be corrupted by joining up with a major conglomerate. Jammet recalled pushback from natural channel retailers who saw the sale as a betrayal.
“In the natural channel back then Coca-Cola was like the Death Star,” Jammet said. “I mean, at one point, really back in the day, when Pepsi bought SoBe, natural co-ops and certain grocery stores were like ‘It’s coming off the shelf now.’ At one point Whole Foods would say ‘We’ll never let a Coke truck in our parking lot.’ Like, that was just it back then.”
That resistance to conglomerates by natural retailers, of course, has softened over the past decade as Coke, Pepsi and others have embraced organic and better-for-you brands. But although Goldman, who stayed with Honest until 2019, helped maintain the original mission, there were still times when Coke’s vision seemed at odds with the core identity and message that Honest represented.
Sources speaking on background recalled disagreements between Nalebuff and Coke leadership around the launch of an Honest soda line. The former wanting to introduce a Spindrift-style seltzer with a splash of juice while Coke pushed for products like the stevia-sweetened (and now discontinued) Honest Fizz line. Later, discussions around the inclusion of the phrase “No High Fructose Corn Syrup” on the packaging of Honest Kids boxes proved controversial as the slogan drew negative attention to the primary sweetener used by Coke’s core portfolio.
But former employees largely recalled the transitional years as smooth. Ami Mathur, general manager and head of marketing for Honest from 2013 to 2017, said Honest experienced positive momentum during her tenure and when she left the brand reported approximately $400 million in annual sales.
Cardamone said some shakeups began around 2015, when a round of layoffs impacted Honest, but many at the time saw it as growing pains. Around then, Honest was also moved out of VEB and into the larger Coke tea system, and many employees would eventually be relocated to other departments with Coke while some pre-acquisition staff moved on to new jobs. Although the Honest Kids brand has continued to grow, some sources said that employees who remained with the company through the pandemic told them that they saw the writing on the wall for the tea line over a year ago as fundamentals began to change and Coke doubled down on its core brands.
The Post-Honest Market
While there’s been an emotional response from the team that built Honest up to the point of acquisition, from an outside perspective, Howard Telford, head of soft drinks at Euromonitor International, said the decision “isn’t completely surprising.” Coke has repeatedly stated its intent to be “more ruthless with underperforming brands,” he added, and Peace Tea had recently outpaced Honest to become the company’s number two tea brand after Gold Peak – and that’s not to forget Fuze, which he said has been a success for Coke in the international market.
“Honest Tea was caught in the middle in terms of category segmentation, ultimately competing with Coke’s own Gold Peak or PepsiCo’s Pure Leaf as the more natural option in conventional,” Telford said via email. “There is also a much wider variety of more premium/independent options – and more function forward teas (gut health, energy etc.) – in natural/specialty channels today (not the case when Coke first acquired their stake in 2008).”
As well, the ongoing supply chain pressures, higher price point for organic products and the overall tougher marketplace today could also have been potential factors, he added.
The decision to discontinue Honest comes as the ready-to-drink tea category overall has struggled to grow. NielsenIQ showed tea dollar sales in retail decelerating in the two-week period ending May 7, with the category up just 2.6% compared to 3.6% growth in the 52-week period. The slower dollar sales resulted from a 4.7% decline in volume sales while average pricing was up 7.7%.
Among individual manufacturers, Coke is the second largest tea maker in U.S. retail at $807 million in the period, per NielsenIQ, ahead of AriZona ($780.7 million and up 2% in the two-weeks) but it trails category leader PepsiCo/Lipton, which posted $1.8 billion in dollar sales. But Coke’s tea business also faced declines amid high inflationary pressures; dollar sales were down 6.8% in the two-week period and fell 5.3% in the 52-weeks. Volume sales in the period dropped by 15.3% while average pricing rose 10%.
In the press release, Tandon stated that ongoing supply chain challenges did play a role in the decision, and the company has been unable to meet consumer demand for Gold Peak. She also suggested that there is “some overlap” between Gold Peak and Honest consumers, adding “We see endless runway with Gold Peak and are excited to expand the trademark with new product and packaging innovations that will appeal to the HONEST Tea consumer.”
While new innovations could fill in the gap between the brands, the Gold Peak and Honest portfolios are differentiated beyond more than a USDA Organic certification. Outside of its Unsweetened Black Tea and Zero Sugar Sweet Tea SKUs, Gold Peak’s lowest sugar offering is its Slightly Sweet Tea SKU which contains 90 calories and 24 grams of sugar per 18.5 oz. bottle and its range extends as high as 270 calories and 68 grams of sugar in its Extra Sweet Tea flavor. Comparatively, Honest Tea’s line maxes out at 100 calories and 25 grams of sugar per 16.9 oz. bottle in its Half Tea & Half Lemonade offering, while much of the line ranges from 35 to 70 calories alongside multiple unsweetened options.
Gold Peak is also, for now, limited to mostly black tea based flavors with one sweetened green tea SKU (150 calories), whereas Honest has embraced herbal and botanical teas like oolong, providing varied pure tea flavors.
Goldman also worried about the effect Honest Tea’s discontinuation may have on the brand’s organic tea suppliers. He noted the company had a big impact on helping to grow the organic agriculture industry and although he believes there’s an opportunity now for another tea maker to fill the shelf space, Honest’s farm partners stand to lose a major buyer once production ceases.
“It’s not like consumers are going to stop drinking tea, so there’s going to be an opportunity for someone to go grab that space,” he said. “What I hope is that they go after organic, because those are the people I really want to help. I’m happy to make introductions [for brands] to the suppliers that we worked with, because I want those farmers to continue to make their livelihood on organic agriculture.”
Unlike in 1998, there are also other clean label iced teas today that could step in to fill the void. Brands like Tazo, Tejava, Evy Tea, and Shaka Tea (which was recently acquired by King’s Hawaiian) are just a handful of similar products that could potentially fill in for the consumer demand left by Honest’s absence.
Where Coke’s decision could resonate most, however, is in what it says to entrepreneurs today. Nalebuff told BevNET that dropping Honest could make it harder in the future for Coke to acquire emerging brands, whether it’s because they’ll struggle to make it within the Coke system or because entrepreneurs will fear their brand may meet a similar fate.
“When we sold Honest Tea to Coca-Cola, the then CEO Muhtar Kent said: I don’t want Coca-Cola to change Honest Tea; I want Honest Tea to change Coca-Cola,” Nalebuff wrote. “Alas, Big Red didn’t want to change.”
Although Coke is holding on to the brand, Goldman said he wouldn’t want to repurchase the brand even if he had the opportunity – although he did say several people have approached him with the idea. Instead, Goldman said he is glad Honest Kids will remain and he hopes the legacy of Honest Tea will continue to leave its impact on the food and beverage industry.
But if he had a chance to do it all over, knowing what he knows now, would he sell Honest Tea again?
“I stand by that decision,” he said. “Based on the information we had at the time, I do think the goal was always to democratize organics so they’re not just available in the natural foods stores, but to make [them mainstream]. And we did that, and even are still doing that with Honest Kids at McDonald’s, as an example. So that has happened. And, you know, people change at companies. The people who I made my deals with, they were incredibly excited about Honest Tea and if they were still there I’m sure they would have wanted to continue to build it. But things change. So, there’s no guarantees in life.”