Natural Foods Merchandiser

Coca-Cola acquires stake in Honest Tea

On Feb. 5, Honest Tea announced that Coca-Cola had purchased a 40 percent share of the company, the nation's leading organic bottled tea manufacturer.? The announcement confirmed rumors dating back to last December that Coca-Cola was interested in the Bethesda, Md.-based company.? Last year Coke purchased Glaceau Vitamin Water, and was thought to be looking for additional brands to compete with PepsiCo's Propel Fitness Water and Sobe brands.

Terms of the deal were not disclosed, but a report in the Atlanta Journal-Constitution pegged the price at $40 million, with the option to buy a larger stake in the future.? "Honest Tea is on the forefront of the rapidly growing organic beverage business," said Deryck van Rensburg, president and general manager of Coca-Cola North America's Venturing and Emerging Brands Business Unit. "This transaction is a superb example of our mission … to seek out and invest in the best beverage entrepreneurs and the highest growth-potential beverages."

Carbonated beverage sales in the U.S. have fallen in recent years. Honest Tea, though it posted only $23 million in annual sales for 2007, has grown at 60 percent to 70 percent annually for several years.

Discussing the deal on the Honest Tea company blog, co-founder Seth Goldman assessed the positives and potential negatives of the deal with candor. ?When we buy 2.5 million pounds of organic ingredients, as we did in 2007, we help create demand for a more sustainable system of agriculture, one that doesn't rely on chemical pesticides and fertilizers," Goldman wrote.? ?But when we buy 10 times that amount, we help create a market that multiplies far beyond our own purchases."

On the blog, Goldman argued that access to Coke's distribution network—especially for restaurants and other businesses contractually obligated to buy all beverages through a Coca-Cola supplier—could have a huge impact on the brand's availability and impact.

Announcing Coke's stake, Goldman alluded to buyouts and mergers that didn't go according to plan, citing Steve Demos of Silk and Ben Cohen of Ben & Jerry's as two sustainable-business owners who ?will tell you that if they could do it over again, they would have done it differently." But he also pointed out companies for whom a corporate parent arrangement has worked well, specifically Stonyfield Farms, which is still run by founder Gary Hirshberg but 80 percent owned by French yogurt maker Group Danone.

Hirshberg is also a member of the Honest Tea board, along with founders Goldman and Barry Nalebuff; they will be joined on the board by two representatives of the Coca-Cola company.

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