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Natural Foods Merchandiser

Honest Tea impact could rise with Coke sale

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 Glacéau Vitaminwater, and was thought to be looking for additional brands to compete with PepsiCo's Propel Fitness Water and SoBe brands.

"This is a case of [Coke] buying into what we're doing as opposed to us selling out," said Seth Goldman, co-founder, along with Barry Nalebuff, of Honest Tea. "We're maintaining board control," Goldman said, noting that Gary Hirshberg, president and CEO of Stonyfield Farm, is also an Honest Tea board member. Stonyfield, Goldman said, is "one of the only companies that's been able to take in a large investor while maintaining control, but also the direction, spirit, energy and passion of the company." Goldman said Honest Tea is committed to staying organic, and committed to the channel. It will continue its relationship with United Natural Foods. "We're not interested in growing out of the channel, but growing in it and leading it," he said.

While terms of the deal were not disclosed, 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, with $23 million in annual sales in 2007, has grown 60 percent to 70 percent annually for several years. Discussing the deal on the Honest Tea company 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 effect on the brand's availability and market impact.

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."

Mitchell Clute is a Fort Collins, Colo.-based freelance writer. Additional reporting by Laurie Budgar.

Natural Foods Merchandiser volume XXIX/number 3/p. 17

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