Honest Tea and Coca-Cola: A Match Made in…?

Published on July 23rd, 2010 | by

On the surface Honest Tea and Coca-Cola may seem like strange bedfellows, but ultimately, each company adds value for one another. The question is, does it come at a price? This issue was explored recently in a New York Times Case Study in the Small Business report.

Honest Tea is a company that has always prided themselves on sourcing Fair Trade, organic ingredients and has positioned their product as a low sugar alternative to the products that Coca-Cola has built their empire upon. According to the Honest Tea website:

“The company strives for authenticity, integrity and purity, in our products and in the way we do business. In addition to creating a healthy alternative beverage with a lot less sugar than most bottled drinks, Honest Tea seeks to create honest relationships with our employees, suppliers, customers and with the communities in which we do business.”

All that may be well and good, but in 2008 these two companies struck a deal. Honest Tea received financial support from Coca-Cola in the form of $43 million (a figure almost twice as much as the company’s $27 million in sales in 2007) and major distribution and shelf space capabilities, while Coca-Cola was able to add a healthy, fairly sourced, low sugar offering to their portfolio. Everyone’s happy right?

Not exactly. Customers complained and those proponents of the movement towards healthier eating and drinking had trouble understanding why Honest Tea would team up with a company that had such a huge role (real or perceived) in spreading unhealthy, sugary drinks worldwide, which have ultimately crowded out natural or local products.

The counterargument is that this type of partnership is the only way for the organic/fair trade movement to gain legitimate traction or is simply the reality of small guy vs. big guy business. Based strictly on Coca-Cola’s scale, the company sources products at a low price and controls distribution channels. One way or another this will have a major effect on Honest Tea.

So, for a company that has achieved steady growth and is expected to be valued, according to CEO Seth Goldman, at around $100 million in 2011, why has this become such a major issue right now? Well, while Goldman currently has, as majority owner, control of the Honest Tea product, Coca-Cola has an option to buy Honest Tea outright in 2011 (which seems likely to happen). So the question remains, is this the end of Honest Tea as we know it or will Coca-Cola attempt to adhere to the mission and values of the product that Goldman envisioned back in 1998?

Regardless of the outcome, Goldman has found himself in a tricky position, a position that small (relatively speaking) business owners in the sustainable/health food movement have been dealing with and will have to continue dealing with for years to come.


About the Author

Jonathan has worked in both journalism and various facets of small business development over the past eight years. Most recently, he graduated from the Monterey Institute of International Studies (graduate school of Middlebury College) in 2010 with an MBA and an MA in International Development Policy. His interests include SME development and its role in economic growth, particularly in Sub-Saharan Africa as well as how CSR/Sustainability measures impact both business operations and the communities in which businesses operate. While at MIIS he worked as a summer fellow involved in small business consulting in Accra, Ghana and was an active member of the MIIS Net Impact chapter. As a life long traveler, Jonathan has been fortunate to have lived in, worked in or visited over 20 countries on 5 continents and he truly hopes that he will be able to continue this trend.