Acquisition Won’t Change Honest Tea, CEO Says

The Feb. 11 New York Times crossword included a clue that referenced a beverage called “Honest (blank).”

Seth Goldman, the chief executive officer of Bethesda’s own Honest Tea, was excited about the publicity.

“You’re trying to get into people’s minds,” he said.

The homegrown, socially conscious company that sold 100 million bottles last year is which bought 40 percent of the company in 2008.

But the buy-out won’t change the company’s products or values, said Goldman, who will stay on as the CEO. Honest Tea aims to deliver a healthier, organic drink in environmentally friendly packaging while supporting causes like fair trade and recycling.

“You can’t just sell a product,” Goldman said. “If you sell a product without the depth behind it… you’re only selling part of what the consumer wants.”

What was the inspiration to start Honest Tea?

Goldman met co-founder Barry Nalebuff, a professor at the Yale School of Management, while working toward his master’s degree in business administration. Both thought there was something missing from the beverage market, Goldman said.

As a runner, Goldman wanted a drink that didn’t have as much sugar as many others on the market. Honest Tea products have about one-third the calories of most bottled teas.

“And as we’ve developed, other drinks have lowered their sugar counts,” Goldman said. “The whole industry has moved. Consumers are more aware.”

You have quite the varied background. How did you get into the beverage business?

“I always thought of myself as an entrepreneur,” Goldman said. “I had no knowledge of the beverage industry, but it was something I knew I’d be able to consume myself.”

Goldman, a graduate of Harvard University, did a stint with AmeriCorps, worked at a private equity firm, and was a press secretary for a senator before starting Honest Tea.

“We’re selling a great-tasting product,” Goldman said, “but more than that, we’re having an impact.”

Honest Tea products are good for consumers’ diets, he said, and the use of organically sourced ingredients benefits the environment. The company meets consumers’ basic hydration needs and their desire that their beverages taste good, and then Honest Tea affects causes like environmental sustainability and the developing world.

To whom is Honest Tea marketed?

The company sells to “the conscious consumer,” Goldman said. “Somebody who’s thinking about what they’re putting in their body. People are increasingly thinking about it.”

Honest Tea’s relationship with Coca-Cola allows it to distribute its products nationally, but consumers are clustered on the East and West coasts and in urban areas, Goldman said.

 The company sticks mostly to grassroots advertising, such as its Honest City events, Goldman said. It set up unmanned honest kiosks in several large cities and charged $1 per bottle on the honor system. In Washington, D.C., 93 percent of customers paid for their tea.

When did environmental and social causes — like using organic ingredients and fair trade — become so important to you?

Honest Tea was the first company to make organic bottled tea, an important choice, Goldman said, because tea leaves are not rinsed until they are in the water that becomes part of the drink. Using organic tea leaves greatly reduces the chemicals people might consume unknowingly.

The company’s plastic bottles are made of the most recyclable form of plastic, Goldman said, and its products are fair-trade certified, which means that workers who harvest the ingredients make a minimum wage set by Fair Trade USA and use environmentally sustainable farming techniques.

“We’re certainly concerned with justice,” he said. “We’re not a charity. We can’t just subsidize some of these poorer communities. The best thing we can do is develop them as business partners, support them, empower them.”

It’s been 13 years since you started Honest Tea. What’s changed, and what’s stayed the same?

“It’s really the same core product. It’s a less sweet drink,” Goldman said. “What’s really changed is the American population.”

When Honest Tea was a fledgling company in 1998, it fought an uphill battle to persuade customers to trade their “liquid lollipops” for healthier drinks, Goldman said. Now they seek out this type of product.

Also, the company’s relationship with Coca-Cola has helped expand the distribution of Honest Tea to every state. President Obama, who occasionally had trouble finding Black Forest Berry while on the road, now could stop in most grocery stores to buy one.

How do you feel about the possible acquisition of Honest Tea by Coca-Cola?

“I’m feeling good,” Goldman said. “We expect to continue to run the company out of Bethesda.

“They’ve recognized what we’re building is unique, is not something that can be replicated in a large, corporate culture.”

Honest Tea has tripled in size since Coca-Cola bought 40 percent of the company three years ago, Goldman said, but it’s still a small company that might not be ready to go off on its own.

“Our relationship with Coca-Cola enables us to increase the impact of our mission,” he said. “We’ll be able to reach more people.

“The product itself has an intrinsic benefit, but if it doesn’t reach most of the population, the impact isn’t as deep.

“We can help change the American diet. We can help change how agriculture is conducted in the developing world.”

Could the acquisition cause any image troubles for Honest Tea?

“There are certainly some consumers out there who’ve expressed these concerns,” Goldman said. “What I hope is that consumers look at the product.”

When the acquisition is finalized, Honest Tea will be a unit of Coca-Cola but will not carry a Coca-Cola label. Consumers, he said, can expect the same product a year from now.

 Employees will celebrate the acquisition and then get back to work, said Goldman. The original investors and employees with stock options will receive a return.

What do you see in the future for Honest Tea?

“We want to be one of the top-selling teas in the country,” Goldman said. “We really want this brand to be about not just a range of products, but a way of doing business.”