Honest Tea co-founder Seth Goldman on disruptive innovation: We can take the Honest brand beyond the beverages aisle

Seth Goldman on democratizing organics: 'We never set out to sell healthy drinks just to healthy people. Organics need to be accessible.'

The Honest brand could extend well beyond the ready-to-drink tea category into a wider array of beverages and even foods, says the co-founder of Honest Tea, which posted a 27% surge in sales to $112m in 2013, and is growing even faster this year.

While the explosive growth of a few years back was largely due to the massive increase in distribution gained from becoming part of Coca-Cola (which took a 40% stake in Honest Tea in 2008 and took full control in 2011), more recent growth is simply the result of selling more products from the same 100,000+ stores.

Seth Goldman, co-founder and ‘TEA-EO’ told FoodNavigator-USA: “The store count has been pretty flat in the last couple of years, but we grew 27% last year and we’re growing even faster this year, and we’ve done it without increasing the marketing budget, which is pretty exciting. The Honest Kids pouches in particular have been going like a rocket ship."

There are other categories that we could go into in foods as well as beverages

The pouches, which are sweetened with white grape juice concentrate and contain no added sugar, also contain no tea, and prove the Honest brand can extend beyond its roots, said Goldman.

“When we first looked at the kids pouches market as you would in an MBA-style quadrant, almost all brands were around 100 calories, at around the same price, in the same quadrant. So we said let’s disrupt this category and go into a totally different quadrant [Honest juice drinks contain just 40 calories per pouch].

“But there are other categories that we could go into in foods as well as beverages where we think we can be disruptive.”

People are choosing more green tea, organic tea, and less sweet tea

While the overall ready-to-drink tea market notched up modest growth in 2013 in US retail outlets, the premium and more health-oriented segments delivered stronger growth, he said.

Consumers are making more health-conscious decisions when they choose beverages, so tea is a natural fit.

“Within the category, people are choosing more green tea, organic tea, and less sweet tea. A small but significant portion of people are also moving toward what I’d call more conscious shopping choices, which is where, say, Fair Trade sugar comes in [which Honest Tea is using to sweeten its new line of Summer Refresher beverages].”

We never set out to sell healthy drinks just to healthy people

As for Goldman’s stated aim of “democratizing organics” - the firm’s demand for USDA certified organic ingredients has increased from 800,000 lbs in 2007 to an estimated 8 million lbs in 2014 - it’s not something that can happen overnight, he stressed.

For example, sourcing organic stevia leaf extract and erythritol for the Honest Fizz zero calorie products would have made them prohibitively expensive, said Goldman.

“Like I said, it's a journey. We couldn’t do it straight away but we’re working on a formulation now that will also allow us to make [an organic] product available to a wider audience.”

Once the price premium you have to charge for organics is much more than 10-20%, you can start to lose people you want to reach, he added: We never set out to sell healthy drinks just to healthy people. Organics need to be accessible.”

Selling up is not selling out

As for the inevitable questions about whether selling up means selling out, Goldman says he has retained considerable autonomy since Coca-Cola took over, and has not had to make compromises that dent the integrity of the brand.

“You see these entrepreneurs that stay on post an acquisition but quickly find themselves to be irrelevant, or the company’s mission gets diluted. But six years on when you look at every key indicator of what we’re about, in terms of our mission, we’ve gone deeper - from our commitment to Fair Trade to our commitment to making healthy products.”

CocoaNova: 'The problem was that most people couldn't understand what it was'

While innovative beverage companies can go it alone, he said, “It’s very hard to build a national presence through independent distributors."

But it's not impossible, he added. "This is a very exciting time. There are some really creative product ideas emerging right now and in so many areas, the traditional order is being disrupted.”

Meanwhile, firms of all sizes, including Honest Tea, are still making mistakes, he said. "Take Kombucha, the opportunity was there, but there were risks, and we had a legal situation [although it denied any wrongdoing, Honest Tea settled a lawsuit alleging it misled consumers about the alcohol content in its Kombucha beverages in 2011, and discontinued the line]."

Another product that bit the dust was CocoaNova, a "beverage ahead of its time" that was launched with much fanfare in 2011 and discontinued in 2012, said Goldman: "The problem was that most people couldn't understand what it was."

Lawsuits are not about protecting consumers, but lawyers trying to exploit an opportunity

As for other challenges, one unwanted consequence of success is that you start to attract the attention of plaintiffs’ attorneys, says Goldman, who has been targeted in consumer suits a couple of times in recent years*.

But while protecting consumers’ interests is a noble endeavor, many of the class action lawsuits filed in California in recent years are frivolous cases without genuine victims filed by opportunistic plaintiffs' attorneys out for a fast buck, he contends.

“They are not about protecting consumers, but lawyers trying to exploit an opportunity.”

*In a June 10 order on a deceptive advertising lawsuit filed against Honest Tea in November 2013, a California federal judge tossed most claims accusing it of dishonestly marketing its honey green tea as a source of antioxidants, but refused to dismiss claims over its use of the word ‘honest’ ( Sarah A. Salazar v. Honest Tea Inc., number 2:13-cv-02318).

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