Q&A: Honest Tea steeped in success

by Monica Watrous
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Seth Goldman, chief executive officer, co-founded Honest Tea in 1998.

BETHESDA, MD. — Like his company’s tagline, Seth Goldman is “refreshingly honest.” The co-founder and chief executive officer of Honest Tea, a Bethesda-based maker of organic bottled teas, is happy to divulge insights from his 16 years in the business and even a few innovation flops along the way.

Founded in 1998, Honest Tea is an independent business unit of The Coca-Cola Co., Atlanta, which bought the company in 2011 after an initial 40% investment in 2008. The company’s bottled teas are made with organic and fair trade ingredients and are available in glass bottles, which are sold in the natural channel, and plastic bottles, which may be found in grocery and convenience stores and restaurants.

Honest Tea is set to relaunch its line of plastic-bottled herbal teas in January with new packaging and three new flavors: pomegranate blueberry, orange mango, and cranberry lemon. This year, the company updated its glass-bottled line, launched a pair of unsweetened teas in K-Cup format, and introduced a Summer Refreshers line of limited-edition lemonades for sale exclusively at Whole Foods Market.

“When you see companies that get bought by larger companies and they start to decelerate in their growth, it’s often because they stop innovating and often usually because the brand gets bought and people who inherit it don’t have connections with what is going on,” Mr. Goldman told Food Business News. “To be clear, we’re not innovating just for innovation’s sake, but when I start to look at all of the things we’ve got going on, I think it’s very fair to say we’re at least as innovative, or our innovations are probably accelerating rather than slowing down.”

In an exclusive interview with Food Business News, Mr. Goldman discussed category trends, product news and the advantages of partnering with a beverage giant.

Food Business News: What’s new at Honest Tea?

Seth Goldman: Lots of new things. It’s really been a very dynamic year for us.

The highest profile change is the updating or restaging of our plastic bottle line. That’s certainly most significant because it’s the largest part of our business, and it’s also where we see the strongest opportunity for expansion.

That effort was largely about taking that product line to a wider audience both in terms of its reach and also its relevance. How do we make this line more accessible?

There were some tweaks to the recipes, but it was really more about how the packaging communicates simplicity and high-quality organic ingredients without falling into the trap that many organic brands, and sometimes frankly, we, too, have done, which is seeming a little niche and not as relevant to the majority of consumers who don’t think of themselves as organic consumers or as even health-oriented.

The company is set to relaunch its plastic bottle line.

 

For us, that’s been updating the graphics to not only highlight the ingredients but also make them look tasty, and figuring out the hierarchy of messages that we want to communicate to consumers so it’s easy for them to understand what it is we’re offering.

And then, and I know this sounds simplistic, but I’ve got to say it’s something we’ve really failed to do until this latest innovation, is to make sure the bottle is selling even when the front panel isn’t facing the consumer. For 16 years we’ve had a package that, if it’s frontward-facing, people know what it is, but if it’s rotated 40 degrees, no one knows what’s inside. I have walked by enough stores and restaurants where I see a blank white label and I know what it is, but no one else does.

The bottle itself is a little bit taller, a little bit sleeker. It is proprietary in that it says “refreshingly honest.” It has the word “honest” on it in a larger font. So I think all of those things will help drive appeal and acceptance of that line.

At the same time, a few weeks prior, we relaunched our glass line, and that’s a business that’s been around since 1990, and that’s the line we really started the business with. So for the first time since we started, we updated that look.

What were the key changes to the glass line?

Mr. Goldman: We converted all of the sugar we use in that line. Since we started, we have been using organic cane sugar, but this year we started using Fair Trade Certified organic cane sugar.

We had new artwork done for some of these labels, so we were able to work with an artist to help expand the story. The world obviously has shifted a bit since we first came to market, so to have an update to that label has been a nice development.

You also announced the debut of Honest Tea in a K-Cup format.

Mr. Goldman: That was our first foray into that product line, so that was exciting to have that launched and obviously new packaging and a new relationship with Keurig as well as Coca-Cola with Keurig, too.

And of course we’ve had the lemonade line that was launched, and that has been very well received. That, too, was made with Fair Trade sugar, so that was in a way a great launch pad to move into fair trade sugar.

With that, I had traveled to Paraguay. We had been invested in fair trade, and we had been invested in organic sugar, but we hadn’t been invested in fair trade sugar before, so the purpose of that trip was to really make sure we had an understanding of what the impact of these programs were, how the approach to fair trade and organic differed from conventional sugar, and being able to come back and share that story through our mission report.

Honest Tea's glass bottle line now contains Fair Trade Certified organic sugar.

Fair trade sugar seems to be a relatively new proposition.

Mr. Goldman: Part of it is because the supply chain wasn’t there. I remember when Ben & Jerry’s announced their commitment to fair trade sugar a few years ago. I was excited, then I realized it wasn’t going to be organic. So for us, we had already been organic so it didn’t make sense to say, “Well, now we’re just going to go to fair trade sugar, but it’s not going to be organic.” We didn’t want to commit toward moving towards fair trade organic sugar until we were confident the supply chain was going to be well established.

We don’t ever want to be a buyer of a commodity where we’re buying more than 50% of what’s available. That’s not good for us, and that’s not good for the suppliers either because if we go under, they have a problem. Before we make a commitment like we did with fair trade sugar, we really want to engage the suppliers to make sure they’re developing their capacity.

What does product development look like at Honest Tea?

Mr. Goldman: We are always looking at where the opportunities are. We have three full-time people who are always working in our kitchen. They’re playing around a lot with a lot of different drinks.

Today they’re formulating one of our sweeter teas and doing it with less sugar. So we’re always tweaking existing ingredients, but we’re also thinking how would you take this and apply it to a different category?

For us, the single best innovation we have come up since we started as a company was Honest Kids. We had developed a line called Honest Ade, which was at the time a juice drink line with less calories.

We basically said what if we took Honest Ade and put it in a pouch? My son had tried to take it for lunch at school, but he would come home with half of a bottle in his lunch box because he’s a small guy and just couldn’t drink all of it. So that led us to put Honest Ade in a kid’s pouch and sell it that way. It was basically taking the existing equities of Honest Tea — organic ingredients, less sugar — and putting it, in this case, to a different category.

The first iteration of Honest Kids was the company's Honest Ade line repackaged in children's pouches.

I would say Honest Kids 1.0 was basically Honest Ade in a kid’s pouch. And then, and this is something we developed with Coca-Cola, was having started that line sweetened with organic cane sugar, we realized we could switch the sweetener to organic white grape juice. The line, which was already doing very well, kind of went into hyper drive when we made that switch because for the optics of the parent, when they read the ingredient panel, the first ingredient became juice.

And parents are certainly looking for children’s beverages with less sugar.

Mr. Goldman: Parents hadn’t really had the chance to buy high-quality products for their kids. There were juice drinks out there, but for the most part, that whole category was defined by whoever was selling two packs for $4. We said we’re not even going to play that game. This product is significantly more expensive, but it’s significantly different.

What’s striking is when you look at what has happened to the single-serve kids drink category, it’s on a downward slope. Our Honest Kids is on an upwards slope. We are going directly against what is happening in the channel.

Have you developed any products that just haven’t worked?

Mr. Goldman: We’ve had some flops for sure. We’ve had whole product lines that flopped.

We had a line called CocoaNova, which was a brewed cacao product. It was unique, it was novel, it was not like anything out there. But sometimes when it’s unlike anything out there, that makes it hard because consumers didn’t know what to make of it, and I think we failed to help them understand what to make of it. They didn’t know if it was cocoa drink or a coffee drink or a chocolate drink. It wasn’t any of those things. It was a brewed cacao herbal product. We just didn’t help define, and retailers didn’t know where to put it.

R.I.P., CocoaNova.

With taste combinations, we have had products that are appealing to us but sometimes once you brew them in the plant or store them, they sometimes take on different taste, so those have failed, too. We had a vanilla mint white tea that ended up tasting like toothpaste. So, we’ve certainly had some failures there.

For us, though, one of the keys to our innovation is we want to bring it to the natural channel. For us, that’s a small enough channel that you can get out there and get feedback pretty quickly and also tweak as you go.

One of our innovations, which is one of my favorite products, is a bottled tulsi, which is a basil leaf tea that comes from India. Initially we brought out a product called Heavenly Lemon Tulsi. It tastes great, but not a lot of people know what tulsi is. So when we just updated the packaging, we wanted to make clear that it’s lemon herbal tea. We have actually started selling that in restaurant chains. That’s a way to get feedback from the market and continue to iterate and evolve the offering.

Is there a lot of testing involved when you develop new products?

Mr. Goldman: I would say in general there isn’t. For the (plastic bottle) line we just relaunched, that line gets tested because it goes out through the whole Coke bottling system. It’s a much bigger system. We don’t have the ability to tweak and evolve the line, so it has to be ready for prime time. So with that one, we do more rigorous testing.

With things we bring to the natural channel, there’s less testing. In a way, the channel itself is the test.

What has changed for Honest Tea since the Coca-Cola partnership?

Mr. Goldman: The main thing that has changed is the distribution reach. Before Coke invested, we were in about 15,000 stores, and today we’re in 100,000 stores. We are reaching multiples of about six times more people. And we’re not just selling in the natural foods channel.

We’re happy we can sell healthy drinks to healthy people, but that was never our goal. Our goal was to sell healthy drinks to everybody. So, how do we reach people who don’t necessarily think of themselves as a health-oriented consumer or an organic or fair trade consumer? How do we reach them on occasions when they may not be thinking about health, they’re just looking for a drink?

What I think you’re going to see, what we see ahead in the coming years is we’re going to start seeing Honest Tea in other channels where we haven’t been available. Fast-food restaurants and places like that.

More consumers are avoiding sugary soft drinks and artificial sweeteners. The industry trends seem to be in your favor.

Mr. Goldman: That has been a wonderful benefit for us. We were clearly ahead of our time back in 1998, and I would say painfully so. We were selling a drink with 17 calories per serving, and that’s just not where the consumer was.

But now there are a lot more consumers who are there, and even consumers who aren’t there yet but have an aspiration to get there. There has been an evolution.

But that said, I’d say there is still not widespread acceptance or even an understanding about what organics mean. I’m sure you’ve seen all the research where consumers think natural is a more viable and a more valued term. That’s a challenge for us because all of our drinks, except for the Fizz (carbonated soft drink) line are organic. We’ll never back down from that commitment, but it also means it’s not the first word you see when you see our products. We want to talk about fresh-brewed tea, we want to make sure they understand it’s just a tad sweet, but it’s not only about organics. It can’t only be about organics.

It seems tea is becoming more on-trend with consumers, too.

Mr. Goldman: There is a big fragmentation going on in the beverage category. Where it used to be a few categories and a few companies that were responsible for most of the growth, you’re starting to see a whole series of other beverages that are starting to attract consumers. And certainly tea is one of the categories that has benefited. That is probably broader move towards natural, towards perception of health.

Another thing on the Coke partnership, in addition to the scale of distribution, there is also some of the scale on purchasing. This thing we did with Honest Kids, that was a move we would have had real challenge to do as an independent company, both in terms of supply chain but also in terms from a financial perspective to lock in a contract that big for organic juice.

There’s even this dynamic on supply chain side, as I go to these communities and talk about how we want to source organic and fair trade sugar or tea. If it’s just me, some guy from Bethesda, and I’m from a company they hadn’t heard of, they say, “Oh, I’m happy to entertain you. Seems like a nice guy.” But when I can go and say, “I’m part of Coca-Cola,” that’s a different conversation in these communities. They’ve heard of Coca-Cola in their country, so when they understand part of Coca-Cola is making an investment in organic and fair trade, I get my calls returned. I don’t get taken on the usual tour. It elevates the attention I receive when I meet with suppliers. That is ultimately a good thing for our supply chain and our ability to diversify, and I also believe it’s a good thing for these communities, if we can get them committed to organics and fair trade.

What’s next for Honest Tea?

Mr. Goldman: We are excited about increased innovation in the organic zero-calorie space. We think there is more opportunity there and we have some exciting introductions coming in next year.

That said, I’m excited about what we’re bringing out right now.
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