ERB INSTITUTE
UNIVERSITY OF MICHIGAN
case 1-428-947
September 20, 2010
Honest Tea—Sell Up or Sell Out?
CO
PY
You can have the healthiest and best drink, but if you can’t get it to store shelves, you’re
just another has-been.
—Gary Hirshberg, CE-Yo, Stonyfield Farm, Inc.
and member, Honest Tea Board of Directors1
…selling to a big corporation, or joining forces with venture capitalists, would mean selling
out the very essence of organic: small, alternative and individualistic.
—Steve Mills of the Chicago Tribune,
on Eden Foods Founder Michael Potter’s refusal
to sell his organic foods company2
NO
T
Honest Tea CEO and co-founder Seth Goldman had seen his ten-year-old, ready-to-drink (RTD) organic
tea company grow beyond expectations. Looking to the future, Seth knew he had several difficult decisions
to make. Did wide-scale distribution and production go against the values of sustainability, upon which his
company was founded? What compromises, if any, was he willing to make to spread Honest Tea’s product
and message? Could Seth achieve this desired scale on his own or were outside partnerships or investors
required?
DO
The Coca-Cola Company had expressed strong interest in buying Honest Tea. Coke was well aware of
the growth in the organic food and drink market and specifically aware that Pepsi controlled 40% of the
RTD tea market, compared to its 11% share. Coke had an existing global bottling and distribution network,
significant capital to fund marketing campaigns, and relationships and leverage with retail outlets to secure
ideal shelf space. Coke envisioned success with Honest Tea like they had with their acquisition of Odwalla.
As Seth pondered Honest Tea’s success and the many decisions in front of him, he knew he had to
answer one question first. Should he sell to Coca-Cola?
Published by GlobaLens, a division of The William Davidson Institute at The University of Michigan.
© 2010, Andy Hoffman. This case was prepared by Elizabeth A. Paynter, Elizabeth Senecal, Lauren Start, Tina Tam, David
Weinglass, and Ryan Whisnant, under the supervision of Professor Andrew Hoffman and Arie Jongejan as the basis for
class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
Honest Tea—Sell Up or Sell Out?
1-428-947
The Ready-to-Drink Beverage Market The global non-alcoholic beverage market was expected to grow at an annual rate of 6% from 2008,
reaching a value of $1 trillion by 2020.3 While tea was already the most consumed beverage in the world, the
ready-to-drink (RTD) coffee and tea segment was expected to contribute to that growth.4 The RTD tea market
experienced an estimated 12.7% compound growth rate between 2003 and 2007.5 Growth in the category
was driven by the convenience of single-serve bottles, the perceived health benefits of tea, and the variety
of tea and fruit and other tea combinations.6 Consumers in the U.S. had begun to see tea as a functional
beverage that contained anti-oxidants and provided anti-aging, calming, or energizing benefits.7
Defining Natural and Organic Food CO
PY
Just as the tea market was growing aggressively, the natural foods category and organic beverage
segment were exploding.8 Between 2004 and 2005, the organic beverage market grew 18%. Three years
later, the market was still growing at 16% annually.9 More than 500 RTD beverages were introduced in 2007
alone. Soy, coffee, tea and fruit-based drinks were introduced in the greatest numbers.10
The Organic Foods Production Act (OFPA) was adopted by the U.S. Congress in 1990 as part of the
1990 Farm Bill. Over a decade of discussion and input surrounding OFPA culminated in a final rule that
was published by the USDA in December 2000 and implemented in October 2002. The resulting standards
set up a system to certify specific methods and practices used to produce and process organic agricultural
ingredients for food and non-food purposes.
NO
T
Although the terms “natural” and “organic” are often used interchangeably, there are important
differences between the two labels. While there is no certification process to deem a product natural,
the organic label requires compliance with standards set by the National Organic Program—the federal
regulatory framework governing organic products—as well as certification by the United States Department
of Agriculture.11 In order to call a product organic, the ingredients used to make the product must come from
a certified organic farm—a farm whose agricultural system replenishes soil fertility without the use of toxic
or persistent pesticides and fertilizers. Organic certification also prohibits the use of antibiotics, synthetic
hormones, and genetic engineering.
DO
While Honest Tea did not begin as an organic beverage company in 1998, its first organic tea, First
Nation Peppermint, was launched one year later, in 1999. Demand for organic offerings was so strong that
by 2001, 50% of Honest Tea’s products were certified organic. By 2004, one year after releasing its first two
fair trade certified teas, all Honest Tea beverages had completed the organic certification process.12
The Commercial Shift toward Natural and Organic Food
Prior to the establishment of the Organic Foods Production Act of 1990, a small organic movement did
exist. However, aside from small-scale farm stands and other local ventures, organic foods were not widely
available in a commercial setting. When Whole Foods Company opened its first grocery store in 1974, with
a mission to feature good wholesome food “without pills and potions,” they achieved sales that doubled
each year for the first four years. In 1978, their sales surpassed $1 million.13
In 1985, a group of determined individuals founded the Organic Foods Production Association of North
America (OFPANA), an organization dedicated exclusively to being the industry’s voice to lawmakers and
the public. As of 2005, the OFPANA had nearly 1,600 members, which included businesses in every part of
the supply chain.
2
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With the passing of the Organic Foods Production Act in 1990, attention to organics grew and led to
a shift in momentum toward organic food. Mainstream supermarkets, including Safeway Inc., Kroger Co.,
and SuperValu Inc., caught on to the market shift and created their own name-brand organic products to
meet rising demand. In 1997, when organic food sales tracking began, organic food represented 0.8% of
the food market.14 By 2006, organics made up 2.8% of the market.15 Further, by 2006, organic food sales
had been growing by 15–20% per year, whereas total food sales had only been growing 2–4% per year.16 A
study released in 2007 revealed that, from 2004 through 2006, sales of organic food through supermarkets,
drug stores, and mass merchandisers (such as Wal-Mart) increased by 38%. The study also estimated that
sales of organic foods would increase by 71% from 2006 through 2011.17 (See Exhibit 1 for a graphical
representation of U.S. organic food sales over time.)
CO
PY
Honest Tea’s Foundations After a long run through New York City’s Central Park, Seth Goldman furiously scrounged the streets
for something to quench his thirst. Soda was too sugary, and water did not give him the flavor he desired.
It was during this quest for a perfect, refreshing drink that Seth remembered a professor from business
school at the Yale School of Management. Several years earlier, while working on a Coke vs. Pepsi case
study, Seth and Professor Barry Nalebuff had lamented about the sweetness of most bottled beverages and
the boringness of plain (and even flavored) water. Seth wondered if Barry had been able to find a perfectly
balanced drink and decided to give him a call.
NO
T
Delighted to hear from his former student, Barry admitted to Seth that he, too, was still searching
for the ideal beverage. He also told Seth of his recent travels to tea farms in India, where he had learned
that most American bottled teas were made with tea dust and fannings (essentially low-quality tea leaf
leftovers). Seth and Barry’s conversation took an exciting and unexpected turn when they agreed that there
was a void in the market for high-quality, healthy bottled tea. After years of fruitless searching for the
perfect beverage, the former student and his professor decided to take matters into their own hands. Thus,
Honest Tea was born in Seth Goldman’s tiny kitchen.
Driven by his new mission and Barry’s support, Seth quit his job at Calvert Group and began brewing tea
in his home in 1998. He put the “honest” in Honest Tea by brewing experimental batch after batch with only
simple ingredients: water, real tea leaves, and honey or pure sugar cane for a bare amount of sweetening. He
day-dreamed of a future in which his tea would not only succeed but would also establish honest, mutually
beneficial relationships with suppliers and customers, while being true to the environment.
DO
Five weeks quickly passed, and Seth was finally ready to make his pitch. He packed up some thermoses
filled with tea (along with mock-up labels) and headed over to Fresh Fields, now known as Whole Foods
Market. His audience was impressed and ordered a small trial allotment of 15,000 bottles to see whether
or not Seth’s teas would sell. Seth eagerly accepted the order, even though he knew that he was limited
by his bottling operation capabilities and that he had no way to make such a daunting quantity of tea.
Nevertheless, he thought, he had just set the stage for an official entry into the tea business.
Seth and Barry moved their tea production to a facility in Buffalo, New York. Five varieties of their teas
first hit store shelves in June of 1998, and they were a hit. Seth’s challenge quickly became how to respond to
requests from his fiercely loyal consumers that he make his teas more widely available for purchase while, at
the same time, keeping tea stocked on store shelves (see Exhibit 2). Stories were published in the Washington
Post, the Wall Street Journal and Fitness Magazine about the up-and-coming success of Honest Tea. The buyer of
new products for Wild Oats/Alfalfa Community Markets approved of Seth and Barry’s new product:
3
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Mark My Words: Honest Tea will be a success. The only bottled tea that is not loaded with
sugars and tastes great. This is what people (like me) have been seeking for years. Too
good to be true? No! I mean it now – BRING THESE IN!
In just over ten years, Seth and Barry had grown Honest Tea from a thermos out of Seth’s kitchen, to a
business that outsold both Snapple and the house brand at Fresh Fields in the first year, to the best selling
bottled tea. As 2007 drew to a close, the company had grown to 52 employees and $23 million in annual
sales (see Exhibit 3).19 It had diversified its business line into the bagged tea, thirst quencher (HonestAde), and children’s (Honest Kids) beverage markets. Most importantly to its founders, Seth and Barry had
created a company that stayed true to its mission of creating honest beverages while becoming a leader in
the socially responsible business movement.
CO
PY
The “Honest” Way of (Guerrilla) Marketing
The term “guerilla marketing” was coined in 1984 by Jay Conrad Levinson to describe a marketing style
that relied on investing energy instead of money to achieve conventional goals. Seth steered his small
company to success largely through a guerilla marketing approach.
In his tactics, Seth included an Honest Tea advertisement on YouTube20 and events such as an Honest
Tea sponsored charity beach contest21 and music festival.22 Seth referred to his guerilla marketing strategy
as a “no-frills sales campaign” that generally avoided media marketing.23 Their biggest sales pitch was a
van, adorned with the Honest Tea logo, that offered free samples at events.24 A typical example of how Seth
positioned his guerilla militants was a street team of Honest Tea constituents defying typical marketing
strategy by handing out free, ice-cold, organic peach-flavored white tea to even colder New Yorkers one
night in January 2009.
NO
T
On its 2009 Facebook page, Honest Tea had an ad entitled “Searching for Marketing Road Warriors!!!”.
Their responsibilities would include driving to all locations in a region, setting up and breaking down
event equipment, and promoting the Honest Tea brand at each event.25 This high energy, grass-roots driven
marketing represented Honest Tea’s values-based approach and an important part of its brand.
DO
A Reputation for Social Responsibility
Building on its roots of producing a simple, healthy product, Honest Tea developed a reputation for genuine
commitment to investing in the betterment of its surrounding communities. The company wanted to be a
true change agent.26 This reputation matched the “genuineness” of its product and became a central factor
driving its rapid, word-of-mouth growth through a base of fervently loyal consumers. It seemed that every
day, fan letters and news articles praised the unique circumstances behind which Honest Tea had become
not only a beverage, but also a lifestyle choice that consumers related to on a personal level.
In January of 2008, Honest Tea helped to launch Bethesda Green, a local sustainability initiative in
the town that is home to the company’s headquarters. The mission of Bethesda Green was to incubate
green businesses and help community members develop the skills and knowledge to lead environmentally
sustainable lives in Bethesda, Maryland. Over 300 people attended the first community meeting, and in May
of the same year, the first recycling bins were placed in heavily trafficked parts of the city.
Honest Tea also took an active stance on reducing its environmental impact. The company worked to
determine its carbon footprint throughout its supply chain, from its sustainably-grown tea bushes in India
to its warehouses. In order to offset the carbon dioxide produced during the creation of Jasmine Green
Energy Tea, Honest Tea purchased renewable energy credits certified by Green-e, a premier certification
organization for green energy.27 Further, glass and plastic Honest Tea bottles could be reused and recycled
4
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in many places. Honest Kids drink pouches, however, were a different story. To combat the environmental
impact associated with Honest Kids drink pouch disposal, Honest Tea came up with a different solution
to the problem of adding to landfills—a partnership with TerraCycle. Through the Drink Pouch Brigade
program, Honest Tea and TerraCycle teamed up to encourage the recycling of drink pouches. For every pouch
collected, Honest Kids donated two cents to a charity of the collector’s choice. The used pouches were then
turned into fashion accessories.
Significant Growth Challenges CO
PY
Meeting the ever-growing demand for Honest Tea’s products created challenges for the company. A
belief that bringing the bottling portion in-house would help meet demand and create manufacturing jobs
prompted Honest Tea to make an investment in Three River’s Bottling, a niche bottler that had worked with
products, such as New Leaf Iced Teas and Whole Foods’ 365 brand. The investment was ill-fated, however,
and Honest Tea soon realized it was better suited to focus on its core business of producing healthy, organic
beverages and building its strong brand. In doing so, Seth found that rapid growth was inseparable from
distribution problems.
The company initially distributed its own product, but then began to experiment with several different
distributor relationships. From cheese to charcoal distributors, Honest Tea searched for a way to scale,
eventually fostering relationships with natural food and beverage distributors who complied with the
company’s mission.
Coca-Cola’s Growing Interest in Alternative Beverages NO
T
As when it was founded, the Coca-Cola Company still specialized in selling beverage bases and syrups in
2008. The company sold to almost 300 bottling businesses. Coca-Cola owned its brands and was responsible
for marketing, while partner bottling companies were responsible for the beverages’ production, packaging,
and distribution.28 Bottlers sold the beverages to the end consumer. Coke had established distribution in
over 200 countries,29 and the company’s distribution channels penetrated every market in the U.S.
DO
By 2008, sparkling beverages represented 78% of Coca-Cola’s business, while its remaining 22%
came from non-carbonated (or “still”) beverages. This still-beverage category had significantly expanded
from 11% of Coke’s business in 2000, and had driven Coke’s top-line growth, accounting for 42% of its
incremental volume growth in 2008.30 In order to take advantage of the growth in the still beverage market,
Coke purchased small companies, such as Glacéau (the makers of Vitamin Water), Fuse, Java Planet, and
Odwalla. They used their existing network and global reach to extract more value out of the smaller firms.
Despite this growth, Pepsi held on to 50% of the non-carbonated market compared to Coke’s 23% in 2007
(before Coke’s purchase of Glacéau).31
Historically, Coca-Cola had four major brands in the RTD category: Nestea, Enviga, Gold Peak, and Fuze.
These brands accounted for 11% of the tea category in the U.S. market. Coke’s largest competitor, PepsiCola, controlled nearly 40% of the tea market with brands including Lipton and SoBe. Other major players
included Arizona and Cadbury Schweppe’s Snapple brand (see Exhibit 4).32
5
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Sustainability at the Coca-Cola Company
In cooperation with its six largest bottlers, the Coca-Cola Company established a sustainability strategy
in 2002. The plan was based on four pillars: workplace, marketplace, environment, and community. In 2008,
sustainability was included in the company’s growth strategy and became one of the criteria for how it
evaluated its performance.33 In an opinion piece in Marketing Week, the President of Coca-Cola Great Britain
and Ireland, Sanjay Guha, laid out the company’s environmental goals as the following:
…returning or replacing every drop of water we use in our drinks and their production. We
have pledged to grow our business without adding to the carbon in our atmosphere and
are developing low-energy and HFC-free refrigeration. And we are stepping up our efforts
to recycle and reduce the packaging we produce.34
CO
PY
In 2008, the company undertook a $10 million advertising campaign to educate consumers about its
sustainability vision. Coca-Cola wanted its consumers to know that sustainability was not only about the
environment but also about the physical and mental well-being of people and the health of communities
in which the company operated.35 In 2007, the company achieved a 2% increase in water use efficiency
and a 4% increase in energy use efficiency, donated $99 million to charity, and participated in over 120
community water projects in more than 50 countries.36 The company engaged in issues such as workplace
rights, community development, and active and healthy living.
NO
T
According to Coke’s 2008–2009 sustainability report, the company directly emitted 1.96 million tons of
carbon dioxide. An additional 3.21 million tons of carbon dioxide were indirectly emitted in 2008 from the
company’s 58.6 billion mega joules of energy consumption. Although, from 2006 to 2008, the company’s
indirect carbon emissions from energy use grew by 0.32 million tons, its direct emissions fell by 0.02 million
tons. During those same years, while water efficiency increased (from 2.55 liters of water per pound of
product to 2.43), total water usage also increased from 290 billion liters to 313 billion liters.37
Coke’s Challenges and Consumer Mistrust of Corporations
A 2006 article in The Economist opened with, “Who would have thought that the reputation of
America’s corporate leaders – since the bankruptcy of Enron, seen as no more trustworthy than politicians
or journalists – could fall any further? Yet that is what is happening, as the fuss over the backdating of
executive share options intensifies with each day.”38 The article went on to address the controversial and
impending SEC action regarding compensation issues at many large U.S. companies. The scandal included
well-known companies such as Apple, Microsoft, and Home Depot.39
DO
While Coke had established its sustainability program, it had also fallen victim to issues with corporate
mistrust. In 2005, Coca-Cola was under fire for water use in India. At the beginning of the 21st century,
consumer groups, local populations, and NGOs accused Coca-Cola of “stealing water, poisoning land, and
selling drinks laced with dangerous pesticides.”40 An activist website (killercoke.org) even established a
movement “to stop a gruesome cycle of murders... and torture of union leaders... at Coca-Cola bottling
plants in Colombia.” Because of these issues and related charges in India and Colombia, as well as elsewhere
in the world, students on at least nine college campuses successfully lobbied their colleges not to renew
contracts with Coca-Cola. Due to the lobbying efforts of University of Michigan’s Students Organizing for
Labor and Economic Equality, the school canceled its $1.4 million contract with Coca-Cola, effective on
January 1, 2006. Such decisive action on campus significantly altered product options in vending machines,
cafeterias, residence halls, and campus restaurants.41 While Coca-Cola maintained that the allegations were
false, the company felt the impact of the increased mistrust.
6
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In an April 2007 conference call, then president of Coca-Cola’s Asia Division, Mary Minnick, was quoted
as saying that the company still felt the “residual effect of the unfounded pesticide scare in 2003.”42
Coke’s troubles were not over by 2007. Venezuela banned Coca-Cola Zero in 2009, claiming that testing
revealed that the beverage included the sweetener Cyclamate. While Coke maintained that Cyclamate was
safe, as evidenced by independent studies from the World Health Organization’s Joint Committee on Food
Additives,43 the artificial sweetener had been banned in both Venezuela and the United States due to health
concerns.44
The Consolidation and Mainstreaming of Organic Foods CO
PY
Consolidation within the organic and natural food industry began in earnest in 1997, when the draft for
national organic standards was first released.45 The acquisition of smaller organic food companies peaked in
1999, marked by General Mills’ acquisition of Cascadian Farm and Muir Glen for an estimated $70 million.46
By the time an 18-month phase-in period for national standards was implemented in 2002, the pace of
consolidation had slowed, primarily because there were few organic companies of significant size left to
purchase.47 During that five-year period, the organic sector grew by almost 20%, versus only 5% for the
conventional food sector. In addition, organic foods did not experience the same wild price spikes seen
in conventional foods.48 It was this growth and stability that drove widespread acquisition of organic
companies by large multinationals.49 Between 1999 and 2009, one-third of the top 30 firms acquired organic
brands (see Exhibit 5).50
NO
T
In some cases, large food companies used their relationships with organic companies to develop their
own organic product lines under existing brands.51 Unilever, for instance, introduced an organic version of
Ragu pasta sauce. However, this strategy was not as successful as the outright takeover of organic brands.52
Unilever struggled to recoup the $20 million it spent on advertising its organic Ragu brand.53
Large corporate ownership by companies, including Dean Foods, General Mills, Kellogg’s, and Cargill,
fueled dramatic growth in the organic industry.54 In most cases, the companies elected to exclude their own
label from the acquired corporate brand. Owners of these once small-scale operations became overnight
corporate executives, as was the case with “CE-Yo” Gary Hirshberg when Group Danone acquired a 40% stake
in Stonyfield Farm organic yogurt.55
DO
Some owners of smaller organic companies were wooed into acquisition by achieving a large financial
payoff from their business success, while others saw it as an opportunity to reach a larger market and further
promote organics. It was not only difficult to gauge the original owners’ motivations, but it was also difficult
to determine how the new corporate stakeholder would operate the company once it took control. As a
result, these sales were not without serious reputational risk to the smaller companies, which had operated
in a segment of the industry particularly sensitive to the level of trust that consumers hold in a brand.
For example, despite the fact that Dagoba Organic Chocolate still operated independently after its buyout
by The Hershey Company in 2006, some people labeled Dagoba owner, Frederick Schilling, a “sell-out”.56
Popular brands such as Burt’s Bees and Ben & Jerry’s have also been labeled sell-outs (see Exhibit 6).
The amount paid for these small organic and natural food companies was often well beyond an average
valuation for such a company. In 2008, Coca-Cola acquired Vitamin Water maker, Glacéau, for an estimated
$4.2 billion, a valuation 20 times its EBITDA*.57 These large purchases were not restricted to just the food
* Earnings Before Interest, Taxes, Depreciation, and Amortization.
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and beverage industry. In 2007, Clorox reportedly paid five and a half times the $170 million projected
annual sales for Burt’s Bees,58 and L’Oréal paid $1.4 billion for the Body Shop.59 Companies were willing to
pay a premium for these smaller, organic and natural firms in order to gain access to their brand identity and
the high margin industry.60 Many large companies felt that they did not have the knowledge, relationships,
or trust of consumers to allow them to enter the organic sector on their own.61
There were a few notable organic and natural product companies who had avoided or refused acquisition,
such as Clif Bar, Nature’s Path, Organic Valley, and Seventh Generation.62i Despite regular offers, Ann Arborbased Eden Foods Inc., had repeatedly refused to sell. According to the Eden Foods president, Michael
Potter, every major food company had approached him with an offer.63
The Future of Honest Tea CO
PY
There were some notable benefits resulting from consolidation. Due to the scale of large multinational
owners, the retail price of organic food had fallen, in some cases close to conventional food levels. The
result had been wider access to organics, especially for low-income shoppers. Organic foods were now found
in most major grocery chains. The growth of organic food had also driven the demand for organic farms to
produce the food, enabling increased organic farming practices. As Natalie Reitman-White of the Willamette
Farm and Food Coalition said, “The success of organic has allowed companies the means to reinvest in
advocacy that moves the organic ideals forward.”64
NO
T
To maintain the strong growth that the company had been experiencing and to be profitable in the RTD
tea industry, Honest Tea needed access to a larger distribution network. In 2008, Honest Tea had the option
to partner with Coke by selling a portion of its equity. Seth and Barry therefore faced an enormously difficult
decision. On the one hand, consumer mistrust of larger companies, combined with Coke’s reputation, might
have adverse effects on not only Honest Tea’s brand image and company culture but also its sustainabilitydriven strategy and commitment. On the other hand, Honest Tea had always striven to be a positive change
agent in the industry. Partnering with Coke would allow Honest Tea to scale up and get into the mainstream
market and, in turn, to affect change by introducing competitive yet healthy and sustainable products to
the industry.
DO
When he noticed Seth lingering for a few extra moments in the top floor conference room of The CocaCola Company’s world headquarters in Atlanta, Georgia, Barry walked over to steal a quick word with him.
“The only way Honest Tea can have a widely significant environmental and social impact is by selling lots
of product, and Coke can help us do that,” Barry offered.65
“[And] our mission [will always drive] our strategy,”66 Seth contemplated as the two walked into
the elevator and descended toward the building’s exit. Seth couldn’t help but continue to wonder about
what impact an investment by Coca-Cola might have on his company in the long run. Would Honest Tea’s
reputation remain strong among consumers? Would its word-of-mouth and guerrilla marketing buzz be
possible on a national scale? Could Honest Tea’s culture influence Coca-Cola’s culture, or would Honest Tea
be swallowed by a giant?
See Exhibits 7-10 for additional information.
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Exhibits Exhibit 1
U.S. Organic Food Sales 1998–2006 (US dollars in billions)
20
CO
PY
Sales (billion USD)
15
10
5
0
2001
(1.41%)
NO
T
1998
(.94%)
2003
(1.94%)
2005
2006
(2.48%) (2.80%)
Year (Percent of Total Food Sales)
■ Direct
■ Natural Food Stores
DO
Source: Organic Trade Association (2004, 2006, 2007)
9
■ Supermarkets
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Exhibit 2
Examples of Unsolicited Letters from Customers
Subject: BEST TEA EVER!
Dear Honest Tea,
CO
PY
I have never bought a product that I thought was so fantastic that I felt the need to write
about it. I love tea, but I always would brew it myself and cart it around because I can’t
stand the syrupy-sweet “tea” that is sold most places. I saw your tea at Fresh Fields in
Annapolis, MD. At first I was hesitant because I have it in my mind that all bottled iced
teas = yucky sweet. But I was intrigued by the flavor choices and yes, the pretty bottles and
bought one of each. Well, I went to my car and proceeded to drink all of them right then and
there. The first one was so good and so different that I couldn’t help myself and had to try
the rest. It actually tasted like tea! THEN... when I turned the bottle over and saw how few
calories were in it, I flipped! There is no reason not to drink this tea! You guys have truly
done it, this is quality stuff! So keep it up and get this tea out there! I wish you success
and happy brewing!
NO
T
—Cindy W., Annapolis, MD
RE: Help! I need Honest Tea!
I just returned from a trip to Wash, DC (I live in Pittsburgh) and found that your tea is not
available here. I love it and must have more. Can you ship it to me? Price is no object (to
some degree).
DO
If you cannot ship it to me please advise me of any support groups or counseling that I
may seek in order to recover from this lack of Honest Tea. I must warn you that I may get
desperate, causing me to highjack an Honest Tea truck in the Washington area and bring it
back to Pittsburgh. I am becoming a heartless Honest Tea junkie. I hope that you can help.
Thanks, EEOber
Source: Honest Tea Business Plan—December 1998
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Exhibit 3
Sales and Employees (1998–2007)
Honest Tea Sales
$25,000,000 —
$15,000,000 —
$10,000,000 —
$5,000,000 —
CO
PY
$20,000,000 —
|
NO
T
$0 —|
|
|
|
|
|
|
|
|
|
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Honest Tea Employee Count
60 —
50 —
DO
40 —
30 —
20 —
10 —
0 —|
|
|
|
|
|
|
|
|
|
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: Honesttea.com
11
|
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Exhibit 4
Ready-to-Drink Tea: Top 10 Brands by Sales and Share (2007)
U.S. Mainstream Retail Sales
of RTD-Packaged, Shelf-Stable Tea
Brand
Sales ($) Share (%)
393.5
34.8
Arizona
284.3
25.1
Snapple
216.8
19.2
Nestea
92.3
8.2
Enviga
21.7
1.9
SoBe
19.8
1.8
7.6
0.7
6.2
0.5
5.0
0.4
4.4
0.4
Fuze
Honest Tea
Tradewinds
Tazo
CO
PY
Lipton
All Other, Including Private Label
Total
78.9
7.0
$1.130.5
100.0%
Note: Figures are based on IRI sales tracking through U.S. supermarkets, drugstores, and mass
merchandiserrs other than Wal-Mart.
DO
NO
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Source: Information Resources, Inc., compiled by Packaged Facts.
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Exhibit 5
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Organic Industry Structure: Acquisitions by the Top 30
Food Processors in North America
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Source: Phil Howard, Assistant Professor, Michigan State University
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Exhibit 6
Examples of Small, Growing Firms Purchased
by Large, Established Organizations
Ben & Jerry’s
When they were acquired by global giants, both Ben & Jerry’s and Burt’s Bees were seen as sellouts by many critics. In 2000, Unilever (a global giant that makes products such as Wisk detergent,
Q-tips and popsicles) acquired Ben & Jerry’s Homemade, an ice cream company whose strategy was
rooted in social consciousness.* At the cost of $326 million, Ben & Jerry’s became a wholly-owned
subsidiary of Unilever. In doing so, Ben & Jerry’s maintained a separate board that included its
founders, Ben Cohen and Jerry Greenfield. The company founders stated:
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“Shareholders will be rewarded… employees will be protected; the current social
mission of Ben & Jerry’s will be encouraged and well-funded… and an opportunity
has been offered for Ben & Jerry’s to contribute to Unilever’s social practices
worldwide.”
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The deal included an agreement that Ben & Jerry’s would continue its practices, unchanged,
and that Unilever would agree to neither reduce jobs nor alter the way the ice cream was made.
Unilever also committed to contributing 7.5% of Ben & Jerry’s profits and $5 million of Unilever’s
funds to a foundation, creating a $5 million fund to support poor neighborhoods and minorityowned businesses, and distributing $5 million to employees in six months. Additionally, Cohen
would work with Unilever to evaluate its involvement in socially and environmentally responsible
activities. Ben & Jerry’s, a two-person company that had started in a Vermont gas station in 1978
and gone public in 1984, ensured that its social conscience framework transferred over to the $45
billion global giant.
Before the final agreement was reached and as the potential deal was being digested, Richard
Goldstein, head of Unilever’s North American operations, encouraged Cohen about the role he
could play at Unilever. “Ben, do you realize the opportunity you have here to help this company
grow in its social commitment?” In response, Cohen looked back at him and realized, “this man is
sincere.”**
DO
Burt’s Bees
Similar to how corporate giant, Unilever, bought out Ben & Jerry’s, The Clorox Company
bought privately owned Burt’s Bees for $913 million in 2008.*** Clorox, having been eyeing the
natural-care market (whose sales rose from $2 to $6.1 billion between 2002 and 2006) pounced
on the opportunity to acquire Burt’s Bees, whose motto was “The Greater Good.” With its socially
responsible outlook, Burt’s Bees grew from a small beeswax candle business, created by Roxanne
Quimby and Burt Shavitz, to a more than $250 million per year top-grossing manufacturer of natural
care products (hair care, lip care, baby care, foot care, pregnant mother care).†
Unlike that of the creators of Ben & Jerry’s, the partnership between Quimby and Shavitz
dissolved. In 1999, Quimby bought out her partner’s one-third share in the business. In 2003, she
sold 80 percent of the company to AEA Investors. In 2008, AEA accepted a bid from Clorox. Quimby
then sold the remaining 20 percent share in Burt’s Bees to Clorox for $183 million.
continued on next page
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continued from previous page
Also unlike the Ben & Jerry’s-Unilever deal, neither Quimby nor Shavitz maintained future
ties (environmental, social, or otherwise) with Clorox as part of the business deal. John Roplogle,
the Chief Executive of Burt’s Bees, saw otherwise. Roplogle said that Burt’s Bees’ 380 employees
had an opportunity to influence the direction of Clorox and its green initiatives. Burt’s Bees
maintained its original green philosophies. Employees’ bonuses depended on how well company
energy conservation goals were met, the company bought offsets for 100 percent of its carbon
emissions, and it worked toward a goal of no longer sending trash to landfills by 2020. In turn,
Clorox focused on reshaping its products such that more of them would be eco-friendly by 2013.
Gram, D., Ben & Jerry’s Sells Out To Unilever, AP Online, April 12, 2000.
Hays, C., Ben & Jerry’s To Unilever, With Attitude, The New York Times, April 13, 2000.
Story, L., Can Burt’s Bees Turn Clorox Green?, The New York Times, January 6, 2008.
Belli, B, Burt’s Bees Sells Out Big, The Environmental Magazine, March 16–28, 2010.
Story, L., Can Burt’s Bees Turn Clorox Green?, The New York Times, January 6, 2008.
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**
***
†
††
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Beth Springer, vice president for strategy and growth at Clorox, posited, “If we think about
the Greater Good, one lesson we’ve learned is, if you set your mind to the goal of more natural and
sustainable practices, you might actually surprise yourself with what you can accomplish.”††
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Exhibit 7
Honest Tea’s Market Opportunity (as stated in Original Business Plan)
Beyond Snapple—The Emerging Market for Quality Bottled Tea
We have identified four market trends that are fueling demand for Honest Tea within the $72 billion
non-alcoholic liquid refreshment beverage market.
Emergence of
Tea Culture
Boom in Natural foods
Rise of Cultural
Creatives
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Explosive Growth in RTD
Tea and Water Markets
Demand for a Healthier,
Genuine Bottled Tea
Source: HonestTea.com
Exhibit 8
5000 –
0–
|
2004
31944
|
|
2005
2006
■ Revenue
Source: Company Annual Report, Global Markets Direct
16
|
2007
■ Net Income
5807
5981
28857
24088
4847
10000 –
5080
15000 –
4872
20000 –
23104
25000 –
21742
30000 –
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Revenues & Net Income (million USD)
35000 –
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Coca-Cola Revenue and Net Income (2004–2008)
|
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Exhibit 9
Ready-to-Drink Tea Suggested Retail Price of Selected Brands, 2007
U.S. RTD-Packaged, Shelf-Stable Tea
Brand
Price ($)
Gallon plastic jug
$3.39 (S); $3.69(J)
3-pack of 12-ounce aseptic boxes
1.79(T)
16-ounce glass bottle
1.19(J)
34-ounce plastic bottle
1.49(S)
42-ounce plastic bottle
1.49(S); 1.49(T)
23.5-ounce can
0.99(S); 1.19(J), on sale for 1.00
Café Sepia
8.1-ounce can
1.69 (W)
Enviga
12-ounce can
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Arizona
Description/Size
1.29(J)
6-pack of 12-ounce cans
6.49(J), on sale for 5.99
Fuze
18-ounce glass botle
1.79(J)
Gold Peak
16.9-ounce glass bottle
1.29(S); 1.59(J)
Guayaki Yerba Mate
16-ounce glass bottle
2.19(W)
Honest Tea
16-ounce glass bottle
64-ounce glass bottle
16-ounce glass bottle
Jone’s Organic Tea
14-ounce glass bottle
Lipton
3.39(W)
1.99(W)
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Inkos
1.59(S), on sale for 1.25;
1.69(J), on sale for 1.25;
1.39(W), on sale for 0.99;
1.79(J), on sale for 1.50
12-pack of 16.9 ounce plastic bottles 5.99(S), on sale for 4.99;
6.99(J), on sale for 5.99
1.5-liter plastic bottle
1.69(S), on sale for 1.00; 1.49(J)
12-pack of 12-ounce cans
3.99(S); 4.29(J), on sale for 3.33
2-liter plastic bottle
1.69(S), on sale for 1.25; 1.79(J)
16-ounce glass bottle
1.39(S), on sale for 1.00; 1.39(J)
6-pack of 16-ounce glass bottles
6.99(S), on sale for 5.99;
6.99(J), on sale for 5.00
Magnolia Spice Tea
16-ounce glass bottle
Nestea
12-pack of 16.9-ounce plastic bottles 6.49(S), on sale for 4.99;
6.79(J), on sale for 6.50
Lipton Brisk
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Lipton Pure Leaf
1.09(J)
12-pack of 12-ounce cans
3.59(S), on sale for 3.00
Pacific
Half-gallon aseptic box
4.99(W)
Sencha Shot
6.4-ounce can
1.39(W)
Snapple
17.5-ounce glass bottle
1.59(S), on sale for 1.25; 1.89 (J)
16-ounce glass bottle
1.19(S); 1.39(J)
12-pack of 16-ounce glass bottles
9.99(S); 8.99(J), on sale for 7.99
12-pack of 16.9-ounce plastic bottles 5.99(S), on sale for 4.99
Key: (J) = Jewel; (S) = Strack & Van Til; (T) = Trader Joe’s; (W) = Whole Foods
continued on next page
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Brand
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Description/Size
Price ($)
20-ounce glass bottle
1.59(J)
Steaz
12-ounce glass bottle
1.29(W)
Sweet Leaf
16-ounce glass bottle
1.19(S), on sale for 1.15;
1.39(W), on sale for 0.99
64-ounce glass bottle
3.99(W)
13.8-ounce glass bottle
1.49(S); 1.39(W)
4-pack of 13.8-ounce glass bottles
5.39(W)
16.9-ounce plastic bottle
1.99(W)
2-liter plastic bottle
1.99(W)
8.2-ounce can
1.99(W)
Tazo
Tea’s Tea
Well for Tea
Key: (J) = Jewel; (S) = Strack & Van Til; (T) = Trader Joe’s; (W) = Whole Foods
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Source: Packaged Fa
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SoBe
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Exhibit 10
Honest Tea Products (2009)
Honest Tea 16.9 oz. PET
Honest Mate
NEW! Mango Green Tea
NEW! Agave Mate
Pomegranate White Tea with Açai
Subime Mate
Honey Green Tea
NEW! Tropical Mate
Peach White Tea
Lemon Black Tea
Honest Tea Glass Variety
Assam Black Tea
Black Forest Berry
Cranberry Lemonade
Community Green Tea
Limeade
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Honest Ade
Green Dragon Tea
Orange Mango with Mangosteent
Pomegranate Blue
Superfruit Punch
Jasmine Green Energy Tea
Just Black Tea
Just Green Tea
Lori’s Lemon Tea
Honest Kids
Goodness Grapeness
Berry Berry Good Lemonade
Tropical Tango Punch
Moroccan Mint Tea
Peach-Oo-La-Long
Pearfect White Tea
Pomegranate Red Tea with Goji Berry
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Appley Ever After
Mango Açai White Tea
Honest Tea Bags
Honest Tea 64 oz. Variety
Just Black Tea
Find Honest Tea Retailer
Just Green Tea
Mango Açai White Tea
Buy Honest Tea Online
Peach-Oo-La-Long
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Source: HonestTea.com
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Endnotes onest Tea stays true to its roots as it grows; Theresa Howard, U.S.A TODAY; http://www.usatoday.com/money/advertising/2009H
03-29-honest-tea-grows_N.htm
2
rganic foods: Big companies swoop in to capitalize on lucrative market. Steve Mills. McClatchy - Tribune Business News.
O
Washington: Aug 19, 2009.
3
The Coca-Cola Company 2008 Annual Review (Atlanta, GA)
4
The Coca-Cola Company 2008 Annual Review (Atlanta, GA)
5
Tea and Ready-to-Drink Tea in the U.S., Packaged Facts, November 2007.
6
Strenk, Tom, “Ready-to-serve Heats Up.” Restaurant Business. Feb2009
7
Berry, Donna. “Tea: Make it More than a Drink.” Dairy Foods March 2009
8
Strenk, Tom “Earthly around the Earth.” Beverage World. 15 Nov 2008
9
Strenk, Tom “Earthly around the Earth.” Beverage World. 15 Nov 2008
10
Strenk, Tom “Earthly around the Earth.” Beverage World. 15 Nov 2008
11
http://www.havahart.com/advice/living-organic/organic-or-natural
12
http://www.honesttea.com/mission/about/story/
13
http://www.wholefoodsmarket.com/company/history.php
14
http://www.ota.com/definition/quickoverview.html
15
http://www.ota.com/definition/quickoverview.html
16
Libby Quaid, “Demand for Organic Food Outstrips Supply,” San Francisco Chronicle, July 6, 2006.
17
Knudson, William, The Organic Food Market, Strategic Marketing Institute Working Paper, Michigan State University, 2007.
18
http://www.honesttea.com, 1998 Business plan
19
http://www.honesttea.com, 1998 Business plan
20
http://www.youtube.com/watch?v=hPg9ZJoutOM
21
http://magicseaweed.com/BODYBOARDING-FOR-A-CAUSE!-CHARITY-BEACH-FEST-PRESENTED-BY-HONEST-TEA-To-be-held-August16th-at-Casino-Pier-in-Seaside-Heights-NJ--Content/657/
22
http://www.bgirlmanifesto.com/casram/
23
http://www.foodanddrinkdigital.com/Honest-to-goodness_189.aspx
24
http://findarticles.com/p/articles/mi_qn4183/is_20031128/ai_n10058505/?tag=content;col1
25
http://www.facebook.com/note.php?note_id=51545688968
26
T he Value of the Right Partner, Blog From Seth and Barry, 19 June, 2008, <http://honesttea.com/blog/category/from-seth-andbarry/page/2/>
27
http://www.honesttea.com/community/sustainability/greenenergy/
28
The Coca-Cola Company, 2007/2008 Sustainability Review
29
The Coca-Cola Company Website, <www.thecoca-colacompany.com/ourcompany/index.html
30
The Coca-Cola Company 2008 Annual Review (Atlanta, GA)
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31
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1
“Coca-Cola ready to expand noncarbonated holdings” New York Times, 25 May 2007
32
Hein, Kenneth, “Coca-Cola Adds a Little Honest Tea.” Brandweek. 5 Feb. 2008
33
The Coca-Cola Company 2007/2008 Sustainability Review
34
Guha, Sanjay. “On the Long Road to Sustainability” Marketing Week, 8 May 2008
35
Bush, Michael. “Sustainability and a Smile” Advertising Age, 25 Feb 2008
36
The Coca-Cola Company, 2007/2008 Sustainability Review
37
T he Coca-Cola Company, 2008/2009 Sustainability Review. <http://www.thecoca-colacompany.com/citizenship/pdf/2008-2009_
sustainability_review.pdf>
38
Dates from hell” The Economist, 22 July 2006
39
Dates from hell” The Economist, 22 July 2006
40
Stecklow, Steve. “Virtual Battle: How a Global Web of Activists Gives Coke Problems in India” Wall Street Journal 7 June 2007
20
Honest Tea—Sell Up or Sell Out?
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“University of Michigan Bans Coca-Cola Sales” MSNBC, 30 Dec 2005. <http://www.msnbc.msn.com/id/10651153/>
42
Stecklow, Steve. “Virtual Battle: How a Global Web of Activists Gives Coke Problems in India” Wall Street Journal, 7 June 2007
43
T he Coca-Cola Company 2007/2008 Sustainability Review. <http://www.thecoca-colacompany.com/citizenship/pdf/2008-2009_
sustainability_review.pdf>
44
S anchez, Fabiola. “Venezuela: Why We Banned Coke.” The Huffington Post, 12 June 2009. <http://www.huffingtonpost.
com/2009/06/12/venezuela-why-we-banned-c_n_215114.html>
45
Howard, Phil. 2007. “Who owns organic? From roots to suits.” PCC Sound Consumer, January. Puget Consumers Co-op.
46
oward, Philip H. 2009. Visualizing Food System Concentration and Consolidation. Southern Rural Sociology, 24(2), 87-110.
H
[online]
47
Howard, Phil. 2007. “Who owns organic? From roots to suits.” PCC Sound Consumer, January. Puget Consumers Co-op.
48
ergers and Acquisitions Journal; June 1, 2008; Organic Growth: Long-considered a recession resistant market, the food space,
M
especially natural foods, continues to attract investors
49
Howard, Phil. 2007. “Who owns organic? From roots to suits.” PCC Sound Consumer, January. Puget Consumers Co-op.
50
oward, Philip H. 2009. Visualizing Food System Concentration and Consolidation. Southern Rural Sociology, 24(2), 87–110.
H
[online]
51
Howard, Phil. 2007. “Who owns organic? From roots to suits.” PCC Sound Consumer, January. Puget Consumers Co-op.
52
Howard, Phil. 2007. “Who owns organic? From roots to suits.” PCC Sound Consumer, January. Puget Consumers Co-op.
53
oward, Philip H. 2009. Visualizing Food System Concentration and Consolidation. Southern Rural Sociology, 24(2), 87–110.
H
[online]
54
Organic foods: Big companies swoop in to capitalize on lucrative market
55
Steve Mills. McClatchy - Tribune Business News. Washington: Aug 19, 2009.
56
Howard, Phil. 2007. “Who owns organic? From roots to suits.” PCC Sound Consumer, January. Puget Consumers Co-op.
57
http://www.entrepreneur.com/magazine/entrepreneur/2008/june/193660.html
58
ergers and Acquisitions Journal; June 1, 2008; Organic Growth: Long-considered a recession resistant market, the food space,
M
especially natural foods, continues to attract investors
59
progressivegrocer.com; November 2, 2007; Clorox Buys Burt’s Bees for Just under $1 Billion
60
http://www.nytimes.com/2008/01/06/business/06bees.html
61
oward, Philip H. 2009. Visualizing Food System Concentration and Consolidation. Southern Rural Sociology, 24(2), 87–110.
H
[online]
62
oward, Philip H. 2009. Visualizing Food System Concentration and Consolidation. Southern Rural Sociology, 24(2), 87–110.
H
[online]
63
Howard, Phil. 2007. “Who owns organic? From roots to suits.” PCC Sound Consumer, January. Puget Consumers Co-op.
64
Organic foods: Big companies swoop in to capitalize on lucrative market
65
Steve Mills. McClatchy - Tribune Business News. Washington: Aug 19, 2009.
66
oward, Phil. 2007. “Who owns organic? From roots to suits.” PCC Sound Consumer, January. Puget Consumers Co-op.
H
(Southworth, 2001).
67
Blog from Seth & Barry. http://www.honesttea.com/blog/category/from-seth-and-barry/
68
Blog from Seth & Barry. http://www.honesttea.com/blog/category/from-seth-and-barry/
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41
21
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Notes 22
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Notes 23