Honest Tea looks to future of Coca-Cola partnership

Ray and other Honest Tea fans may soon have to decide: is the brand as cool when it's owned by the world's biggest beverage company?

"The best thing we can do is continue doing what we’ve been doing," said Seth Goldman, the company's co-founder. "There are going to be some people who will have a reaction -- ‘if it's Coca-Cola, if it's connected to Coca-Cola, I'm done.' That's a shame."

Goldman, who founded Honest Tea in his home 13 years ago, has watched sales grow from about 360,000 bottles per year in the early days to more than 100 million bottles and pouches last year. Honest Tea is sold across the country in Kroger, CVS and other outlets. Bolstered by the partnership with Coca-Cola and its network of bottlers, the brand has moved into Publix and several hundred Walgreens stores.

At the time of the deal with Coca-Cola, Honest Tea was distributed in about 15,000 outlets. The total now is closer to 65,000.

Goldman called Coca-Cola a "critical partner." Although Coca-Cola has two board seats on the private company as a minority investor, the brand and the business are still managed out of Bethesda, he said.

Coca-Cola declined to comment for this story, but spokesman Scott Williamson said the company hopes to have more news to share at a later date.

Leaders of Honest Tea say even if a bigger deal with Coca-Cola comes to fruition, the brand will have obstacles to overcome.

"The fact that we're still considered tiny by mainstream beverage standards highlights how much work we have yet to do," Goldman and his business partner Barry Nalebuff wrote on their blog last month. "As we seek to grow from tiny to small by joining the Coca-Cola family, there are bound to be other challenges ahead."

Goldman and Nalebuff said Honest Tea's ideal consumers are people who consider the social and environmental impact of their food and drink. But he said some consumers judge a product or brand because of its association.

If ownership by Coca-Cola loses Honest Tea some street cred, it wouldn't be the first time the brand has taken heat from some of its most committed fans. When it helped Ford Motor Co. promote the Escape Hybrid, some criticized it for teaming up with a company that sells big SUVs.

MillerCoors, the country's No. 2 brewer, has faced the same question: does an upstart brand's authenticity diminish when it is produced by a huge company? MillerCoors sells Blue Moon and Leinenkugel's, a connection that may escape some beer lovers.

"I don't think consumers really think about corporate entities," Tom Long, president and chief commercial officer of MillerCoors, told the AJC last year. "They think about the brand voice and if it's real. What they look for is true character and authenticity."

Honest Tea has made its name with environmentalism, organic and low-calorie ingredients, "green" operations and causes such as fair-trade certification. Quirky marketing also plays a role.

Last year, the company set up pop-up booths in cities such as New York and Atlanta, offering a bottle of tea for $1. In a test of collective honesty, the stores were unmanned and relied on the honor system. Hidden cameras tracked the results. Atlanta turned out to be 89 percent honest, on par with New York and better than Chicago's 78 percent. But we were less virtuous than Washington, D.C. and Boston, both at about 93 percent.

An expanded deal with Coca-Cola could help Honest Tea get into venues where it is not currently sold in large quantities, including restaurants, colleges and schools. The brand works with Coca-Cola's Venturing and Emerging Brands unit, a small office through which the company manages its investments in small brands.

Coca-Cola could use an infusion of Honest Tea's energy. The company has struggled to establish its tea business, despite the growth of its Gold Peak brand. Coca-Cola's tea offerings, which also include Nestea and Fuze, are stuck in fourth place in the U.S., behind PepsiCo, Arizona and Snapple.

The tea business is only about 1/13th the size of the carbonated soft drinks business in the U.S. But consumers who believe tea makes them healthier have made it one of the fastest-growing categories in the North American beverage business. Tea sales rose 11 percent last year, and Honest Tea grew 46 percent, according to Beverage Digest. That data does not include Wal-Mart.

"Honest Tea is a small but strong brand," said John Sicher, editor of the trade publication. "Assuming Coke buys it, the challenge will be combining growth with making sure it stays true to its heritage. The company has a better chance of doing that than some years ago."