Coca-Cola keeps faith in Honest Tea potential

By Guy Montague-Jones

- Last updated on GMT

Related tags Iced tea Lipton Coffee

Coca-Cola keeps faith in Honest Tea potential
Coca-Cola has bought out the remaining stake in Honest Tea although the organic bottled tea company is still a niche player in the US market.

Three years ago Coca-Cola paid $43m for a 40 per cent share in Honest Tea. Now the soft drinks giant has bought out the rest of the company for an undisclosed sum

Honest Tea will be held as part of the venturing and emerging brands (VEB) unit of Coca-Cola North America, which made the initial $43m investment in 1998.

Benefiting from the Coca-Cola distribution network, Honest Tea has grown since. The brand is now available in more the 75,000 outlets today, compared to 15,000 three years ago.

Still a niche player

But Honest Tea remains a niche and expensive brand in the US ready-to-drink (RTD) tea. Hope Lee, beverages analyst at Euromonitor, said it did not even register a share by off-trade value in the category in 2010.

But the analyst said the brand could be built up as the economy improves. “It can be built as mega brand if the market condition improves and is given enough resources and attention by the new parent.”

Investing in Honest Tea fits into broader ambitions for RTD tea at Coca-Cola – an area where the company trails PepsiCo and its Lipton Ice Tea brand.

Lee said: “Coca-Cola does have ambition to develop its global RTD tea business. Its Gold Peak RTD tea brand did well in the US in 2010 despite the recession.”

Management of Honest Tea

With full ownership of Honest Tea, Coca-Cola may well be the ultimate authority but it is reluctant to change much at first.

Honest Tea will continue to run as a stand-alone business with its current head Seth Goldman at the top along with his existing management team and employees.

Coca-Cola said Goldman has decided to reinvest most of his proceeds from the sale to Coca-Cola back into Honest Tea.

Following the ownership change, Honest Tea will continue to access the scale benefits of the Coca-Cola system, particularly in manufacturing and distribution. And, as part of the VEB team, the organic RTD tea business will begin distributing other VEB brands to the natural channel.

Deryck van Rensburg, president and general manager of the VEB unit, said having Honest Tea join the business has brought a number of benefits, besides higher growth.

Van Rensburg said: “Honest Tea has helped our company in many other ways, from encouraging Coca-Cola to obtain organic certification at three of our facilities, to establishing a state of the art tea brewing and filtration system at a bottling plant. Additionally, it enabled us to participate with Honest in a number of sustainability initiatives on recycling.

“All of these efforts reflect why VEB has chosen to invest in entrepreneurs like the team at Honest - they provide a source of innovative ideas and energy that enhance our own efforts.”

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