One of my favorite business people hit the jackpot yesterday. Seth Goldman, the co-founder and Tea-EO of Honest Tea, sold a 40% stake of his company to The Coca Cola Co. The reported price values the company at about $110 million. Wow!
It couldn’t have happened to a nicer guy. Seth is a friend and a fellow member of Adat Shalom Reconstructionist Congregation who brings a passion for the environment and social justice to his work at Honest Tea. The Bethesda, Md.-based company makes organic tea, only slightly sweetened, that tastes good and is better for you than conventional canned or bottled teas like Lipton, which is marketed by Coke rival PepsiCo.
Although Seth had told me that he had been approached by big beverage companies, I was stunned when I heard about his deal with Coke– perhaps because of the way I heard it. I was meeting with Tom Mattia, head of global communications for Coke, in his stately office at Coke’s Atlanta headquarters when he casually referred to “the Honest Tea acquisition.†After I nearly fell off his couch, he filled me in.
Deals like this one happen all the time in the world of organics and socially responsible businesses. Whether it’s Ben Cohen taking Ben & Jerry’s public, and then selling to global giant Unilever, or Gary Hirshberg (who is an Honest Tea board member) selling Stonyfield Yogurt to Group Danone, or Gene Kahn selling Cascadian Farm to General Mills, successful small companies can’t seem to resist being swallowed up by big ones offering broader distribution, marketing muscle and, of course, cash to pay off founders and early investors.
Seth and Honest Tea co-founder Barry Nalebuff, his former teacher at Yale’s business school, offered assurances in a thoughtful posting on their blog that they are not selling out:
While Coke is now our largest shareholder, the agreement was negotiated to ensure that Honest Tea will not be managed or controlled by Coke. We will continue to operate as an independent business with the same leadership and mission.
By becoming part of Coca-Cola, they’ll have more impact than ever, they argued:
Despite our 66% annual compound growth rate (70% in 2007), we still aren’t reaching all the people we want to reach. Our business has inspired many … but we also want to see Honest be a change agent through our own actions. When we buy 2.5 million pounds of organic ingredients, as we did in 2007, we help create demand for a more sustainable system of agriculture, one that doesn’t rely on chemical pesticides and fertilizers. But when we buy ten times that amount, we help create a market that multiplies far beyond our own purchases. When we sell 32 million bottles and drink pouches with less than half the calories of mainstream alternatives, as we did in 2007, we help displace 2,400,000,000 empty calories. That’s important, but when we sell ten times that number, we help lead a national shift toward healthier diets.
Hmmm. Half the calories of “mainstream alternatives.†Could that be “mainstream alternatives†like Coke? Seth may like the fact that his drinks helped displace “empty calories†but I wonder how his investors in Atlanta feel about that claim.
As Sam Fromartz, author of Organic Inc., writes on his lively blog, Chews Wise:
I get the bigger is greener and more healthy part. But remember, you’re getting into bed with the people who put high fructose corn syrup on the map. You’re selling equity to the same people you want to displace. Is there something wrong with this picture?
Maybe not.
As it happens, I spent my day in Atlanta interviewing a series of Coke executives who are working on sustainability issues—water, climate and energy, and packaging—and came away impressed. Among those I met was Jeff Seabright, a former Clinton administration official who worked on climate change and now oversees Coke’s sustainability work. It turns out that Jeff and Seth had spent time together a few months ago at the Net Impact conference in Nashville, talking about Coke’s values.
Spurred on by the company’s outgoing CEO, Neville Isdell, these executives are working to make Coke “water-neutral,†meaning that it returns as much water to communities as it uses to make its beverages. They are aiming to transform the commercial refrigeration industry and make it free of HFC, a potent greenhouse gas, which is no easy task and provides no immediate business payoff. And they are designing packages that are lighter and easier to recycle, promoting recycling nationally, and building the world’s largest PET recycling plant, all in an effort to make Coke’s packaging more sustainable. Coke is long way from realizing any of these goals but it is moving in the right direction, investing many millions of dollars its green initiatives and working with a range of partners, from the World Wildlife Fund to Greenpeace.
More about all that another day. But I think that there’s a chance that Seth and his colleagues at Honest Tea will find they have a good deal in common with their new friends at Coke.
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Interesting. It sort of covers the Coke defectors who want something healthier, I suppose. Here’s a link about Coke partnering with RecycleBank here in philly.
http://www.paenvironmentdigest.com/newsletter/default.asp?NewsletterArticleID=8369&SubjectID WHo’d imagine you could make 41 million $ selling healthy tea?
Maybe Camp JRF will have an Honest Tea Pavillion?!
Marc, Interesting Post. I need to talk to Seth and get more detail, but for the moment I give him the benefit of the doubt. The key though is convincing customers – and industry watchers like me – he’s on the right path. Which means learning more about Coke. Still, this will be a bitter tonic for his hard core natural food customers
Having worked with PepsiCo for years and changed directions (180 degrees) since then, I can tell you this is inevitable in the beverage industry. Distribution eventually makes it essential to grow any more and the only game is Coke or Pepsi.
Odwalla did this year’s ago with Coke (albeit for financial distress reasons) and eventually found it’s footing again. But, don’t be fooled, this all about volume and profit for both Coke and Pepsi and they are some of the smartest marketers in the world. They will convince you that they are looking to green, but not mention that only as long as it does not eat into the margins of the bubbly sugar water.
For a reason I’ll get to in a moment, I’d like to remind us of some of the other small, but fast-growing green companies that have been snapped up in recent years:) Green & Black, Dagoba, Tom’s of Maine, Silk, The Body Shop (ok, not so small), Burt’s Bees, Annie’s Homegrown.
(Phil Howard maps most of this in great detail
Something we can all lose when these kinds of firms get bought up is a diversity of voices. When you consider the lax regulatory environment it has been up to civil society and often small, mission-driven companies to raise awareness over issues like bovine growth hormone, GMO’s, animal welfare or the poverty of farmers in developing countries – and to do the very hard work of creating the first market niches for alternative products that addressed these problems. (Just as Seth made a market for organic bottled tea.)
The large corporations have consistently been either on the wrong side of these issues, or on the sidelines, or had to be embarrassed into taking action, often merely token.
So when I see Honest Tea get bought out I have to acknowledge, yes, they’ll buy & sell more organic tea – a good thing – BUT I’m also going to assume we’ll not hear Seth use his new vantage point to speak out against, say, the evils of GMO’s (as most of Coke’s corn syrup is probably derived from GMO corn).
Admittedly, it did not seem Seth was outspoken on controversial issues before (correct me if I’m wrong) but other green entrepreneurs, like Steve Demos were, and when Steve’s values clashed with his new corporate bosses at Dean he was effectively silenced.
Overall, I think these transactions have the effect of “quieting” the marketplace, and thereby overall slowing the pace of change. A conclusion that I admit cannot be quantified or tested.
By the way, back in 2000 Marjorie Kelly (author of “The Divine Right of Capital”) wrote a great article about all of this.
The only thing that I think has really changed since then is that both society and the marketplace have become more green, etc, which in turn has given folks like Gary Hirschberg, Seth and Tom Chappell a stronger position to negotiate from when selling. Still, even if that’s true, that amounts to only incremental change, and I think many of us in this line of work still think we can and should aim higher.
Note: we at Equal Exchange speak about this from personal experience. As a 100% Fair Trade, worker-owned co-operative specializing in organic food & beverages, with $29M in sales, we, too, are at that “awkward†stage for independent food companies, let progressive ones. But we’re convinced that there have to better options than selling out. If nothing else, farmer-owned co-operatives like Organic Valley ($250M and growing) suggest it can be done.
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