Video Case Honest Tea Plus Coca-cola Equals National Distribution When Seth Goldman and Barry Nalebuff cofounded Honest Tea in 1998, their idea was to "democratize organics." The two realized they lacked the ability to deliver coast to coast. To met when Nalebuff was Goldman's professor at Yale University's make the leap from regional to national brand, Honest Tea School of Management. A few years later, Goldman recognized needed a partner with a dependable distribution network to an opportunity to market a distinctly different, healthy, bottled serve the entire U.S. market . beverage made with organic ingredients, and he teamed up Enter Coca-cola, which in 2008 invested enough to buy with Nalebuff to form Maryland-based Honest Tea. The entre- 40 percent of the Honest Tea company. Coca-cola saw this preneurs decided on tea because it has widespread appeal, investment as a way to enhance its own line of soft drinks. and Nalebuff suggested the company's name, a play on words Honest Tea gained a partner with huge buying and marketing that reflects natural rather than synthetic ingredients. power, as well as distribution to every corner of the country. Despite the challenges facing traditional products in the soft- Once Coca-cola was involved in the distribution process, Honest Tea was able to supply Safeway and a host of other drink industry, Honest Tea made inroads because its beverages large retailers. In 2011, Coca-cola purchased the rest of taste good, have fewer calories than many competing beverages, Honest Tea and left the founding management in charge to and cater to the growing market for organic foods. However, continue the company's success. the company had difficulty obtaining distribution at first. Retailers Within a few years, Honest Tea had leveraged the Coca- were unsure about stocking beverages that were far less sweet Cola network to expand market coverage from 15,000 stores than so many already on store shelves. Finally, they found a to more than 130,000 stores throughout the United States. Its positive reception at a natural-foods grocery chain, which agreed annual revenues have skyrocketed to more than $218 million to buy 15,000 bottles. That order helped establish Honest Tea as it introduces new products and enters new channels. For as a serious competitor and laid the foundation for approaching example, Honest Tea has begun marketing bottled lemon- other multi-store regional retailers. ades and organic sports drinks. It has also created a lightly Eight years after it began operations, Honest Tea had sweetened herbal tea, called Heavenly Lemon Tulsi, which is increased annual sales to $13.5 million and was shipping now being sold through restaurants and stores. In addition, 1.5 million cases of bottled drinks every year. Yet when the Honest Tea markets K-Cup pods for people who want to use mainstream supermarket giant Safeway was ready to stock single-serve coffee makers to make organic tea at home. On Honest Tea's products in all its stores, Goldman and Nalebuff the other hand, the company dropped its CocoaNova line 393 Chapter 13 Distributing and Promoting ProductsGEFORCE GREAT PERFORMANCE 720M of brewed cacao herbal beverages after it found that stores Questions were confused about whether to stock these products with 1. How would you describe Honest Tea's ideal level of chocolate drinks or coffee drinks. market coverage? Why would this intensity of market The new products and expanded distribution have led coverage be appropriate for such beverages? to double-digit growth for Honest Tea, which has now sold more than 1 billion units and is racing toward its second 2. Should Honest Tea use the same distribution channels billion. Just as important, the company has been able to for its K-Cup pods as it uses for its bottled and canned expand its purchasing of sustainably sourced sugar and tea beverages? Explain your answer. other ingredients, and reinvest in the communities where its 3. What aspects of physical distribution are particularly ingredients are produced. 16 important for Honest Tea's products that are packaged in glass bottles? Building Skills for Career Success