A few years earlier, after reading a business school case study at Yale about the rivalry between Coke and Pepsi, Goldman had wondered, “Why, with all these beverage options was there nothing I wanted to drink? Nothing good tasting, or all natural — and there should be.”
Goldman, a committed distance runner focused on his own hydration, already had the instincts of an entrepreneur. In grade school, he regularly made a killing on his lemonade stand.
Today, Honest Tea is the top-selling producer of organic bottled tea, with an annual compound growth rate exceeding 60 percent, and 2010 sales of $71.5 million. In 2011, the Coca-Cola Company purchased the company making it the first organic and fair-trade beverage in the world’s largest beverage distribution system. The purchase has made it a lot easier to find a bottle of Honest Tea. Given Coke’s global reach, the tea can be purchased in more than 75,000 locations across the planet.
Sustainable, on the rise
Honest Tea is a brand has earned honors for sustainability, integrity and responsibility. It is listed as one of the Ten Best Companies on the Planet by the Better World Shopping guide, and the Huffington Post crows that Honest Tea is one of “Eight Revolutionary Socially Responsible Companies.”
The company produces an annual “mission report” for consumers (complete with Tumblr dialogue) that details the complexities of maintaining responsible business practices in a commercial marketplace. The 2011 edition has a two-page spread on the relative advantages of packaging single-serving bottles in a plastic or recyclable glass bottles. While glass in more fully recyclable, plastic has a lower carbon footprint for transport.
Goldman and his founding partner, Barry Nalebuff, are recognized for their socially responsible and financially successful mission-driven business. Nalebuff is still a tenured professor at the Yale School of Management, and Goldman, the former student, is a fellow of the Aspen Institute with a portfolio of many nonprofit board positions and awards. Not bad for an idea that came about because one young man was thirsty after a run.
Goldman still loves to tell the story of how Honest Tea came to be. His brown eyes shine black with delight as he chortles through the chronology.
“I told Barry [Nalebuff], who was my professor advisor at the time at Yale, that I thought there was room in the marketplace for a really good, all-natural organic bottled tea. Barry said, ‘Great. Let’s make some samples.’ He thought we could just whip them up in our kitchens and take them around. But I was a new father and I had to get a real job.”
Goldman, the son of an economics professor, went to work for Calvert Investments in Bethesda, Md., managing the marketing of the largest family of socially sensitive investment funds. He was giving a talk in New York in September 1997 and went for a run through Central Park. Still sweating, He rang up Nalebuff in nearby New Haven, Conn.
“There’s still nothing I want to drink,” Goldman told him.
Nalebuff came up with the name Honest Tea. “We thought it carried the sense of social responsibility,” he said.
The name crystallized the plan, and Goldman handed in his resignation to Calvert in December.
“It wasn’t a lateral move,” he joked.
There was one problem: Could they make the tea? When the president of Calvert heard Goldman’s plans, he suggested a sabbatical rather than a resignation. (He ultimately became Honest Tea’s first investor.) Goldman spent a month writing Honest Tea’s business plan.
Gallons and gallons of tea – none powdered
The two would-be entrepreneurs set out to learn how to brew tea. The one thing they were sure about: “No powdered tea. Only leaves.” They brewed gallons of tea, experimenting with hundreds of tea varieties, and taught themselves how to make and fill filter bags for brewing in quantity. But the bags would break, and a lonely tealeaf or two would find its way into the taster’s teeth. They consoled each other with the thought that at least people would know the tea was real when they had to pick a leaf out of their teeth. In March 1999, with their first samples in five thermos containers and one empty Snapple bottle, they began making sales calls.
Goldman describes it, stretching out his long arms, his expression still shocked disbelief.
“We knew we had the sales pitch down, but we never expected the buyer to say yes,” he said.
Suddenly, they were scrambling to meet an order for 15,000 bottles due in May. In four months, the duo had written the business plan, made the sales pitch, designed the label — and oh yes — finalized the recipe for the first Honest Tea varieties. With $500,000 of capital from friends and family, they were launched.
On the Fourth of July in 1999, Goldman had an acute toothache. He made it through the picnic and was at the dentist the next day. The dentist diagnosed the problem. Goldman was grinding his teeth.
“You better do something about your stress. It’s either that or a mouth guard,” the dentist advised.
Goldman calls himself an optimist “blessed by a very short memory.” He worked hard and hoped for success, but never expected it at the current scale. And until Coke came on the scene, the market penetration of the drink was limited. For Honest Tea’s first eight years, Goldman’s father “distributed” the bottles around Boston from the back of his car. Now, Goldman says, “My mother can buy a bottle at Au Bon Pain.”
In the first 10 years, Honest Tea was available in only 15,000 locations. In 2011, with Coke as a partner, Honest Tea had reached more than 80,000 outlets.
“We began by being able to produce 1,500 cases a day. Then we increased to 5,000. Now, with Coke, we can brew 40,000 cases a day using the same quality of tea leaves.”
Coke, he says, invested in the company and the process. Goldman recognizes that some of his most dedicated customers consider his deal with Coke puts him in bed with the devil. But for him, as long as Coke guaranteed not to take shortcuts with the product or the brand, he is thrilled to be able to ramp up Honest Tea’s production and see its market share grow.
Another important fact to Goldman: “Every year, since 1998, the year we founded Honest Tea, total consumption of carbonated beverages has been declining.”
Zester Daily contributor Louisa Kasdon is a Boston-based food writer, former restaurant owner and founder of letstalkaboutfood.com. She is a columnist for the Boston Phoenix, the food editor for Stuff Magazine and has contributed to Fortune, MORE, Cooking Light, the Boston Globe, Boston Magazine and the Christian Science Monitor, among others.
Photos, from top:
Seth Goldman and Barry Nalebuff.
Honest Tea bottles.
Credits: Courtesy of Honest Tea