Honest Tea as a Diversification Strategy for Coke

The dissonance between Honest Tea and Coke is "one of the reasons it works so well," CEO Seth Goldman says.

Mar 19, 2014 at 5:00PM

Seth Goldman and Barry Nalebuff founded Honest Tea in 1998. In the recently released Mission in a Bottle, the co-founders tell -- in comic book form -- the story of building a successful mission-driven business. Goldman, now president and "TeaEO" of Honest Tea, joins Motley Fool CEO Tom Gardner to discuss sustainability, entrepreneurship, and what it means for a socially responsible, health-oriented business to be bought by Coca-Cola (NYSE:KO) .

In this video segment, Goldman explains Honest Tea's goal of "democratizing organics," and why it's not a contradiction for a product like Honest Tea, with its organic, Fair Trade focus, to be bought by Coke -- and be happy about it! 

A full transcript follows the video.

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Audience member: A couple things; first of all, I found your Honest Tea at Whole Foods, and particularly liked the black tea, which I thought was superb.

Recently my youngest daughter, who's become a physical trainer, said to me, "Dad, thanks so much for not allowing Coke in the house. At the time, I thought I was really being deprived, but I realize now that you were doing the right thing."

It just occurs to me what an irony it is that you were bought by Coke. If you could just expand on that.

Seth Goldman: Sure. Look, as you know -- and as your daughter knows -- they're very different products.

For us, it was always about scale. If we only had this model where we were selling to Whole Foods, and the co-ops -- which we love -- but if we were only selling to them or only selling on the coast...

We have this mission. We talk about "democratizing organics." Why should healthier organic food only be available to the economic elite? From my perspective, they shouldn't be. They need to be available wherever beverages are sold. Who better to do that than the world's largest beverage distribution system? That was my take on it.

I recognize there's a little bit of a dissonance, but that's one of the reasons it works so well. If you look at Coke's portfolio, we offer a lot of things they didn't have. They didn't really have a strong tea brand. They didn't have an organic brand. They didn't have a Fair Trade brand. And we were a way for them to diversify their bets.

As long as the mission is still in the bottle, I want to sell it wherever Coke products can be sold. I want to sell it in Wal-Mart, I want to sell it in gas stations. I want it to be available wherever it can be available.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool’s board of directors. Tom Gardner owns shares of Whole Foods Market. The Motley Fool recommends and owns shares of Coca-Cola and Whole Foods Market and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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