Organic Honest Tea Gets Big Infusion of Mainstream Cash
By Michael S. Rosenwald
Washington Post Staff Writer
Monday, February 19, 2007; Page D01
People who buy bottles of Honest Tea have sometimes been moved to offer its manufacturer a lot more than $1.49.
In 1999, soon after the Bethesda company of the same name began selling its organic, internationally grown, fair trade and decidedly less- sugary-than-Snapple iced tea, an aficionado offered to invest about $200,000. Seth Goldman, who founded Honest Tea in his kitchen with his Yale business school mentor, gladly accepted.
That investment, and money from other Honest Tea admirers and relatives of the founders, helped the company catch up to and then overtake a competing product owned by Starbucks, making Honest Tea the dominant organic bottled tea in the country.
With organic foods taking hold in mainstream America and Honest Tea logging sales of $13.5 million last year, the company has attracted some much bigger investments. This month, it landed $12 million, including $5 million each from yogurt maker Stonyfield Farm and Inventages Venture Capital Investment, an international private-equity firm whose backers include the food giant Nestle.
"This is a big deal for us and a big deal for the organic food world," said Goldman, 41, the president of Honest Tea. (He has another title: TeaEO.)
Goldman, who is tall and lanky with a boyish laugh, said the company would use the money to push further into mainstream markets. It will offer several new flavors, as well as organic juice pouches aimed at children, that will have less than half the sugar of competing products. Already, Honest Tea is on shelves in Costco, Target, and Sheetz gas stations, and some Coca-Cola and even Budweiser distributors have begun selling its products.
"As much as we love our natural-food business as the core of what we do, those investors didn't invest because of that," Goldman said. Natural-food outlets are a "$30 million opportunity. We want to get to the $100 million opportunity."
Gunnar Weikert, the Inventages chairman, said he thinks Honest Tea has a great head start against other natural-food companies. With 25 percent of the market, Honest Tea leads the ready-to-drink iced tea category in U.S. natural-food stores, according to Spins, a market-research firm. The company's Moroccan Mint Green leads the category in sales.
Perhaps more important, Honest Tea's bottled lemon-flavored black tea ranked highest in a taste survey by Consumer Reports, beating (in order) Arizona, Snapple, Nestea and Tazo (the product owned by Starbucks.) The popularity of ready-to-drink teas and coffees is growing the fastest among consumer packaged goods, according to Marketing Daily magazine. Sales rose 28 percent last year, it said, while soda-pop sales fell 0.1 percent.
"We believe they are nicely positioned with a quality product and concept," Weikert said of Honest Tea from his company's headquarters in Switzerland.
Jeffrey B. Swartz, an Honest Tea board member and chief executive of Timberland Co., said that five years ago Honest's "gotcha" words -- "organic," "free trade," "good for you" -- didn't do much to attract genuine interest from distributors of Coca-Cola and Budweiser products, which offer strategic access to mainstream outlets.
Swartz said, "People were respectful, but there was always an 'ummm.' " Now, he said, it's more like: "Oh, this is interesting."
Goldman, whose company grew from 23 employees in August to 43 now, recently hired an operations manager with two decades of experience with mainstream beverages. He also plans to strengthen his marketing staff and move out of the company's cozy but cramped Bethesda offices to a larger space in the area. (The bottling is done in Pennsylvania and California.) And he said he is working to complete deals with some major mainstream retail outlets.
Of course, he assumes that organic products have a pretty good chance of becoming totally mainstream one day.
"That's why we needed to strike now," he said. "Five years from now, everything may be organic."
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