Coca-Cola Co. has exercised its option to acquire the remaining 60 percent of Maryland-based organic bottled tea maker Honest Tea. The companies described it Tuesday as a chance to make organic drinks more mainstream.
What they didn't say is that it also may be a chance to invigorate Coca-Cola's tea business, which lags behind PepsiCo's. The deal completes a transaction that began three years ago, when Coca-Cola bought a 40 percent stake in Honest Tea.
Honest Tea will operate as a stand-alone business under co-founder Seth Goldman and his management team. Coca-Cola said its Venturing and Emerging Brands unit will give Honest Tea the autonomy to run its day-to-day operations while enjoying Coca-Cola's economies of scale in manufacturing and distribution.
Financial terms of the deal were not disclosed. Coca-Cola reportedly spent $43 million in its initial investment in Honest Tea, which had sales of $72 million last year.
In a video message posted on Honest Tea's website, Goldman said many people thought the 2008 tie-up between his company and the world's biggest beverage seller was an "unlikely alliance." But the deal made sense for Honest Tea, which had struggled to get its products to stores.
"We always had bold ambitions for what we'd be creating," he said. "So far, we've been pleased with the results" of Coca-Cola's presence.
Honest Tea, started in 1998 in Goldman's home, has expanded its distribution from about 15,000 outlets in 2008 to more than 75,000 today. It has also doubled its number of offerings. The company's marketing leans heavily on environmental and social responsibility, including a transition to fair trade certification by the end of March.
"When we made the investment in Honest Tea, we did so because we saw that it had great potential to be a significant brand of the future," said Deryck van Rensburg, Coca-Cola's president and general manager of Venturing and Emerging Brands. "Three years after, the brand truly reflects where consumer demand is today and we are excited about being on the verge of still more growth."
