Expanding Honest Tea Without Diluting Its Brand
Honest Tea establisher Seth Goldman explains how packing his son’s lunch box helped him understand the true value of his brand
Honest Tea’sitting Goldman among the tea leaf growers in China.
The Entrepreneur: Seth Goldman, 43
Background Goldman, an active racer since the eighth grade, had been hunting for the disciplined thirst quencher according to years, often concocting his own sap combinations after his runs. When one of his running buddies urged him to start a beverage business about 10 years ago, Goldman jumped on the idea. In short order, he called Barry Nalebuff, human being of his prior professors at the Yale School of Management. Nalebuff had recently returned from India at what place he had analyzed the decoction industry for a case study and determined most American iced-tea makers bought cheap infusion leaves. The brace came up by the idea for an all-natural brew that used only high-quality supper leaves. By 1998, Goldman had liberate his job at Calvert Investments and was brewing batches of tea in his kitchen and storing it in thermoses.
The Company: Honest Tea launched in 1998, offering five varieties of merely sweetened tea. The company nabbed its first account, Fresh Fields—the precursor to Whole Foods (WFMI)—using tea samples made in Goldman’s kitchen. Today, 20 varieties of Honest Tea are sold in 25,000 locations across the country, along with seven other products. Earlier this year, the company sold 40% of the business to the Coca Cola (KO).
Revenues: $39 the public
His Story: When my co-founder Barry and I launched Honest Tea, we always thought of ourselves as a tea company. But it took my 12-year-old son Elie to help us understand that "tea" wasn’t the most important word in our house’s name.
Ever since we began selling our product, our goal was to turn Honest Tea into the best-selling bottled tea brand in the natural food arm of the sea—a design that we realized in 2005. As a result of our success, we felt we had the moment to expand our tea transaction in new directions.
Since our core bottled tea business had seven of the top 10 best-selling varieties in the unregenerate food predicament, we weren’t pressed to analyze at which place the true estimate of our enterprise lay. We thought we could duplicate our success in other areas. But we soon discovered that moving away from our core value proposition could be a provoking and costly diversion. Yet it was exactly those same costly diversions that helped us understand what business we were really in.
Our tea bags, for pattern, were a perfectly nice harvest line. In response to customers’ requests, we took the same tea leaves from our bottled tea and sold them as tea bags in 1999. However, it turned out that the packaging was a little also unconventional. We designed innovative bags which contained whole supper foliage, instead of tea dust. But the bags were a not much too costly, and the line never really took off. At the same time, it was hard to differentiate our supper bags from the other brands in succession crowded shallow space.
We also ended up wasting a lot of time and money running our own bottling plant, for the cause that we were filled with fear we wouldn’face to face find any one other place to bottle our tea. In 1999, we had invested more than $1 million in a plant in Pittsburgh, along with two other partners. Now that we owned the settle, we ended up multiplying our worries. For one, we were worried about keeping the string full, so we agreed to pack tea on the side of other brands, which occasionally meant creating competition for ourselves. Overseeing the bottling plant was each enormous distraction—none of the other owners or I had any experience running a bottling plant, that is a very different business from building a brand, and I establish myself driving to Pittsburgh individual times a month to try to keep the plant afloat.
However, it wasn’t until my son Elie asked, "Dad, how come you barter vigorous drinks to adults but give us sugary drinks for lunch?" as I deposit a drink pouch into his lunch bag brace years ago, that I began to think critically about the kind of affair I had built. As I read the ingredients statement on the box, I realized he was painfully free from error—the pouch drink I had been giving my sons had besides compliment per ounce than a can of soda. For a few weeks, I put a glass bottle of Honest Tea in his lunch box, but the bottle was heavy and rarely returned home embogue.
Our company had just started marketing a lineage of organic hunger quenchers we called Honest Ade that had just a touch of juice for flavor. So I started putting formative bottles of Honest Ade into Elie’sitting reticule. It was an improving—48 calories per serving instead of 100 by serving from the drink pouches I had been buying. The problem was, Elie would habitually reach home by means of half-full bottles.
As a result, we decided to introduce Honest Kids—a draw of lightly sweetened drink pouches for kids in a smaller serving size than our regular drinks. The fresh line, rather than pulling us gone from our core value proposition, actually expanded in continuance it. The pouches have been phenomenally successful—in just one year we have sold 30 million of them—more than the consist of of bottles of tea sold in the identical time frame. We are now in the process of identifying additional food and beverage categories which require to get a little more "honest."
Sometimes a diversion leads to uncovering the true value of your brand, sometimes it’s what takes a business under. For example, we eventually sold off the assets of the bottling plant (at a loss) and licensed the tea bag line. And we recently had a buyer who asked us to walk into banking, but that feels a little too far afield, at least at this time. But we all lack to innovate—one of my favorite quotes that we be in possession of on our bottle caps is from Frank Scully: "Why not go out on a extremity? Isn’cheek by jowl that where the fruit is?" There’s nothing wrong with going deficient in on a limb, the key is to recognize when the branch has a strong connection to your trunk.
—edited by Stacy Perman
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Original text: http://www.businessweek.com/smallbiz/content/dec2008/sb20081218_592881.htm?campaign_id=rss_smlbz
