Swallowed by Coke



A recent piece in the New York Times outlined a "case study" of Honest Tea, a company that sold a 40 percent interest to Coke for $43 million so it could receive better and more constant distribution. At the time of the sale, early last year, the company—which had built its reputation on organic products bought (often but not always) at Fair Trade prices, lightly sweetened and thus lower in calories, and, most importantly with no high-fructose corn syrup ever—took a lot of flak for selling out. And not just selling out but selling out to the exemplar of evil, the very source of HFCS-induced obesity. No way could a company that tried to stand for healthful alternatives keep its integrity.

When I wrotea piece on the HFCS controversy and its links to obesity four years ago, I focused on Honest Tea, and quoted Seth Goldman, the company's co-founder, on the challenges any beverage maker faces: getting onto supermarket and convenience-store shelves and, even more important, getting restocked. The obstacles to having a national and reliable distribution partner, he made clear, are so much bigger than actually manufacturing the product that sourcing the best-tasting, most affordable ingredients, and developing new products—all of which take staff members, time, travel, and trial and error—was the fun part.

But the glitches customers feared—expected, really—have already started to appear, as the article notes. And those are just the ones Goldman is willing to talk about.

So I wasn't surprised when Goldman made his deal with Coke, which he'd implied even when we spoke would be a big help to the company. (I left him in a parking lot where he was about to board a plane from Bethesda, where he lives and the company is based, to fly to an organic-products trade show in Anaheim, the kind of sales trip he made constantly.) I also wasn't surprised because I knew that one of Goldman's role models was Gary Hirshberg, who sold Stonyfield Farm yogurt entirely to Danone, a food-industry giant, for the same reasons—global reach, more resources to expand product lines—but kept, and keeps, control of the company. Goldman is clearly looking to do the same with Coke, which he strongly implies in the Times article he hopes will exercise its option to buy all of Honest Tea next year.

But the glitches customers feared—expected, really—have already started to appear, as the article notes. And those are just the ones Goldman is willing to talk about, because he's managed to prevail. In this example, it's the claim that has been a bedrock of the company. As I wrote,

Honest Tea has many virtues, all of them implied by its punning name. But the primary ones are that it tastes like tea, isn't too sweet, and doesn't use high-fructose corn syrup.

Naturally, Coke wasn't crazy about the implication that products that do have HFCS are bad for you, and you're better off not buying them. Things are bad enough already! Coke sales are going way down, in this country at least, and the current demonization of HFCS and the soft-drink industry in general, led by Kelly Brownell among many others, and all food marketing to children, a primary plank of Marion Nestle's platform, are hardly helping. Now along comes more criticism, from within its own ranks—and from somebody who just got $43 million for being a partner. Coke, Goldman told Elizabeth Olson, the Times reporter, "made a strong request" that it change the wording on the labels.

Goldman has a gift for PR, and in a followup Q&A to the article on the Times website he reveals that he has triumphed and will get to keep the no-HFCS claim on all his labels. He also emphasizes the many benefits the partnership has already brought his company: a wider range of Fair Trade ingredients it's now able to pay for, ecologically friendlier bottles, new no-calorie products using stevia. Sounds like he wants that full sale. I can't say I was surprised by his labeling triumph, either: it seemed very unlikely that Goldman would have been as candid about the suggestion from Coke that he take off the HFCS label unless he knew he'd have his way. At least with that matter.

My skepticism is reflexive, really. If Goldman follows in the footsteps of Hirshberg, his model, he could become a worldwide company, focusing on product development and increasing market share for his organic, only lightly sweetened drinks. Hirshberg, who I know and like and have written about in the context of big vs. small organic, remains a lightning rod of criticism from organic and now locavore purists; you can see him defend his approach in his very assured way in Food, Inc. Goldman is likely to remain the same sort of controversial figure—continuing to emphasize his company's commitment to his core principles, while looking to operate on a scale that gives him clout against exactly the little guys he started out as, and funded by a company whose other products are widely viewed as running exactly opposite to the ones he says he stands for. Coke obviously would disagree, but it's demonstrably looking to have it both ways by investing in and likely buying Honest Tea.

Will Goldman get to have it both ways? I'm sure he'll keep saying yes. Now that we've all gotten used to watching what Stonyfield does, I'll be interested to watch the parallel example of what happens in this kind of partnership.