Honest Tea May Be Down, But Don’t Count Out Purpose-Based Products Yet

The success of Honest Tea under Coca-Cola was a shining example of the value of purpose-based start-ups going big — that is, until the beverage behemoth announced last month that it would be dropping the organic, fair-trade ready-to-drink tea line at the end of the year. While this is a massive blow to purpose-based players seeking to join the mainstream, Eat the Change has already said that it is planning to pick up where Coca-Cola dropped off and will be launching a new line of bottled teas inspired by Honest. The short-lived brand's quick rise from inception to acquisition and growth, followed by a sales stumble that led to its dissolution, suggests that while the market exists for such beverages, perhaps there would be greater flexibility to weather changes to that market under a parent company that is also purpose-based. 

Honest Tea originally made a name for itself in the ready-to-drink beverage industry through organic, fair-trade teas bottled with less sugar than its competitors. The brand, which began in 1998, offered its first organic tea in 1999 and its first fair trade-certified tea in 2003. Its success got Coca-Cola’s attention, which purchased 40 percent of the start-up in 2008, followed by the rest in 2011.

The acquisition wasn’t the end of Honest’s purpose-based operations, however. Only 40 percent of the tea Honest used to produce its products was fair trade certified in 2008 when the beverage giant first bought in. By the time the takeover was complete, 100 percent of the brand’s sourced tea leaves was certified. In addition, by 2015 all of the sugar purchased by Honest was also fair trade-certified. Those labels mean a lot considering that they guarantee reasonable working conditions for workers and ensure that a portion of the profits is returned to the community.  The fair trade premiums paid by the drink maker to select tea farms in India resulted in real-life improvements for those living in the area—allowing for the purchase of precautionary equipment like mosquito nets as well as building a hospital.

While some decried the purpose-based brand for selling its soul to the highest bidder, the way Honest saw it the idea was to sell as much of its superior product as possible — and it did so while holding true to its principles. In 2010 the brand sold $71 million worth of bottled beverages. Eight years later, those sales had surged to $600 million. So, what was the problem? 2019 witnessed a 19 percent drop in sales of Honest Tea drinks. And while this was part of an industry-wide trend that saw bottled tea sales drop across the board that year, Coca-Cola took the initiative to consolidate its holdings.

The route taken by Honest Tea may appear to be proof that purpose and profit cannot co-exist in the long run, but Eat the Change isn’t taking it that way. Entrepreneur Seth Goldman, who founded Honest and has been involved in Beyond Meat, Plant Burger and now Eat the Change, got to work on a replacement as soon as he received word that Coca-Cola would be dumping the organic, fair-trade brand in favor of focusing attention on its Gold Peak and Peace Tea brands instead. In an interview with Mashed, he quoted a letter he received from one of the suppliers as part of his motivation to start again with a new bottled tea based on the same principles:

"Honest Tea is very connected to our own gardens and people, so the news is definitely a gut punch for us as well. While the financial consequences are material, the loss of confidence in organic and fair trade agriculture that this decision is likely to engender in the wider community is very saddening and probably more consequential, especially in terms of lost motivation at origins. We've been so inspired to be part of the journey that you led and want to try to continue the effort and fight the suggestion that this was all a failed experiment."

There is plenty to learn from Honest Tea’s demise — but the idea that principles and profit cannot coincide is not one of those lessons. Rather, this example suggests the need for a purpose-based parent company that won’t drop its subsidiaries the moment the market fluctuates. Whether or not such a conglomerate will emerge could depend on entrepreneurs like Goldman and how willing they are to compete with the big guys instead of trying to join them. 

Image credit: Leon Kaye