As Seth Goldman checked his phone on May 22, the entrepreneur and co-founder of Honest tea took note of one particular text message: It was from an executive at Coca-Cola, wondering if he’d be free to talk to senior management on Monday “about an important business matter.”
A day later, Goldman, who sold a 40% stake in the ready-to-drink tea brand to the beverage giant in 2008 and the rest three years later, learned Coca-Cola would be discontinuing it in 2022.
“It was obviously disappointing to see how a large corporation handled this. I did not anticipate it at all,” a shocked Goldman confessed in an interview. “We had developed and the brand had maintained … the category-leading position in ready-to-drink bottled tea. And they were willing to just walk away from that.”
Just days after the decision was made public, Goldman said he was approached by beverage companies eager to work with him on launching a new tea brand that captured many of the same attributes that made Honest tea a success: It was organic, Fair Trade Certified and had less sugar than similar products in the category.
A LinkedIn post from Goldman underscored the value this type of drink still had with consumers, retailers and ingredient suppliers, with more than 1.2 million views and hundreds of comments.
“It helped me appreciate how meaningful [the Honest tea] brand and this whole effort was,” he said. “It reinforced to me that this is something you can’t just sit by and watch it happen.”
Rather than “hand this over” to another beverage company, Goldman decided to develop a new drink to fill the void that would be created by the departure of Honest tea. He already had 20-plus years of relationships with farmers, retailers, customers and employees who were instrumental in growing Honest tea that he could tap into to quickly establish and grow the upstart brand.
Many of the specifics of Goldman’s new tea, including the name and flavors, are still unknown. But the beverage, which is expected on shelves in the natural food channel before the end of the year, will embody the same attributes as Honest tea. Goldman said he’s heard from retailers interested in carrying the new offering.
The drink will have the backing of celebrity chef Spike Mendelsohn and Goldman’s former Yale professor and Honest Tea co-founder Barry Nalebuff. Mendelsohn is currently partnering with Goldman on Eat the Change, a two-year-old startup making environmentally friendly, nutrient-dense snacks from carrots, mushrooms and other plant ingredients. The tea will be part of Eat the Change’s portfolio but will take on a different name.
Once it’s launched, the offering will find itself going up against other premium brands in the space also riding the growing demand for tea and better-for-you beverages. These include Coca-Cola’s Gold Peak; PepsiCo and Unilever’s Pure Leaf; and Tazo, acquired last year from Unilever by private-equity firm CVC Capital Partners.
As beverage companies look for growth, ready-to-drink tea offers an especially attractive opportunity. Global sales are forecast to surge 40% to $29.7 billion by 2024 from six years earlier, according to Statista data, a compound annual growth rate of 5.7%.
Until Coca-Cola decided to discontinue Honest tea, Goldman resisted overtures to advise or get involved in a beverage venture, instead choosing to focus his attention on snacks and his work at Beyond Meat where the 56-year-old is chairman. He never felt the pull to make another tea because, as Goldman said before pausing, “Honest Tea absolutely embodies all the things I care about … but if it disappears from the world …”
Honest tea is the latest product line to be discontinued or sold by Coca-Cola as it shrinks its drink lineup to prioritize fewer, bigger brands that have the greatest opportunity for scale and profitable growth. In recent years, the company also discontinued Tab, sold Odwalla to an investment firm and divested Zico coconut water to a private equity group founded by the brand’s creator.
In the case of Honest tea, the brand had been negatively impacted by a drop in sales and limited glass supplies, according to Coca-Cola. Ongoing supply-chain challenges meant the company had to prioritize the production and distribution of certain product SKUs, leaving it unable to meet consumer demand for its billion-dollar nationwide brand Gold Peak tea. It also noted some overlap among Gold Peak and Honest tea consumers.
As consumers continue to gravitate toward better-for-you options with less sugar, or offerings that reflect their values such as Fair Trade Certified, Goldman remains convinced the market for these products is “underdeveloped” — a big reason why he’s surprised Coca-Cola decided to walk away from Honest tea.
Goldman said Coca-Cola declined to sell Honest tea back to him. The Atlanta company will continue making Honest Kids, a fast-growing juice that has thrived behind a mantra of organic and fewer calories. It likely wouldn’t want someone else managing a portion of the Honest brand, Goldman said. Coca-Cola also plans to explore licensing ventures and innovation opportunities for the Honest brand in other categories. (Food Dive has reached out to Coca-Cola for additional comment.)
Goldman said as Eat the Change executives start to think about recipes and formulations for the new brand, “some of them will be very similar to what’s already out there from Honest tea.” He said the team already has an intimate understanding of what sells and what consumers are looking for in their beverages.
Despite the similarities between the new drink and Honest tea, Goldman said he’s not worried about upsetting Coca-Cola because it’s choosing to pull the brand, leaving a void for consumers looking for a low-sugar, Fair Trade and organic option. He does not have a noncompete clause with Coca-Cola.
“I never would compete against Honest tea. It’s still my baby,” said Goldman, who noted his name is still printed on the side of the bottle. “But if Honest tea is being discontinued, I have to address that.” Coca-Cola is leaving the segment where Honest tea plays, he said, and so it “shouldn’t feel competition because they’re not going to have a product on the shelf that is relevant” for that segment of the market.