Small Kombucha Brewers Find Themselves in Hot Water
Demand for very few products has grown as fast as that for kombucha, the fizzy, tea-like beverage with the tart, vinegary taste. Packed with probiotics because it's brewed with a living culture, kombucha has been promoted for aiding digestion, boosting energy, and providing other health benefits.
During the product's meteoric rise, celebrities talked it up, Whole Foods embraced it, and dozens of small brewers sprang up to meet burgeoning demand. Sales doubled annually for the past four years, reaching $150 million in 2009.
Then, just as suddenly as stores started stocking kombucha, various brands of the drink disappeared from beverage cases around the country.
What happened? Interviews with small producers and industry insiders suggest an intricate web of events that led to the nascent's industry implosion. The story seems to begin with a retired software entrepreneur in Maine who wanted to teach his daughter a lesson in entrepreneurship, and ends with a federal inquiry into the tea's content. Along the way, the country's largest natural foods retailer pressured a major distributor into halting national delivery of kombucha.
The core question spurring the sudden distribution lockdown: Is the 'booch… hooch?
Though marketed as a healthful beverage, a variety of kombucha (pronounced com-BOOCH-ah) brands appear to exceed one half of 1 percent of alchoholic content—the legal definition of a non-alcoholic beverage. The federal Alcohol and Tobacco Tax and Trade Bureau is testing and reviewing dozens of kombucha varieties to determine whether they should be taxed and distributed as spirits.
News of the inquiry has sent makers of the tea scrambling to rework their brewing techniques and tea formulas. But solving the problem is easier said than done. Minimizing alcohol-content in kombucha is a tricky thing, because kombucha is a raw, fermented food. Due to a complex fermentation process, individual batches and bottles vary in composition, but it appears quite likely that at least some brands — if not most — do exceed the legal limit. Pasturization could help bring the drink's alcoholic content down but would, purists say, defeat the purpose and health benefits of kombucha.
The issue is further complicated by the fact that neither the government nor anyone else knows how many small kombucha producers exist. A guidance issued by the TTB reads: "As a result of the inquiries received on this issue, TTB is coordinating with the Food and Drug Administration to ensure that kombucha products that are currently on the market comply with federal laws." It continues: "At this point in time, we do not know how extensive the problem is." A TTB spokesperson notes that if kombucha is classified as an alcoholic beverage, any retailer who sells it would be subject to federal excise taxes.
Chris Hallweaver, co-founder of Maine Kombucha Company, has been at the center of the controversy almost since it began. Hallweaver started brewing kombucha after his daughter, a Vassar College graduate and kombucha enthusiast who home-brewed the tea, took a yearlong trip to India. He started tinkering with her brewing equipment, and developed a fondness for kombucha. Together with a partner, they started a company.
"I thought, at very least, this is going to be a great way to teach my daughter about starting a business," Hallweaver says.
As the company prepared to distribute locally in Portland, Maine, Hallweaver contacted the state's Department of Agriculture. "They didn't know a thing about kombucha," he says. "So they started testing it, and asking around."
As Hallweaver tells it, Maine's Department of Agriculture asked local colleges for advice, and the inquiry made its way to Cornell University. A professor there replied with a scathing note, saying she'd tested myriad varieties of kombucha, and each of them contained between 2 and 3 percent alcohol. The explanation? When a bottle of kombucha is sealed, the bacteria growth is halted and the beverage's alcohol content soars. The professor allegedly wrote that once kombucha is bottled it's a "hand grenade."
Hallweaver was baffled. How was it possible that dozens of brands were selling their products, distributed as tea, nationally?
"I decided to call the regulators' bluffs," he recalls. "I said, 'if you believe there's a problem and you won't license us, you can't sell anyone's.' We went up to the Department of Public Safety's alcohol enforcement branch, and they sampled all the kombuchas. And every single one was over the legal limit."
Around the same time, Whole Foods, the country's largest natural foods retailer, was reviewing kombucha. A spokesperson for Whole Foods, which is based in Austin, Texas, would not explain why it took a look at the product, but many industry insiders believe that several state chapters of Alcoholics Anonymous, including Hawaii's, raised questions about the drink's alcoholic content.
The kombucha-is-alchohol meme went mainstream in June when a slew of tabloid reports claimed that Lindsay Lohan's alcohol-monitoring anklet issued a warning after she drank kombucha. (The report was erroneous, and Lohan tweeted, "FYI #kombucha was not the reason that my scram went off — i wouldn't of been allowed to drink it if that were the problem.. i love kombucha.")
Around this time, kombucha brewers claim that Whole Foods asked them to submit samples for product testing. When tests of some bottles came back positive, suppliers say they were pressured to pull their products from shelves. Honest Tea, the all-natural beverage company in Bethesda, Maryland, that had recently begun selling kombucha, quickly complied to its largest retail account's wishes. "Frankly, the labeling issue upset Whole Foods, and that upset us," says Samme Menke, an Honest Tea spokesperson.
Will Savitri, who founded and runs Katalyst Kombucha, a nationally distributed brand based in Greenfield, Massachusetts, describes Whole Foods' reaction as "freaking out." When the company asked Savitri if there was any possibility his products contained more than a trace of alcohol, he says "I, being an honest person, said, 'well, it is possible.' They said: 'well then, we're pulling your product.'"
Whole Foods declined to provide a company official for an interview; in a statement, Whole Foods said: "To ensure all products are in regulatory compliance, our Kombucha suppliers have been working to address this labeling issue for their products and for the category as a whole.'
United Natural Foods International, the largest distributor of health foods to stores in the U.S., was also involved in the conversation. "Whole Foods is our largest customer, and we're in close contact with them on many, many issues," says John Raiche, the distributor's national vice president of marketing. "When something like this arises, we certainly want to communicate with our largest customer."
While Raiche calls the Lohan and AA rumors "the stuff of urban legend at this point," he confirms that the distributor contacted suppliers to access third party alcohol-content testing, and "no one sent us testing saying here's our exact number."
So United Natural Foods fell in step with Whole Foods, and stopped distributing kombucha, including popular GT Dave's Synergy Kombucha, the Beverly Hills-based brand favored by Lohan, as well as Madonna and Halle Berry.
Predictably, avid kombucha fans freaked out. "My patience is the size of a quinoa! I need more Kombuch!" one fan wrote on GT's Facebook page.
Another begged: "KOMBUCHA!!!!!!!! Please I need it!!! Hurry Do you need testimonials sent to the feds??"
United Natural Foods did not take the step of pulling a popular product lightly. But executives worried that, without solid evidence to the contrary, they could be accused of illegally distributing alcohol, Raiche says. Then there's the lingering question of bottle-to-bottle consistancy. "You have a little bit of a Catch-22, where you can't test perfectly," Raiche says. "We have some companies saying that it might not be possible – but we have others that are trying, and we have been shown testing that shows the reformulated products are well below the standards."
Even if testing satisfies United Natural Foods, there is still the question of what Whole Foods will do. Before the flap, the company seemed committed to expanding the category, going so far as to provide some small kombucha brewers with loans. Entrepreneur Adam Goodman, for example, was able to build three kombucha fermentation rooms in Santa Cruz, California, thanks to the retailer's financial help. But that was when kombucha wasn't taboo.
For now, kombucha producers face an uncertain future. Some companies are investing in expensive equipment to extract alchohol from their brews, others have cleared the hurdle of third-party testing. Over the past two weeks, for example, United Natural Foods has re-introduced distribution of High Country and Vibranz brands but, Raiche says, "Before we agree to reintroduce any more brands, they must show us third-party testing of where the alcohol content is of their product."
Still other brands seem unwilling to tinker with the formula that made their products so popular in the first place. GT's did not return calls requesting an interview, but a post on the company's Facebook wall states, "We won't be participating in the watered-down reformulations that are appearing on store shelves lately. We only want to make real Kombucha — or nothing at all." If GT's is considering retaining its original formula, that would mean beginning distribution as an alcoholic beverage.
Will Savitiri of Katalyst, which has cut production by 75 percent since Whole Foods dropped its product, says that he is in talks with the chain to resume distribution using a new formula. "They're our biggest customer, so I'd love to be back on the shelves there," he says.
Savitri's in an interesting position: He also runs a winery on his property, and believes he could obtain a license to sell kombucha as an alcoholic beverage in less than a week. But he's hesitant to change markets. "If we decided to not sell in health food stores, we'd lose 90 percent of our business, and have to build a market back up in a different way," he says. Indeed, one aspect of this episode that he has enjoyed is going back to his roots, working with local health food stores and small distributors, which have been the backbone of its sales market, to get cases on shelves.
In Maine, meanwhile, Hallweaver is plowing ahead, looking for a solution. "We have submitted our application to be a winery, which is what the TTB is suggesting for us," he says. "They seem to be trying to expedite that and help out kombucha manufacturers who want to play by the rules."
He's aware there's a lot of federal money at stake if differently taxing kombucha sales comes into play, and is trying to imagine a future in which his healthful tea product is positioned in an entirely different way.
"Kombucha could be an appropriate, healthy alternative to beer at lunch, or a great start to an evening," he muses. "Admittedly, these are not ideal markets. But you play with the hand you are dealt."
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