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Do You Follow the Market -- Or Try to Lead It?

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In 1998 when I started Honest Tea out of my house, I would often hear from buyers and distributors that we were ahead of our time. Whether it was the concept of organic ingredients or the less-sweet taste profile, we encountered lots of negative responses from buyers and distributors. Explanations went something along the lines of, "I just don't think our customers are ready for this kind of product." As a company trying to survive, we faced an interesting strategic decision: Did we redesign our product line to make it closer to where tastes and trends were in 1998--or did we stick to our mission of healthier, more environmentally sustainable products, and wait for the consumers to move in our direction?

We stuck to our core strategy, though we did tinker a bit with the sweetness level, making some of our drinks "just a tad sweet" (35 calories per 8-ounce serving compared with the original 17) and we expanded our packaging to include PET. And nearly 10 years later, it's clear that our time is now--our annual growth rate is over 70 percent and shows no signs of slowing. Not only that, we see competitors and retailers all moving aggressively in our direction. So while the Honest Tea team deserves most of the credit, we've been fortunate to have had four important changes that helped generate the wind at our back:

1. Eco-Consciousness:

Environmental awareness among consumers has undergone a dramatic shift in the past few years. Whether it's the impact of Hurricane Katrina, the increased availability of information on the Internet, or Al Gore's documentary, An Inconvenient Truth, terms like "global warming" and "carbon footprint" are now part of our everyday language. Hybrid cars, energy-saver lightbulbs, and organic foods are three of the most visible ways consumers can make lifestyle choices that allow them to show-off their eco-consciousness.

2. The USDA Organic Seal:

Though most companies don't like government involvement in their business, the USDA seal has been a huge benefit to the organic food movement. Before the seal, there were dozens of different certifying marks, and as a result, the term "organic" had little value in the marketplace. Now that there is one federally enforced seal, consumers have a quick way to identify what is produced without chemical pesticides, fertilizers, or artificial ingredients.

3. Increased Health Awareness:

Fed in part by low-fat and low-carb diets, consumers started looking more closely at the kinds of ingredients they put in their bodies. Whether it's concern about Mad Cow Disease (which doesn't occur on organic farms) or questions about the integrity of foods from Asia, it's hard to imagine any scenario where consumers are going to be less interested in knowing about the origin and quality of their foods. For us at Honest Tea, the rationale for organic tea is simple--tea is one of the few agricultural ingredients that is never rinsed, so any chemicals sprayed on the tea leaves get rinsed into the drink. Since organically produced tea leaves aren't sprayed with any synthetic pesticides or fertilizers, no chemicals end up in the drink.

4. Better Ingredients, Branding:

In the 1980s most organic products looked like cardboard and the product inside didn't taste much better. Now, brands and products are more colorful, higher quality, and simply taste better. There have been more creative ways to deliver many of the colors and tastes that had limited the attractiveness of organic foods.

Fast-growing chains like Whole Foods and Wegmans have raised the bar for the rest of the grocery industry in terms of the high-end shopping experience, not to mention profit margin. Now retailers like Safeway and Wal-Mart are getting into organics.

Unlike the low-carb craze, which went boom and bust in less than 18 months, organics are not a fad; they are a fundamental direction our society is moving toward. Based on what I see in other categories, such as yogurt, the organic share of the bottled tea industry should reach 10 percent within the next five years.

It's exciting to (finally!) be in the right place at the right time. Of course I'm excited for our business but also for what our growth says about the changing health and environmental trends in the U.S. Not coincidentally, with our growth we have also seen an influx of new brands enter the organic marketplace. I just wonder what took everyone else so long to get here.

Last updated: Nov 6, 2007

SETH GOLDMAN is the President and TeaEO of Honest Tea, the company he co-founded in 1998 with Professor Barry Nalebuff of the Yale School of Management. He's preparing the September release of a graphic novel titled Mission in a Bottle.
@HonestTea




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