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Was Partnering with Coke the only Option?

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Here's a very legitimate question I got from a reader named Renee in response to my recent exchange with Julie about Honest Tea's recent deal with Coke:

I found the arguments on both sides of this debate to be both interesting and valid. However, I have to underscore Julie's question that I don't believe was directly addressed -- that being, is partnering with Coca-Cola the only way to accomplish a wider distribution and increased availability of Honest Tea's wonderful products?

I think both sides agree, this is the goal, but are there other options that may be more in line with the "Honest" vision and less of a seemingly "quick fix." The gains in distribution are obvious and great, but what about strategic alignment of company vision? I did an internship at Coke a while back and I know its corporate vision is to "refresh the world," which some might consider a shared vision with Honest Tea, but at what cost to world health? Honest Tea's vision, in my opinion, goes far beyond refreshment.

It's surprising because Honest Tea has in so many instances in the past not chosen the easy, most profitable route with it's creative solutions to issues surrounding ingredients and packaging. This decision to partner with Coca-Cola seems on the surface to be an all-too obvious solution to the "problem" of not reaching enough customers and for this reason, it raises questions of whether Honest Tea is simply selling out. Personally, I don't believe that to be the case, but I would love to hear some supporting details of why the partnership with Coke was the best option to achieve the goal of wider distribution -- not just the easiest, quickest and certainly, most obvious.

Here's my response to Renee:

You raise a very legitimate question. When we started the company, we assumed that if we created a great product the world would beat a path to our door, but as we discovered, when the product is mostly liquid and heavy and inefficient to ship, having a great product isn't enough. We needed to find an efficient way (logistically and environmentally) to get our drinks to the shelves. We've been pushing hard on the distribution front for the past ten years. It has easily been the biggest barrier to our growth.

In the beginning we couldn't find any distributors willing to carry Honest Tea, so we did it all ourselves. It was painful, costly, and not that much fun either (dented U-Hauls, broken glass bottles, and lots of parking tickets!). Then, we got our first opportunity with a cheese distributor, then a corned beef distributor, and then a charcoal distributor -- whoever was going to a store, we'd welcome the chance to work with them. Finally, we started working with early-stage beverage distributors (some of whom refused to pay us) and finally top-quality independent distributors. But even in our tenth year, we are only able to reach about 15% to 20% of the U.S. population through our independent beverage distributors. Yes, if we had another ten years, we could increase this percentage, perhaps to 60%, but as we think about the best use of our efforts over the next ten years, we believe they are much better spent building the brand and mission than continuing to bang our heads against the distribution walls we've encountered.

Our partnership with Coke will open up distribution doors that we didn't even dare to dream about when we were hauling cases around in our rented vans. And in many markets, the Coke distributors will provide more reliable and consistent service than our current system -- most of the emails we receive are from customers who are frustrated that they can't find our product.

Last updated: Mar 27, 2008

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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