• by Karl Greenberg , November 11, 2010

Niche bottled-beverage player Honest Tea got major manufacturing and distribution leverage when Coca-Cola acquired a stake in the company two years ago. But the Atlanta-based beverage giant has, until now, left Honest Tea pretty much intact, and that includes the way the tea is made: from real tea leaves, rather than a witch's brew of powders.

Seth Goldman, CEO (or TeaEO, as he prefers) of the Bethesda, Md.-based company, says the company still eschews advertising, preferring the kind of guerilla marketing tactics it has been using from day one. Speaking this week at the Conference Board in New York, Goldman recounted how 13 years ago, as he was making the tea in his kitchen, his first and still biggest single retail point -- Whole Foods Market -- expressed interest. "They placed an order for 15,000 bottles, which was awkward because we hadn't made the tea in anything like that quantity. Whole Foods is still our best account."

While the company was the first to make organic tea, and first to market lower-calorie tea, it now competes in a crowded market. But Goldman says the key challenge has always been distribution, a real estate war among truckers when it comes down to shelf space. "We have an original business plan; it's nicely written with lots of brand visioning. But it doesn't acknowledge that to build a beverage you need distribution."

Honest Tea's first delivery company was a cheese distributor, followed by a corned beef distributor, then a charcoal distribution service, with Honest Tea bottles piggybacking. "It was an unusual mix but, as a result, we started to get a presence on shelves." The company had expanded slowly in a patchwork fashion into California, Arizona, Washington and Boston when Goldman got the call from Coca-Cola.

For Coca-Cola, Honest Tea was a route to a product that lived at the intersection of three spheres: health and wellness, social responsibility, and environmental consciousness. The company acquired a 40% stake in Honest Tea in 2008, giving the tea brand instant ability to distribute nationally. "We just brought on the last remaining few markets in the last month or two," says Goldman, adding that Coke will have an option to acquire the other 60% of the company early next year. "We think they will and that I'll continue to run and build it," he said.

Coca-Cola sunk $1 million into a new three-story brewing system and resisted changing much else about the way Honest Tea is made. The process still involves boiling organic, free-trade tea leaves. Goldman said marketing hasn't changed much either, although the company this year introduced a new tagline: "Nature got it right. We put it in a bottle," tried out-of-home advertising and did a promotion earlier this year around Earth Day wherein the brand gave out 100,000 reusable shopping bags with purchase and piled product on grocery racks made of wood pallets in stores. "It's hard to get bottles of tea in produce aisles, but because of the pallets we did, which is good for disruption."

The biggest boost, however, came from a guerilla effort called "Honest Cities," in which the company sought earned media by putting out "Honest Racks" of Honest Teas next to $1 payment barrels in seven major cities. Purchase was on the honor system, meaning one could take the teas for free. "They were really a series of social experiments," said Goldman, who added that the company had cameras to capture the action.

This fall, the company did the same program on campuses.