• by Karlene Lukovitz  @KLmarketdaily, March 2, 2011

Coca-Cola's decision to full-out acquire Honest Tea (it acquired 40% in February 2008, for $43 million) clearly means that the former sees substantial benefit in continuing to provide the organic tea maker with the formidable distribution and other resources at its disposal to help drive continued growth.

But when it comes to marketing, at least for the present, Honest Tea intends to continue a "guerilla" approach, says co-founder, president and "TeaEO" Seth Goldman, who has elected to reinvest most of his proceeds from the acquisition back into Honest Tea.

Honest Tea has "dabbled" in using traditional media -- mostly last year -- but Goldman says he's not been impressed by the results, in comparison with the brand's results from a marketing strategy that focuses heavily on field marketing -- meaning innovative demos/ sampling events in well-trafficked locations within metro areas that also generate media coverage and social media brand exposure.

"We never had the comprehensive distribution needed to support big, traditional media campaigns, and our 'guerilla' approach has been very effective," Goldman tells Marketing Daily -- although he adds that with growth, "at some point, [traditional campaigns] make sense."

Last year, Honest Tea's major effort was an "Honest City" program in which the brand set up special displays in hub locations in eight cities (Union Station in Washington, D.C., and the Prudential Center in Boston, for example). The displays or drink stands bearing bottles of Honest Tea were unmanned and on the honor system, with signage asking those who took a bottle to just leave $1 in a receptacle provided -- and the activities were videoed.

Honest Tea then reported each city's "honesty" results to local newspapers, radio and TV media -- adding the comparisons for various cities as the program moved onto each new location. "This was a great sampling vehicle, and at the same time, we got significant media exposure and social media buzz," reports Goldman. Last fall, the brand ran the same kind of program on college campuses, dubbing it its "Honest Campus" campaign.

While 2011's overall plan is not yet finalized, Honest Tea always does sustainably themed promotions during April because of its designation as Earth Month, Goldman notes. This year, those will include giveaways in key locations around the country of a total of 100,000 shopping bags made from recycled materials, plus sponsoring the planting of 50,000 trees, he reports.

Reflecting Honest Tea's expertise in the organic tea business and Coca-Cola's desire that the company retain its "entrepreneurial culture," Honest Tea will operate as a stand-alone business within Coke's Venturing and Emerging Brands (VEB) unit and remain in its Bethesda, Md. location. "Goldman and VEB have developed a unique operating model that allows Honest Tea autonomy to continue to run its day-to-day operations while accessing the scale benefits of the Coca-Cola system in various areas, including manufacturing and distribution," summed up the acquisition release.

In fact, the plan calls for Honest Tea to also market other VEB brands within its channels -- natural brands established in other countries that Coke now wants to introduce in the U.S., according to Goldman.

Goldman acknowledges that there is some risk of Honest Tea's being perceived as losing sight of its socially and environmentally conscious mission in becoming part of a huge corporation, but believes the mission is best served by being part of a company that can truly take the brand's organic products mainstream. All Honest Tea varieties are USDA-certified organic, and by the end of March 2011, all will be Fair Trade Certified.

"One of the biggest obstacles to greater growth rates for organic beverages and food has been access," Goldman says, noting that organic products were traditionally largely limited to distribution in health food stores. "Organic product sales are growing because people see them as a healthier alternative, and the goal is to give consumers convenient access to our teas, through the mass retail outlets in which they shop."

Since Coca-Cola bought into the company in 2008, Honest Tea's retail outlets have grown from 15,000 to 75,000, as more than 50,000 grocery, drug, mass merchants and other mass stores have been added to existing retailers such as Whole Foods and specialty stores, Goldman says. Thanks to the Coca-Cola bottling distribution system and the tea brand's sales performance, it continues to expand, with chains including Rite Aid, Walgreens and Publix Super Markets among those to begin carrying it this year. In Stop & Shop, Honest Tea has been carried in the "natural" section, but will now also be featured in the mainstream beverages area, Goldman notes.

Honest Tea has had annual compound growth of more than 60% since its founding in 1998, and its sales have more than tripled -- to $72 million in 2010 -- since Coke bought into the company, confirms Goldman.

Ready-to-drink (RTD) tea sales were showing double-digit growth prior to the recession (up 20% in 2007, according to natural products tracker SPINS), and growth at a slower rate has continued through the recession despite RTD's higher prices in relation to hot teas. RTD teas were one of only two beverage categories that showed growth in 2009, according to Beverage Marketing Corp. In 2010, U.S. RTD tea sales grew by 8% in total value and volume terms, according to Euromonitor International.

Organic products currently represent 3% to 5% of the total U.S. food and beverage market, and organic teas represent less than one-half of 1% of the total tea market, according to Goldman. But currently relatively low penetration levels for RTD tea in general (45% as of 2010, according to Mintel) and for organic in particular are precisely where the opportunity lies. Goldman has said he's confident that organic tea will represent 5% to 10% of general beverage sales within a few years.

For Coke, Honest Tea represents an opportunity to expand its current 7.2% share of the RTD tea market through brands including Nestea and Gold Peak, versus PepsiCo's 37.4% through a Lipton joint venture with Unilever PLC, noted The Wall Street Journal, citing Beverage Digest stats.

Honest Tea "truly reflects where consumer demand is today, and we are excited about being on the verge of still more growth," summed up Deryck van Rensburg, president and general manager for the Coca-Cola North America VEB unit.