ChewsWise Blog

ChewsWise Blog

Coke's Thinking on Honest Tea Deal

Ted Mininni, a blogging brand consultant, adds a bit more context to the Honest Tea deal with Coke and the thinking of the beverage giant. "There isn’t any doubt that ready-to-drink teas are experiencing meteoric sales, much like energy drinks did a short time ago."

Thanks for pointing that out, Rob. His Murketing blog also offers insights on Goldman's interview with ChewsWise, and we look forward to his upcoming book, BUYING IN: The Secret Dialogue Between What We Buy and Who We Are

Honest Tea Founder Talks on Coke Deal

Though I took a critical look at Honest Tea's deal with Coke last week, company co-founder and CEO, Seth Goldman, agreed to chew it over with me in an interview.I worried the deal with Coke would throw Seth and his team off track, or worse. There's more than a few examples of companies that stagnated or died a slow death after a giant took them over. Seth countered that Coke will actually give Honest Tea a push in the market and revealed two new products he's launching this year. Here's the interview:

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Seth, Why'd You Sell Honest Tea to Freakin' Coke?

Honest Tea announced today that it sold a 40-percent stake to Coca-Cola Co. I've written in the past about this great company, which for 10 years has been plugging away making a tasty, all organic, less sweet bottled tea product and growing like crazy. But when the email announcing the deal landed in my in-box, I had to do a double-take.

A double-take, even though I've seen nearly every major success story in the organic world gobbled up by a mainstream player. Even though, this deal makes so much sense I want to slap myself silly. Even though, Honest Tea was immediately de-cokifying itself on the founder's blog:

While Coke is now our largest shareholder, the agreement was negotiated to ensure that Honest Tea will not be managed or controlled by Coke.  We will continue to operate as an independent business with the same leadership and mission. (my emphasis).

Seth Goldman, who co-founded this company by lugging around bottles of tea in duffel bags, has seen it all. But when I talked with him, a couple of years back, he kept making the point of how hard it was to get on store shelves.

In the $50 billion bottled drink biz, making the flavored water (tea, juice, soda, vitamin water, whatever) is the easy part. The much harder part is getting others to sell it. We're talking distribution, shelf placement, getting eyeballs in front of the drink, so that consumers can give it a chance. Because once they try it, they'll probably come back. But getting to the starting gate is really, really hard.

Seth had to claw each step of the way. A deal with beer distributors in Chicago was a major coup. Finally getting into corner bodegas in San Francisco was a score. When he made Target, that was like being on deck in the World Series. All the time, he kept looking over his shoulder, hoping that he was keeping his core customers, like Whole Foods, happy, even as he expanded beyond their universe. After all, he had to, in order to grow. And, after nearly a decade expanding, he told me he was finally, finally breaking even. Not making money. But not losing any. Yeah!

To get to this point, he brought venture investors onto the team, and they tend to look for a return on investment. Put those two elements together -- the crying need for a distribution channel and an investor pay day -- and the company's fate was sealed. A sale of equity was all but inevitable. As Seth and his co-founder, Barry Nalebuff, a Yale biz professor (both pictured above), state on their blog:

Despite our 66% annual compound growth rate (70% in 2007), we still aren’t reaching all the people we want to reach. Our business has inspired many ... but we also want to see Honest be a change agent through our own actions. When we buy 2.5 million pounds of organic ingredients, as we did in 2007, we help create demand for a more sustainable system of agriculture, one that doesn’t rely on chemical pesticides and fertilizers. But when we buy ten times that amount, we help create a market that multiplies far beyond our own purchases.  When we sell 32 million bottles and drink pouches with less than half the calories of mainstream alternatives, as we did in 2007, we help displace 2,400,000,000 empty calories.  That’s important, but when we sell ten times that number, we help lead a national shift toward healthier diets.

But hold on there Seth ... I get the bigger is greener and more healthy part. But remember, you're getting into bed with the people who put high fructose corn syrup on the map. You're selling equity to the same people you want to displace. Is there something wrong with this picture?

The risks here are obvious, ending up as so much Snapple road kill, or worse, as you recognize:

So how do we move from the ideal to the real without screwing up what we’ve created?  The world of mission-driven business is littered with entrepreneurs whose companies lost their soul or at least lost their leadership.  Whether you talk to Ben Cohen from Ben & Jerry’s or Steve Demos from Silk, they will tell you that if they could do it over again, they would have done it differently.  I am determined to make sure that never happens with Honest Tea. Our challenge is to find a partner who wants to “buy in” to our mission, rather than one who wants us to “sell out”.  Any partner that we consider must understand that the “Honest” brand stands for great-tasting, healthier beverages that are produced in a more sustainable manner.  As long as that partner buys into our approach, we welcome the opportunity to expand the scale and reach of Honest Tea.

Funny, Seth, but when I talked with Steve Demos after he sold Silk he used the same language. Dean Foods was "buying in," he wasn't "selling out." But that's before he was kicked out the door.

But, I know, I know. With ubber social capitalist Gary Hirshberg of Stonyfield on your board, you believe that this can be done. Hirshberg's argued for years he's doing it with Danone. And Coke will support your mission because your mission will make them money. Plus, you cannot remain small and independent in the drink market and survive. No one has. Can't be done.

And I know why Coke is buying you. The soda business is not just stagnant, it's shrinking. The market for bottled water and less-sweet, low-caloric drinks is going through the roof. Coke and the others need a new game in town. You're it.

But remember your name, Honest Tea? The name implies that there is something less honest or dishonest out there that is being sold, and you are the alternative. Being the alternative - it's part of your DNA.

So you have to make the case that Coke will not compromise all that your brand stands for, and has stood for, over the years. Heck, all that YOU stand for.

And that, frankly, is going to be the toughest sale of your career. Because it has less to do with selling Honest Tea than it does with selling Coke.

I wish you luck.

- Samuel Fromartz

Unrepentant Foodie Makes Lunch

Today's Times had a piece on pesto that got me hungry, so I decided to make some myself. (Click the image for a slide show of the process, which begins in the garden).

Contrary to the article, I think the key to good pesto is a mortar and pestle. Why? Because a solid pounding releases moisture in the basil leaves, which means you use less olive oil. And I hate greasy noodles. It also takes less time than a food processor, since you don't have to clean up the machine. But this advice works best for a small batch, which is all I ever make these days since the stuff you make and put in the freezer doesn't compare.

I kept a loose eye on my watch during the process and found it takes about three minutes to pound basil into pesto. The key is to pound it with salt, garlic and pine nuts, which help the leaves break down. While the pasta was boiling, I made and ate a salad.

It was an extremely pleasant repast and took all of 35 minutes.

So Much for Fresh & Local

What fuels a global food system? Packaging. Philip Nelson of Purdue University just won $250,000 World Food Prize for his work, which was announced Monday at the State Department. The Des Moines Register reports:

His achievements include perfecting heat sterilization and cooling methods for preserving many vegetable and fruit products without refrigeration, designing valves to keep micro-organisms out of storage containers and developing tanker ships for transporting orange juice around the globe.

Food V. Fuel

The Wall Street Journal, in a wide-ranging round-up, has a page one story (subscription required) on the growing tensions between demand for food and fuel:

Soaring prices for farm goods, driven in part by demand for crop-based fuels, are pushing up the price of food world-wide and unleashing a new source of inflationary pressure.

The rise in food prices is already causing distress among consumers in some parts of the world -- especially relatively poor nations like India and China.

The article points out that biofuels are altering food economics, since ethanol and biodiesel can be made from corn, palm oil, sugar and other crops. Food inflation in Hungary is running 13 percent a year, in China, 6 percent, triple the rate of a year ago. China has only about 2-3 months of surplus food, meaning a bad crop could be disastrous.

Some economists say China will have to take moreaggressive steps to prevent future food problems. These changes could include allowing the proliferation of large -- but more efficient -- corporate farms similar to the ones that drove many small growers out of business in the U.S. in recent decades. Such a push would be extremely difficult for China because it needs to preserve jobs for the tens of millions of people who live in rural areas.

It's interesting though not surprising that large-scale farms are viewed as the unquestionable answer to this issue rather than the small-scale farms which are far more productive per acre of output. (Grains in large-scale farms go to produce other foods or animal feed rather than being eaten directly by people -- not a terribly efficient food chain or use of an abundant labor pool).

Meanwhile in the U.S.,

... consumers are likely to see higher prices at the supermarket for everything from milk to cereal to soda pop, since corn is used to feed livestock and make high-fructose corn syrup, a key ingredient in many soft drinks. A spokesman for the National Chicken Council, a poultry-industry group, recently testified to a congressional subcommittee that Americans should expect higher chicken prices because of what the group described as "the ethanol crisis."

The somewhat silver lining to the trend is that the higher prices "could help boost incomes for the rural poor in developing nations, who have been bypassed by gains in the manufacturing and service sectors." But I wonder if that's the way it will shake out -- whether the benefits will, indeed, trickle down, or whether the farmers will be bypassed on the upswing as they have been when prices tank.

- Samuel Fromartz

An Organic Vegan Twinkie Arrives

This publicity stunt was so good you could taste it.

Author Steve Ettlinger held a book launch party in New York City Thursday night to celebrate publication of Twinkie, Deconstructed: My Journey to Discover How the Ingredients Found in Processed Foods Are Grown, Mined (Yes, Mined), and Manipulated into What America Eats.

During the party at McNally Robinson bookstore in Soho, various Twinkies were offered up for taste tests. There was a "gourmet" Twinkie from Nancy Olson of New York's Gramercy Tavern, an organic-vegan Twinkie by celebrated vegan dessert chef Fran Costigan, and commercial varieties including the Hostess originals, Little Debbie’s Golden Cremes, and Lady Linda Original Crème Fingers.

So which rated the most stars?


Organic vegan Twinkie, photo by Linda Long

"Well, within 45 minutes, the organic-vegan and gourmet versions were gone," says Marci Harnischfeger, our reporter on the scene. "In fact, patrons were plucking them so fast, trays were empty before servers could set them on the table. The commercial varieties seemed to be a hit too, especially with the ‘tweens who could be seen holding boxes of them under their arms and stuffing their faces."

Her favorite - the organic-vegan Twinkie.

Here's her take on it:

"It's much less sweet-tasting than the original, but still retained the ‘mmmm’ factor when it hit my mouth. Nutty, toasted, almost raisiny flavored cake with a cool and refreshing cream filling that left no aftertaste. It was reminiscent of a Twinkie, yet not an exact replica-an aspect I quite enjoyed," she said.

The vegan Twinkie was made with organic ingredients including white and whole wheat pastry flours, maple syrup, and expeller-pressed canola oil; the vegan pastry cream consisted of tofu, agave syrup (a sweetener), almond and vanilla extract, arrowroot (a thickener) and agar (a gel). Costigan plans to have the recipe available soon and when she does, we'll post it.

Ettlinger preferred the Gramercy Park Twinkie, describing it as “refreshing.” He said he could “taste butter” and pronounced it “sweet not overwhelming.” Plus, it left “zero film on the teeth." In short, it was exactly what it was supposed to be: “a treat."

Although Ettlinger described himself as a "whole foods" type before he began this book project, he ate Twinkies at various stages of investigating what went into the product. This hunt took him from phosphate mines in Idaho to corn fields in Iowa, from gypsum mines in Oklahoma to oil fields in China, in the process, "demystifying some of America’s most common processed food ingredients—where they come from, how they are made, how they are used—and why," as his web site puts it.

On his Twinkie-eating journey, he said the flavors of oil, polysorbate 60, and the cellulose gum particularly stood out. We wonder if they might have a certain terroir?

By the way, Ettliinger also posted this interesting nexus of ingredients in a Twinkie.


What's in Your Water?

The Environmental Working Group is launching a new study to see what's in bottled water. But first, it needs to build a database. They've set up a link to compile this info from bottled water drinkers, asking:

  • What brand?
  • Where did you purchase it?
  • How much did you pay?
  • What type of container?

Considering their work on other issues like pesticide residues, the results should be interesting.

Mainstream Cooling on Organics

I've been contending for awhile that the push of organic food into the mainstream was not a slam dunk.

A lot of commentators last year worried about the impact of Wal-Mart getting into the organic market - both on standards and on supplies. But no one really considered what would happen if Wal-Mart's move into organics did not work out. That's a question to consider now, especially with a large potential ramp up in supplies. There are shortages now as products come on line but what happens if the "mainstream" customers don't show up? Will farmers get stuck with a lot of excess organic acreage ... and milk?

Choice quotes of mainstream food execs in a Reuters story:

"Wal-Mart asked everyone for organic (food). At the end of the day consumers buy benefits and it's not exactly clear what the benefits are from organic. They might end up being niche propositions."
- Alan Jope, Global Food Group Vice President at Unilever Plc

"It's not as rapid as Wal-Mart might have liked or as any of us might have liked, but it is definitely growing."
- Cindy Hennessy, senior vice president of innovation at Cadbury Americas beverages.

"We believe the natural market is the larger opportunity."
- Hormel CEO Jeffrey Ettinger

Note that "natural," as a term, is largely undefined by the USDA (applying only to "minimally processed" meat without artificial additives).

This story will continue to unfold in the coming months, as large companies adjust their expectations and demand, potentially, eases a bit.

- Samuel Fromartz

Mackey-Pollan Smackdown Turns Love Fest

By Carmel Wroth

AMUSE-BOUCHE: Local, of course

The pre-event reception to the Michael Pollan-John Mackey discussion drew quite a crowd.

Hungry (and penniless) graduate students rubbed shoulders with well-heeled foodies, including superstar chef Alice Waters of Chez Panisse, nutritionist and best-selling author Marion Nestle, and Bill Niman, co-founder of Niman Ranch meats.

Of course you’re wondering what there was to eat.

Guests munched on goat cheese fritata, artisanal salami, and crostini, decked with green olive tapenade, warm hedgehog mushroom spread with fresh grated romano, and duck liver pate.

All locally sourced, naturally!

Conversation buzzed—everyone was excited to see the two food luminaries talk. Or maybe they were just pleased they had scored tickets (people were soliciting them on Craig’s List before the event.)

Whole Foods employees had come from far and wide to see their boss.

“John Mackey is cool,” said Elizabeth Wade, a team leader at the Petaluma, California, store.

David Evans, Marin Sun Farms’ owner, who sells his grass-fed meat locally (and not in Whole Foods), said he hoped the Pollan-Mackey conversation would shed light on how “small farms can access a bigger market without sacrificing integrity.”

Yes, indeed, the question of the night.

FIRST COURSE: History Lesson

To start things off, John Mackey - co-founder and CEO of Whole Foods - gave the crowd of nearly 2000 people a 45-minute food history lesson, complete with colorful Powerpoint slides.

He walked us through the entire history of food procurement and production. Six discreet stages of food history from hunting and gathering to Whole Foods Market!

Okay, that’s not entirely fair. Mackey believes that a new era of food is emerging to replace industrial agriculture--what he calls ecological agriculture--and naturally it’s bigger than Whole Foods.

He seems to think his company is the heart of the movement (it may well be), and he clearly articulated a vision for a sustainable alternative to industrial food.

He also broke some news (as he seems to do every time he appears with Pollan). Whole Foods has established a $30 million venture capital fund to make equity investments in artisanal food companies. This presumably comes on top of a $10 million fund set up for farmers last year.

Secondly, the company is launching a “Whole Trade Guarantee” fo the company’s commitment to source certified ethically traded products.

How can you be cynical about this man?

SECOND COURSE: Smack-down Letdown

As the dialogue got under way, there was a rustling of expectation in the audience. The provocative debate was about to begin, right?

After all, these were the two men who disagreed so strongly about whether the organic food business was lapsing into industrialism that they conducted a heated, months-long online argument. (See our previous post for links on the debate)

In person, though, they were almost painfully gentle with one another. They sparred, a little, I guess, but it was more like couple's counseling than a duel.

For starters, there were admissions of mutual gratitude and admiration. Mackey had learned from Pollan. Pollan appreciated Mackey.

The denouement came when Pollan asked Mackey if he blamed the company’s recent stock devaluation on his less than flattering chapter on the Whole Foods. It went like this:

“Well you probably cost us about $2 billion,” said the natural foods tycoon. “Easy come, easy go.”

(Audience laughs)

“Seriously???” (Culinary poet laureate grimaces painfully).

Mackey described how a flurry of unflattering press followed the book, including frequent comparisons to Wal-Mart.

Pollan looked contrite.

Mackey melted: “Aw, I’m just pulling your chain a little bit, Michael!”

What are righteous eco-consumers to make of this not-so-spirited interchange? If you want to see a debate, as one audience member suggested, invite people who are really on opposing sides of an issue.

Pollan and Mackey originally did have their differences, but when Pollan came up with his eloquent critique, Mackey moved rapidly to turn Whole Foods' sustainable battleship in line with Pollan’s vision—or to emphasize the ways it already was already doing so (sourcing more local foods in stores and moving forward with supporting domestic grass-fed meat, for example).

Pollan, for his part, politely closed ranks with perhaps the most influential man in organic and natural food circles, which is, you'll recall, the alternative to 98 percent of the food supply.

Mackey had his own criticism of Pollan, saying “big organic” is not as big and bad as the author claimed.

“You exaggerated the extent of industrialization of organic,” he said, even adding his most contentious comment, “you’ve done some damage!”

Pollan said he “didn’t intend to demonize” big organic. Organic Coca-Cola would be fine by him. (Say what?)

Which leads us back to a fundamental question raised by the evening's discussion, can organic scale up without selling out? Is there a way to produce and distribute enough organic food to reach the vast majority of the population, or will organic food remain in its gilded 2 percent niche?

DESSERT: A challenge

With all these weighty issues on our minds, Mackey asked one last question.

“What is your contribution going to be? What are you going to do to support ecological agriculture?”

Other than shopping at Whole Foods and the farmers' market? We're still pondering that one.

(The Webcast of the event is archived here)

How to Sell a Carrot

Chefs and farmers wax poetic about their food, farms, and dishes, but let's face it: what sometimes works best is a little marketing magic. Customers want it. They consume it. And images can be as easily manufactured in the kitchen as in Tinseltown.

Dan Barber, chef and owner of Blue Hill and Blue Hill at Stone Barns in New York, comes clean about how this works in an interesting New York Times piece about carrots - specifically, carrots that he attempted to infuse with the scent of almonds by sprinkling some of their nutty dust in his greenhouse garden.

He then marketed prodigiously, spreading the word that his almond carrots would be harvested and served at dinner one evening in a salad. What happened next is pretty hilarious, but it just goes to show you, as any Madison Avenue guru would tell you, it's the sizzle that sells.

Perhaps coincidentally, the title of this essay, "The Great Carrot Caper," was the name given to another incident in 1988 - when workers in California were photographed putting conventional carrots into bags marked organic. This was outright fraud.

Barber's antics are more innocent, but still a disguise, and one that customers end up rating with four stars.

I'd give Barber four stars too, having eaten at his restaurants, but - full disclosure - he also blurbed my book.

- Samuel Fromartz