Abstract:

In February 2008, the Coca-Cola Company acquired an equity stake of 40% in Honest Tea. The agreement between the companies stated that Coca-Cola can acquire the remaining stake after three years. Seth Goldman maintained that Coca-Cola's acquisition of the stake would benefit Honest Tea, as it would strengthen the company's distribution capabilities. However, customers who lent their support to Honest Tea over the years were not happy with this deal. They said that Honest Tea was selling out to Coca-Cola, which had a history of environmental and labor abuses in some of its international markets. Some of the industry experts were of the view that Coca-Cola may discontinue Honest Tea's sustainable business practices.

Issues:
Understand sustainability as a corporate strategy with reference to the incorporation and operations of Honest Tea. Understand the challenges faced by start-ups that adopt sustainable practices and the ways to overcome these challenges. Evaluate the methods by which companies can practice sustainability management and gain competitive advantage. Appreciate the emerging trend among the companies to assume responsibility towards the environment and society. Analyze the trend of multinational corporations acquiring a stake in companies involved in mission driven businesses and the consequences thereof. "As a business that has built its reputation over the past decade on a commitment to healthy organic products, environmental quality, and social justice for its producers, Honest Tea's decision to partner with Coca-Cola - a multinational corporation that has consistently violated all three of these principles in their global business practices confounds me." - Honest Tea's Customer, Commenting on Coca-Cola Acquiring a Stake in Honest Tea, in February 2008. "The world of social responsibility should not be restricted to the smaller, more boutique companies. With things like this (Coca-Cola acquiring a stake in Honest Tea), more consumers will have access to socially responsible products."2 - Seth Goldman, TeaEO, Honest Tea, in August 2008.

Honest Tea Sells Equity Stake

In February 2008, US-based bottled organic tea manufacturer Honest Tea Inc. (Honest Tea) announced that it had decided to sell an equity stake of 40% to the US-based beverage giant, the Coca-Cola Company (Coca-Cola), for US$ 43 million. After the transaction, Coca-Cola became the largest shareholder in Honest Tea. With sales of US$ 23 million in 2003, Honest Tea was the largest selling organic tea in the US. Though Coca-Cola's decision to partner with Honest Tea did not surprise many, given its earlier acquisition of Glacau4 to move beyond the traditional soda industry, the same could not be said of Honest Tea's move to partner with Coca-Cola.

Honest Tea Sells Equity Stake Cont d...

Since its inception, Honest Tea had maintained its ethical stance and carried out its business in a responsible manner, benefiting the communities with which it worked, and minimizing environmental impact. The fact that Honest Tea had agreed to sell a stake to Coca-Cola, widely seen as a company with a track record of environmental abuses and unethical practices in many countries where it operated, left many loyal customers of Honest Tea and analysts flabbergasted. Goldman, however, justified this partnership stating that it would help Honest Tea spruce up distribution and reach more customers in the US. He opined that greater reach would benefit organic farming and would have a positive impact on the environment. It would also inculcate healthy drinking habits among the consumers...

The Beginning
In 1995, while Goldman was a second year master's student at Yale, a case discussion came up about rivalry in the beverage market between Coca-Cola and Pepsi. He then started exploring the water and beverage industry. Goldman noticed that the industry consisted of bottled water and high-calorie sugary drinks and lacked healthy beverages with less sugar...

Going Organic Sustainability Practices

By developing and selling tea in a sustainable manner, Honest Tea planned to address several issues pertaining to the environment and social responsibility. According to Goldman, "The relationship of economics, well-being, and social responsibility all work

together to create the customer loyalty that makes a brand possible. It is crucial to our success and survival."...
Excerpts Contd...

The Stake Sale

In spite of its encouraging revenue growth, Honest Tea continued to struggle in terms of distribution. The company had an insignificant presence in supermarkets and convenience stores. While it had a presence in a few niche stores in the urban areas, the company did not have any presence in the overseas markets...

Exhibits
Exhibit I: Different Types of Tea and its Harmful Effects Exhibit II: Organic Products as Defined by USDA Exhibit III: How is Bottled Tea Made? Exhibit IV: Honest Tea Key Milestones (1999-2008) Exhibit V: Honest Tea -- Mission Statement and Aspirations for CSR Exhibit VI: Label of Honest Tea Exhibit VII: Office of Honest Tea Exhibit VIIIA: Some Natural Product Companies Acquired by Big Corporations and the Aftermath Companies Where Social and Environmental Causes Took a Beating Exhibit VIIIB: Some Natural Product Companies Acquired by Big Corporations and the Aftermath Companies that Continued to Operate in a Responsible Manner