Seth Goldman may have just brokered the acquisition of Honest Tea by beverage giant Coca-Cola, but that doesn't mean he has a Coke ID badge, or that Coca-Cola will be emblazoned on Honest Tea bottles anytime soon.
The acquisition -- Coca-Cola's initial investment in the brand was made three years ago -- is part of an innovative model, known as the Venturing and Emerging Brands unit, which was created to help foster new and acquired brands within the world's largest beverage company. The group, which is managed by Deryck van Rensburg, has acquired stakes in up-and-coming beverages such as Honest Tea and Zico, as well as launched its own brands. Mr. Goldman, founder and CEO of Honest Tea, retains a stake in the brand.
Brands within VEB maintain their authenticity and independence, hence the lack of outward signs that Honest Tea is now a Coca-Cola brand. Of course, there will be changes big and small. The change that concerns Mr. Goldman most is that he's now the only owner. The company's nearly 130 employees no longer have an ownership stake, and he worries about how to keep them engaged.
So far, they still seem plenty motivated. During a visit to Ad Age's offices, Mr. Goldman recounted a story about the national field marketing director and New York field marketing manager. The pair left the post-acquisition-announcement party too late and quickly realized they would miss their flights to Atlanta, where they were expected at Coca-Cola headquarters the next day. Mr. Goldman arrived at the Atlanta airport the morning after the party to find the employees waiting in their car. They'd driven the 11 hours between Honest Tea's Bethesda, Md., headquarters and Atlanta. (Mr. Goldman also had a laugh that he still had to check in as a guest when visiting Coca-Cola headquarters the day after the acquisition announcement was made.)
"I was so jazzed about these guys driving down to Atlanta," Mr. Goldman said. "First day of new ownership, and they could have said, 'Oh, well, someone else will handle it.' But they were still fired up to get things done."
A week after closing the deal, Mr. Goldman discussed the acquisition and how he's dealing with critics, as well as the brand's marketing plans and why Honest Tea will continue to rely on guerrilla marketing, event marketing and sampling, rather than paid media campaigns.
Ad Age: You're the most visible brand, or experiment, in the VEB unit at this point. How's it feel to be the guinea pig?
Mr. Goldman: It's fun. What's nice is it still feels very much like the brand we've been building. One important change, and we've acknowledged this, is we just can't market to ourselves, our consumers, anymore. We need to stay consistent and authentic with them, but we need to expand. Coke obviously wouldn't have done the deal and said, "Let's keep them in the natural channel." It's challenging in that we're going into where there's less awareness. But Coke invested in our brand because they saw that we'd been able to build this thing, have aggressive growth in our way. It wouldn't make sense to say, "You've built this brand for 13 years your way, now let's change how you do it."
Ad Age: You spent a whopping $1.6 million on measured media, according to Kantar, last year. Do you plan to spend more, now that you're part of Coca-Cola, and now that you need to raise awareness in new channels?
Mr. Goldman: No. Our paid media will be less this year than last year. Last year, leading up to the transaction, we tried some more things, some more paid media. I can't say it didn't have a return, but I can't tell you what we got from it. When we do guerrilla marketing events, I know we're connecting with consumers and telling our story in a way consumers remember. I can tell you with Honest City what we got from it, whether its feedback from consumers or awareness generated.
After the deal was announced, so many people called and said, "We've got this great media campaign you should do." Even the Nascar people started pitching us. But it's just not consistent with who we are. Not growing would be a huge slip, but the even bigger slip would be to lose our authenticity, because then we know we won't grow. We have to stay authentic.
Ad Age: But you're on Coca-Cola trucks. Consumers can find you in Walmart, Kmart, CVS and Rite Aid. Will you ever do a big paid media campaign?
Mr. Goldman: Not the way other big companies do. There's a role for it, but it's got to be part of a much more comprehensive piece. If it's one-quarter of our marketing mix a few years from now that would feel like a lot, relative to what we do.
Ad Age: There have been some critics of the deal that feel like you've sold out. How do you respond to them?
Mr. Goldman: We've had those exchanges via email and on the web. I'm defensive, but not in a way that my ego's hurt. I go back to them and say, "Why are you less interested in our product? We just converted to fair trade. Do you have a problem with fair trade? Do you think only people that shop at Whole Foods should have access to organic products?" People say, "I'm only going to support small companies." I've got nothing against small companies; we're still a small company. But how does that change the American diet? How does that change agriculture in the developing world?
I wrote a blog about the "unconscious" conscious consumer [Mr. Goldman defines that as someone who judges a product or brand because of its association, rather than considering the merits of the product itself.] The person who doesn't think about it, won't try it. The person who thinks about your goal of making healthier products more broadly available, thinks about how you're going to do that. I do think this [deal with Coca-Cola] is a way to make that happen.
Ad Age: Apart from dealing with some critics, what's the biggest change coming out of the acquisition?
Mr. Goldman: The big change is the extent to which Coca-Cola sales people can now fully represent our brand. That changes in terms of where we get to have opportunities, whether it's a food service account or a retail account. We just couldn't be prioritized before. It wasn't discrimination, it was a legal restriction. Now we are a part of the portfolio, a proud part.
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