Transcript

Chapter 07: On the Job Video: Honest Tea: Innovation

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>> It's always a struggle for a small brand, for a challenger brand to get attention on the shelf. There're so many products out there. And a lot of the competition has deep pockets that they spend a lot of money on marketing. And so for us one of the ways we were able to even just to get to the shelf was by offering something distinctly different.

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>> I'm Seth Goldman. I'm the Co-Founder and TEO of Honest Tea. We're based in Bethesda, Maryland. And we started back in 1998. We definitely wanted to make a product that was lower calorie, that was based on a more sustainable agricultural system. But our aspiration was never just to sell healthy drinks to healthy people. We love healthy people. We want everyone to be healthy. But if, for the people who were going to the health food stores we knew we had to make a product relevant for them. But if we're only reaching them we're not achieving our mission. So, for us it was a much bolder ambition about, we call it democratizing organics. Bringing products that are healthy and more sustainably grown to the whole population. It's nice to see in a lot of the categories we're in, the mainstream offerings have moved closer to us. So, in the kids drink category, when we looked at it, I guess now seven years ago, everything was at 100 calories per drink pouch. Now they've shifted. And I'd say they're averaging closer to 75 to 80. And of course we're at 40. And I think our success has helped create a recognition that there is both an opportunity and, you know, a benefit to being a lower calorie provider. So, it's nice to see how our successes has affected other brands. We've always had a really nice growth rate. Even back going to 2007 probably, you know, one of our fastest growth years, we were growing well, but we recognized there was going to be a limit in terms of our ability to capture the next phase of growth, the national opportunity. We were approached by a lot of the large national chains who wanted our product. We didn't have the distribution to cover them. So, Safeway wanted our product nationally, and we didn't have the ability to cover all their stores. We didn't have the trucks and the distribution system. So, that was a point where we recognized if we really want to get this brand to the next stage, we're going to need a national partner who can help us with distribution. For us, Coca Cola really seemed to make the most sense. And there are a few reasons. First of all, they are the world's largest beverage distribution system. Second of all, what we offered them seemed to have, really provide a unique fit in their portfolio. But perhaps most importantly they had just created a unit called venturing in emerging brands, which was looking to not buy the brands but to invest in the brands and would be able to help support the entrepreneurs, you know, energy and team to continue building the brand. And so in 2008, Coke invested about 40% of Honest Tea. And we continue to run it out of Bethesda. Coke was a minority investor who supported our growth. And then in 2011, Coke exercised the option, they had to buy the rest of the company. We continue to run the business out of Bethesda. I'm continuing to drive its growth and the innovation. And it has really been exciting to see, you know, this year our sales will be over six times what they were when Coke invested back in 2008. I certainly understand that someone might have a concern that we sold out. And to me the answer I have is I can deliver very firmly which is well show me in any way where we have compromised what we're about. You know, when Coke invested, all our teas weren't fair trade. Now they all are. We have more zero calorie offerings now than we did when Coke invested. The difference is in our impact. When Coke invested back in 2008, we were in 15,000 stores. Now we're in over 100,000 stores. So, when we talk about our serious commitment to democratizing organics, we're reaching people. We're bringing organic and fair trade products to people who ever had access to them. Honest Kids, this drink pouch line we have has just exploded in growth. It's more than a third of our business. This year it's growing 42%, while the overall kids drink pouch category is down 6%. And one of the big innovations we made last year was we took out all of the, it was sweetened originally with organic cane sugar. And we took out any of the sugar, and we just sweetened with organic white grape juice. In order to do that, we had to source more than half of the world supply of organic, kosher white grape juice, and so that was a huge undertaking and something we could never have done on our own. But with Coca Cola's support we were able to develop that supply chain. And that has been really exciting. And then look at what has happened on the sourcing. When Coke invested we were buying about 800,000 pounds of organic ingredients. This year we'll buy over eight million pounds of organic ingredients. We launched a line of fair trade certified lemonades. So, we've always bought organic sugar, but we weren't buying fair trade certified sugar before. So, we're driving change at the community level in India and China and Paraguay where we source our sugar from. And it's no longer just some guy, you know, running a business out of his house in Bethesda saying, "Oh, you know, we really want you to buy, to make your gardens organic in fair trade." It's the Coca Cola company saying this is an important part of our future, and we want you to be our partners in investing in this opportunity. So, to me in all the things that are important, not only have we not compromised, we've actually elevated our mission. And the Coca Cola company has helped us give us the scale to do that. The biggest single impact I can have, not just on Coca Cola but on the beverage industry is to demonstrate that there's consumer demand and support. Six years ago, Coca Cola didn't, wasn't offering organic or fair trade certified products. Now they're selling millions or hundreds of millions within a year. You know, it helps build the case for others to understand why this is something to continue to invest in. The rest of the dynamics in the beverage industry are challenging. There are a lot of categories that aren't growing. And to see a brand growing now in the strong double digits, you know, over 25% a year that is attractive to anyone in the beverage industry. Our biggest footprint is around the bottles we use. They are single serve containers, and the fact is national recycling rates are at around 30%. So, that means even though I'd like to think Honest Tea consumers are more environmentally conscious, two thirds of what we sell ends up in land fill. And that's just not acceptable. Because we're part of Coca Cola now, we have access to different science. And so one of the really interesting innovations Coke has is something called the plant bottle. It's a bottle made with a plant-based resin that's recyclable. We're absolutely disruptive. I mean we came to this category really bringing a new category. There was bottled tea. There was water. Organics really was not in the beverage aisle, in the mainstream beverage aisle, and now it is in a big way. And of course fair trade too. So, we have absolutely changed what is on the beverage shelf. But in some ways our biggest impact is the communities we source from, you know? And when I can go to the communities whether it's buying green tea in China, black tea in India, organic fair trade sugar in Paraguay, that incorporates a premium that goes back to these communities for them to invest in their own economic futures. If we find ourselves doing what everyone else is doing, we're probably making a mistake. It's, you know, our role in, certainly in the beverage industry and the food industry is to be that challenger, to do things differently. And it has been both the key to our success and to our growth.

1. Were the forces for change at Honest Tea internal or external? (pp 169-170, Section 7-1a) Explain.
2. Is Seths decision to team up with Coca Cola a planned or reactive change? (pp. 170-171, Section 7-1b) Explain.
3. Looking at the Lewin model on p.172 (Section 7-2a), what point would Seth likely make in the unfreezing stage, to employees concerned about the move to sell to Coca Cola.
4. In terms of the Lewin model, in which of Lewins stages of managing change would Seth refer to the rapid positive results the alliance with Coca Cola brought?
5. Look at Understanding Resistance To Change (pp. 174-176, Section, 7-2b). What reasons of those types listed in the textbook in the section 7-2b do you think employees (or customers) may have had for opposing or resisting this change?
6. Look at Force Field Analysis on p. 201, Section 7-2c. How is the approach Seth takes in the video to explaining his actions similar to Force Field Analysis?
7. Looking at the description of the phases of the Innovation Process on pp. 183-184, Section 7-4a) NOT Figure 7.4, in which phase did Honest Teas deal with Coca Cola occur?
8. Seth says that Honest Tea has been disruptive. Based on the classifications of types of innovation in the textbook (pp. 185-186, Section 7-4b) where would you place the innovations at Honest Tea along the follow lines? Suggest why.

Radical/Incremental?

Technical/Managerial?

Product/Process?

9. Seth describes some of the obstacles he and Honest Tea faced along the way. Looking at pp. 186-187, Section 7-4c, The Failure to Innovate, which of the threats to innovation did Seth face at Honest Tea and how did he successfully navigate them?

10. What does Seth mean by his stated mission of democratizing organics? In your view did he accomplish that mission?