In 1998, social entrepreneur Seth Goldman founded Honest Tea, the nation’s best-selling and fastest-growing organic bottled tea company, with a business professor from the Yale School of Management. Honest Tea sources from organic and fair trade tea estates, and has partnered with community development groups ranging from the Crow Reservation in Montana to organizations in South Africa and Guatemala. Goldman talked with Knowlege@Wharton about carving out space in the competitive beverage market, helping consumers embrace organics and how tea became the catalyst for following his life’s passion.
Knowledge at Wharton: Were you entrepreneurial as a teenager?
Seth Goldman: I was. I used to run a lemonade stand near the golf course near my house. And my friends and I would find the golf balls that the golfers had hit out into the woods. We would collect those, and we would sell used golf balls and lemonade.
Knowledge at Wharton: Why tea?
Goldman: Tea is an amazing product. It’s the world’s second most popular drink. Water’s the first. And it is produced by some of the poorest cultures in the world, but enjoyed by some of the wealthiest. So you have this ability to create wealth at a community level without sort of subsidizing or paying anything economically inefficient. But more importantly, tea can taste great if it’s made right. It has wonderful, healthy properties to it, antioxidants and other great benefits for the circulatory system. And so we wanted to make a product that was all natural. And tea turned out to be the perfect ingredient.
Knowledge at Wharton: What’s your philosophy for surviving and even thriving in the fiercely competitive beverage market?
Goldman: The key is to be different. You know, we never came out with just another “me too” product. From the start, our product was less sweet than what everyone else was offering. And that was why we felt it was relevant, because everything out there was much more like soda than it was like tea. And it’s grown. Our differentiation has grown. So now everything we offer is organic. And a great deal of what we offer is also Fair Trade certified. And we’ll continue to raise the bar and find new ways to set ourselves apart. But we’re too small to compete directly with the big companies on their terms. We have to do it on our terms.
Knowledge at Wharton: Talk a little bit about Fair Trade. How is Honest Tea socially responsible?
Goldman: You know, the key starts with the product itself. So number one, soft drinks are the single largest source of sugar in the American diet. And we’re offering a product that has a third to a sixth of the calories. So we’re just putting out a healthier product. That alone is a good thing. But the way the product has grown, because it’s organic, there’s no synthetic chemicals or pesticides or any other artificial ingredients going into the bodies of the people who consume the product, going into the ecosystems where the product is cultivated, or going into the bodies of the people who were involved in the processing and picking of the ingredients. So that is also an important thing.
But on top of that, we do have Fair Trade certified teas, which means we pay a portion back to the communities where we source the product. And then even the way we conduct our business, we do marketing partnerships with the Saturn VUE Hybrid. We have a marketing partnership with Jamis Bikes. We give away 1,000 bikes a year to encourage more sustainable transportation. So even the way we communicate and connect with our consumers, we feel, is part of our whole mission-based business approach.
Knowledge at Wharton: Have consumers embraced the concept of organic eating and drinking?
Goldman: They are starting to. It’s really growing very quickly. I think organic has increasingly become about health concerns. If you asked people 15 years ago, “Why do you buy organic?” They’d say, “Well, I don’t want all those chemicals going into the ecosystem.” If you ask them today, they’ll say, “I don’t want all those chemicals going into me or my children.” And that is a much more powerful motivation.
And as a result, just a few years ago, the U.S.D.A. started putting their seal, the U.S.D.A. Certified Organic seal, on the bottles. And this really helped set us apart, helped brand organics as a whole. And it’s growing. It is absolutely — I’m convinced. Right now, organics are three to four percent of the whole food business. I believe that within three to five years they’ll be 10%. And some categories, like yogurt, are already10 percent. Bottled tea is less than one percent. So we have a huge opportunity in the next few years to get 10 percent of the bottled tea market to be organic.
Knowledge at Wharton: What about the price differentiation?
Goldman: Honest Tea, in general, costs 20 to 30 cents more than another bottled tea product. So it’s really not that much more. Especially when we can help share the story. What a lot of cultures don’t realize is that tea is one of the few products that’s never rinsed. Tea leaves are picked and dried. And if there are any chemicals on those leaves, they stay on the leaves until hot water’s poured on the leaves. And so they just get washed into the drink. And so I think as consumers become more aware of the value and benefits or organics, I think we’ll continue to grow.
And for that matter, as we grow now with Coca Cola, because they’re a partner and distributor of ours, I don’t see our prices going up. And I do see other prices going up. So I think we’re going to be right — we’ll still be a little more expensive, because our leaves are more expensive. But I think we’re going to be within a very affordable set. We’re not talking about twice as expensive, or even 50 percent more. We’re just talking about maybe ten or 20 cents more expensive than the other options.
Knowledge at Wharton: Have you traveled to the communities around the world where your teas are harvested?
Goldman: Yes. I’ve been to Africa, to India, to China. And they’re all amazing communities. One of the great things about tea is that it doesn’t need an industrial agricultural complex. They’re bushes. And so they can grow in wonderfully diverse climates. The diversity of plant and animal life can be very robust in these communities. And so they’re just some of the most beautiful places in the world.
Knowledge at Wharton: Have you found the youth market to be loyal to the Honest Tea brand?
Goldman: I think we’re starting. I think, in general, our product is for a slightly older consumer. But it’s striking, even on college campuses, that we’ve seen students react to our product. And just last year, we launched a line called Honest Kids, which isn’t a tea line, it’s a line of lightly sweetened pouch drinks for kids. And it’s been so exciting to see how that line has taken off. And I believe that that will actually fuel, eventually, the growth of Honest-Ade and Honest Tea.
Knowledge at Wharton: Are you planning to pursue the youth market? And if so, what ways would you go about that?
Goldman: You know, I think that’s not our core target market. In general, that market responds better to the highly sweetened drinks, just because of where they are. And obviously, we hope they evolve away from that. But our target consumer’s a little older, a little more discerning. And like I say, as that market becomes more socially conscious, I think they’ll be drawn to our products.
Knowledge at Wharton: What motivates young people today, do you think, to be more socially responsible?
Goldman: Well, the environment clearly is something that is of concern. And a lot of us saw, whether it was Al Gore’s movie, or sort of read about the environmental problems, and then feel, “What can we do to have an impact?” And so then it’s, “Well, you can ride a bike or you can try to change your habits. But you also should be thinking about what you purchase.” And as an example, organics have a much lighter carbon footprint than not organic products, because you don’t have to sort of get engaged to the whole production of the other chemicals. And obviously, they’re better for the ecosystem, as well. So I think environmental concerns can be something. And I’d like to think health concerns will grow among the youth market, but I’m not betting on that one.
Knowledge at Wharton: We’re always directed to follow our passion for our careers. How have you done that?
Goldman: Oh, for me, this is a complete connection between what I care about and what I’m working on. So I care about health issues, I care about environmental issues, I care about issues of economic opportunity in both the developing world and in this country. And this enterprise has allowed me to address all three of those things in a really substantive way. It’s also a wonderfully creative and energizing activity. We just had our company meeting last week, and our employees are so excited about what we’re building. My wife, who works in the non-profit sector, is saying, “People in the non-profit [sector] don’t get excited like this. What’s going on here? They have drunk the Honest Tea.”