Coca-Cola buys stake in Honest Teas
It's a tiny deal. A rounding error for Coca-Cola. But the beverage giant just bought 40% share of US-based startup Honest Teas. The deal for $20 million also includes a buyout option after three years.
Honest Teas, founded in 1998, sells flavored iced teas such as Citrus Spice Decaf and Moroccan Mint Green. They are trendy in two ways: they are "low calorie" and they are "organic." (And I thought iced tea would have no calories, fool that I am! (It's a small business, but it is growing at 70% a year. Coke already sells iced tea, licensing the Nestea name from Nestle, but it is #4 in the category (after Pepsi's Lipton, Arizona, and Cadbury Schweppes's Snapple. The company also sells organic drinks called Honest Ades with flavors like Pomegranate Ade.
Now, this is a trivial deal. Compare Coke's deal in 2007 for Glaceau Vitaminwater, for $4.1 billion. But it is indicative of several trends we have followed. First, there the desire of major beverage companies to expand out of the static carbonated drinks market, a trend we've seen a variety of purchases over the past decade. Second, is the desire to buy up innovators. There was o real reason why Coke couldn't have developed its own premium teas, but given the realities of big corporations, it was faster ad easier just to let someone else innovate and then step in after the concept is proven. After all, Coke will easily spend $20 million and more in promoting the product and building up the distribution network.
Finally, it is an attempt to keep others out. Coke can't make any seriopus money selling the brand (though the margins are better than their flagship drinks). But the idea is o jeep the company out of the hands of potential competitors even before they gain any mass.
5:53:49 PM 
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