What a difference a dodge ball makes. In November we started Honest Tea’s annual company meeting with a just-for-fun sports competition at Bethesda Sport & Health. The quality of the dodge ball game wasn’t outstanding, but the laughter was. Starting our annual meeting in shorts and sweats was the perfect way to reinforce the free-spirited energy and entrepreneurial culture that’s been part of our company since 1998 when I started brewing lightly sweetened organic tea in my kitchen. It was also the best way to prepare for what would be a challenging business meeting the next day.
This would be the first time meeting officially since being acquired by Coca-Cola, so our employees were no longer entrepreneurs working to maximize the value of their stock options. As in past years, we were determined to be transparent, sharing not just the good news but the bad. In 2011, Honest Tea, like many businesses, shifted our focus from volume to profitability. As a result, our growth was slower than our historic average annual rate of 60 percent. And we had to make the wrenching decision to eliminate several positions, primarily in the central part of the United States.
Our sale to Coke expanded our reach from 15,000 to more than 80,000 stores. But more shelves didn’t automatically mean we sold more bottles. In fact, though our sales in existing stores continued to grow, we actually saw our average sales per outlet go down as we entered many stores where consumers had never seen our drinks. In a shaky economy, nervous consumers were cautious about trying out a $1.59 bottle of organic tea when they could pick up a 99-cent can of a tea-flavored drink.
So we had to find low-cost, high-impact ways to introduce the Honest brand to millions of new consumers. Our central effort was a social experiment called the Honest Cities campaign. We set up racks of bottles in downtowns everywhere from Alki Beach Park in Seattle, to Prudential Center in Boston, to Dupont Circle. For each display, we set up a Lucite box and asked consumers to pay a dollar per bottle — on the honor system. In addition to providing thousands of sampling opportunities, the experiment earned free media coverage and we doubled our Facebook friends to more than 70,000. The average honesty rate was 94 percent. (We donated the proceeds to City Year, Share our Strength and Rails to Trails.)
By the time our company was acquired in March, most of Coke’s sales planning for the year had already happened. For 2012, though, we’ve been included in the planning process and will have a better chance to benefit from the Coca-Cola system’s powerful marketing and grocery partnerships. We anticipate continued economic headwinds for premium brands in 2012 but I’m encouraged to see growing demand for organic and low-calorie options across all food and beverage categories.
Despite all the fears I have heard about President Obama’s health-care plan driving rates up, we were able to share some positive news with our employees about health-care premiums. After back-to-back years of 18 percent increases, we were able to announce that our 2012 premiums will actually be going down 6 percent. While our average employee age (36) is staying the same, our experience rate went down, meaning the claims of our employees and families were less than the average claims in the Washington-area community. The savings we’ll realize from this cost reduction will help offset the salary of at least one employee.
While lower health premiums were welcome news, they didn’t offset the impact of our decision to eliminate several field marketing positions, primarily in the central part of the U.S. Our marketing efforts there weren’t producing the kind of results they did on the coasts and we’d have to try something different. During the company meeting, we had difficult conversations about the people who were no longer on the team, as well as the imposing goals we’ve set for 2012.
But the focus of the meeting was on how to get it done, and the business plan and energy generated in Bethesda were as strong as ever. Though we miss the power of stock options as incentives, it’s clear that as Honest Tea matures, the rewards of being on a spirited team of entrepreneurs and idealists (who are able to earn bonuses) can be powerful.
Our employees may no longer own Honest Tea in an economic sense, but the spirit we shared on the courts and in the conference rooms confirmed we are still owners of the brand.
Seth Goldman is president and TeaEO of Bethesda-based Honest Tea.