Producing strong,
flavorful tea requires an infusion of quality tea leaves at just the right
time. Bethesda, Maryland-based Honest Tea – already producing a line of
certified-organic bottled teas – took that simple tea-making lesson to heart
earlier this year, infusing its assets (liquid and otherwise) with $12 million
in equity financing to expand its business from specialty markets to mainstream
retailers. Stonyfield Farm Inc. and international private equity firm
Inventages Venture Capital Investment Inc. each distributed undisclosed amounts
toward that total, as did several beverage distributors.
“I’m quite
interested in the trend toward organic,” says Inventages chairman Gunnar
Weikert, who also holds a seat on the Honest Tea board of directors. “The organic
mainstream market is probably a little more advanced in Europe, but from our
perspective will soon hit the United States in a new wave.”
We talked to
Weikert about how innovation can make a difference in any market (even an
overcrowded one) – and yet why it isn’t enough for lasting success:
BevNET IBQ: So we
hear you’re not a fan of most bottled iced
teas.
Gunnar Weikert:
Drinking most U.S. iced teas is like drinking liquid candy. That’s the way the
sugar content is. There’s actually a good story if you dig a little deeper –
why does bottled tea have to be so sweet? It might have to do something with
consumer suggestion, tastes and so forth. But the reality is that they brew
using the leftovers from the tea, the tea dust, basically. It’s is so bitter
that you have to add so much sugar to hide that. Otherwise, nobody would drink
it. It’s only by brewing from fresh tea leaves, as Honest Tea is doing, that
you have the opportunity to reduce the sugar content and let the tea taste come
through.
Was that a factor
in your decision to invest in Honest Tea?
Product quality
was first and foremost. And Honest Tea has such quality. Organic can mean an
awful-tasting but healthy product, and this is a product that is good for you
and has an excellent taste. Another thing that led us to Honest Tea is the
management. From an international perspective, quite often we see U.S.
companies that are small, but are trying too hard to be like more conventional
conglomerates – they only have five or 10 employees, but already have several
corporate offices like they think they are GE or something. Honest Tea is the
typical entrepreneurial company starting in a very small office, all the people
sitting together. Management knows what they’re talking about and they believe
in their product. They’re really interested in bringing it to the market, and
all that hard work and slow growth is paying off.
What other
elements do you consider when evaluating a company’s investment potential?
Our general
philosophy is to invest in products that are beneficial for health and
wellness. That’s our key demand. So people ask me quite often, “Why, if you are
so health focused, go with a U.S. beverage manufacturer?” I think you can keep
on dreaming that somebody is coming with a miracle drug to the market and that
a twice-a-day pill will make you lose all your extra weight. The reality is
this probably will not happen. You need to explore different strategies. For
young adults in the United States, 40 percent of their calorie intake is in
beverages. Telling everybody to drink water, again, that’s not very realistic.
But it makes a big difference if they have a choice of this liquid-candy iced
tea that’s already out there or something like Honest Tea, which has a very
cool taste but significantly less sugar.
Where do you like
to see your capital make an impact?
We need to see
that this money can accelerate the growth the company is working on, can
contribute additional value. Honest Tea has been very successful in the past
getting to the level of nearly $20 million in sales. We see that with
additional cash we’re injecting there has provided a little more focus for
marketing and advertising activities. Sales can really jump to a bigger level.
How important is
innovation in the beverage industry?
Very. The
majority of beverages we see are copy concepts, or riding on the wave. We are
here to bring something from one city to the other, from one country to
another, so I would say two-thirds of the company concepts in the beverage
field we think are not interesting.
But in the food
and beverage industry, it takes more than just innovation to be successful in
the market. If you look into real success stories, they are not miracles where
the company was established two years ago and now they’re making $400 million
in sales. The most solid companies have been established years ago. You can
always see this kind of inflection, the curve when everything came together:
they had the right marketing company, the right strategy, and they went to the
right cities and had the right sales concept. Then it took off. Before that,
it’s really flat, when it was very, very hard work for the founders.
Yes, you could
argue that a beverage could be successful without innovation, or with very
minor innovation. Take the energy drink. There’s one energy drink after another
that finds its way into the market, and basically they are copies of cold
coffee or Red Bull. But I think it’s also not very helpful if companies come to
us and tell us, “We know Red Bull is a big success story, we will get with our
new whatever, Little Bull, 5 percent of the revenues of Red Bull.” You have to
have something that is differentiating, innovative.
What kind of
innovation would you look for in a crowded market sector?
For example, the
original fans of energy drinks are growing up now, out of the Red Bull age. I
don’t know about in the United States, but in Europe it might be a little
problematic if you are a banker or some other professional, and your boss is
coming into your office and you have all these empty cans of energy drinks in
front of you. But your need for energy is still there, so you might want to
switch into another kind of drink that has a different image, a different taste
and a different perception in the market.
How else can an
beverage manufacturer set itself apart?
Most companies
underestimate packaging. Cool new packaging with additional consumer benefits
is very, very hard to find. One very new concept that is interesting for the
beverage industry; a can that is re-closable. So if you do sports – you jog or
cycle – or your kids open the can in the car, or if you’re outside and want to
avoid the hassle of wasps or other insects flying in, this is a solution. We’re
also looking into companies that bring more healthy beverages to kids, with a
nice bottle design. This concept bridges kids’ and moms’ desires, avoiding a
fight in the supermarket when the kids want to buy something fancy and the moms
want to buy something healthy.
Packaging in
particular is something where there’s a lot of room for innovation because it
doesn’t necessarily require additional cost. If you have a re-closable can that
costs twice the price of the normal one, then you have a problem. But if the
cost of price for the can itself would be the same including the new, re-closable
lid, then you have achieved something consumers will be interested in. And
that’s something we would like to invest in.
“The organic
mainstream market is probably a little
more advanced in Europe.”
– Gunnar Weikert