CASE ANALYSIS

HONEST TEA: ACQUIRED BY COCA COLA

NAME: REG#: Program:

AMMAR MOHSIN 1511 - 210 - 013 B.B.A

SEM: SUB TO: SUB DATE:

SPRING 2013 (IX) SIR AHMED BUTT 4TH May, 2013

Table of Contents

1. Acknowledgement 2. Case Introduction 3. Case History 4. SWOT Analysis 5. Strategic Objectives 6. Course of Actions

................................... ................................... ................................... ................................... ................................... ...................................

3 4 5 7 12 13 14 15

7. Recommendations to the Management ...... 8. Annexure ...................................

ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to Almighty Allah & my teacher (SIR AHMED BUTT) who gave me the golden opportunity to do this wonderful project on the topic HONEST TEA: ACQUIRED BY COCA-

COLA, which also helped me in doing a lot of

Research and I came to know about so many new things I am really thankful to them. Secondly I would also like to thank my parents and friends who helped me a lot in
3

finalizing this project within the limited time frame.

Case Introduction
Honest Tea (US) is a bottled organic tea company based in Bethesda, Maryland. It was founded in 1998 by Seth Goldman and Barry Nalebuff. Seth Goldman, co-founder of Honest Tea, drank a lot of liquids. An active person, Seth was continually in search of the perfect drink to quench his thirst after a run, a game of basketball or between grad school classes. Yet, Seth found most drinks either too sweet or too tasteless. Barry Nalebuff, Seth's professor at the Yale School of Management, found that he and Seth shared a passion for the idea of a less sweet, but flavorful beverage during a class discussion of a Coke vs. Pepsi case study. They agreed that there were tons of sugary sweet options and lots of watery drinks, but in 1994, there was nothing in between to fill the void. In 2008 Honest sold 40% shares to Coca-Cola to accelerate growth and mission of selling organic product. But we as Executives of the company have certain aspects in front us which we have to cope with.
4

Previously our customers relied on our integrity, pioneering spirit and independence from corporate America to provide them a line of organic beverages. But now after the acquisition with Coca-Cola our customers are outraged. Because they had an negative thought that we are abandoning our principles in exchange for a big pay-day. It is now a great challenge for us to secure our independence, brands, integrity and entrepreneurial spirit.

Case History
In 2008 when our firm Honest Tea announced that it had sold a large number of its stake to Coca-Cola. Most of Honest Teas loyal customers were angry. Honest Tea was the first company that had created the organic bottled tea. Honest Teas founders and investors were abandoning their principles and independence in exchange for a big pay day. He sees this new affiliation with Coca-Cola as a way of accelerating its growth and to make availability of its organic beverages to as many people that could be done by company by its own. Coca-Cola purchased its 40 percent shares which make them the largest shareholder of Honest Tea. But Honest Tea made an agreement that they would keep their current management team, maintain its brand of wholesome beverages and will have three board member seats out of five, which will make them autonomous and free in decision making.
5

Seth Goldman modeled this acquisition by Coca-Cola after a success and progressed partnership of Groupe Danone, a large European food company and Stonyfield Farm. It was similar in many ways to Honest Tea. Groupe Danone purchased 80 percent of Stonyfields shares, but the company had remained independent and committed to its mission and its entrepreneurial spirit stayed alive. One major difference between Honest Tea and Stonyfield is that after three years Coca-Cola will have the option to completely buy Honest Tea. This warns some of the Honest Tea employees to pause. Coca-Cola has a reputation in a market for leaving things that are successful alone even if Coca-Cola buys the remaining shares of Honest Tea. But instead the management team of Honest Tea will remain independent for many years. Seth Goldman sees two big advantages of this acquisition of Coca-Cola. First, Honest Tea will have the access to Coca-Colas extremely large distribution network. Honest Tea has struggled a lot to expand its reach beyond fitness clubs, specialty shops, and natural food groceries like whole Foods. Goldman sees this as companys future mission to provide healthy beverages in against to traditional sugared beverages. Second, Goldman hopes that values and commitment to wholesomeness will rub off the Coca-Cola. Honest Tea will be the first organic drink loaded on either Pepsi Co or a CocaCola truck. The Large cola companies started realizing that there is a growing and vibrant market for alternatives to their standard fare.
6

Now in the end only time will tell that Honest Teas bet is that its growth and mission will be accelerated or diminished through the acquisition by Coca-Cola.

SWOT Analysis
A SWOT is a planning tool used to understand the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business. It involves specifying the objective of the business or project and identifying the internal and external factors that are supportive or unfavorable to achieving that objective. SWOT is an acronym for Strengths, Weaknesses, Opportunities, and Threats.

The SWOT Model

Strengths:
Customers are Exhibiting Brand loyalty and there is probability that new customers will be coming in the fold of
Internal Strengths Positive Opportunities External Threats Weaknesses Negative
or potential to be negative

existing customers database.

 Honest Tea competitive position is moderately stable against competitors. The company is maintaining good relationship with suppliers. The company is maintaining good relationship with labors. Coca-Cola including its subsidiary (Honest Tea) is financially strong.

Companys production standards, policies, systems and

procedures are relatively of high level.

Weaknesses:
9

 Initially the customers showed their outrageous behavior on the selling of Honest Tea to Coca-Cola. Honest Tea is facing competition from direct and indirect competition. Honest Tea needs improvement in redefining the mission and vision of organization including bringing out strategic changes in corporate strategies. Marketing Management Marketing Management. needs improvement in

HRM needs improvements.

10

Opportunities:
The Economic Conditions of U.S.A are reasonably good. Coca-Cola is equipped to take care of the Social shift professionally. Coca-Cola including Honest Tea is equipped to take care of Laws/Legislations. In U.S.A beverage industries policies are consistent. Coca-Cola and Honest tea is reasonably equipped with the existing Technology (Beverage Industry). Honest Tea has the potential to enter in the international arena.

11

Threats:
The Beverage industry is experiencing Social shift. The Legislations are being passed frequently. Industry does experience Technological transformation.

12

Strategic Objectives
The loyalty of existing customers and the reasonably good economic conditions give the opportunity to make new customers on existing customers database. Coca-Cola is in a position to take care of Social shift because their competitive position is stable against competitors.
13

 The U.S.A laws/Legislation is in a favor of Honest Tea therefore; they focus on maintain good relationship with suppliers. The policies of U.S.A beverage industries are consistent therefore; company maintains good cooperative relationship with labors. The financial condition of Coca-Cola including its subsidiary (Honest Tea) is strong therefore; they can take advantage of existing new technology (Beverage Industry). Honest Tea has a great potential in going into the international arena on the basis of their production standards, policies, systems and procedures are of high level.

Course of Actions
Mission Statement: Honest Tea seeks to provide bottled tea that tastes like tea world of flavor freshly brewed and barely sweetened. We seek to provide better-tasting, healthier teas the way nature and their cultures of origin intended them to be. We strive for relationships with our customers, employees, suppliers and stakeholders who are as healthy and honest as the tea we brew. The Honest Tea should enjoy their customers loyalty and try to make more customers through their innovative brands.
14

 A commitment to social responsibility should be central to Honest Tea's identity and purpose. The company should strive for authenticity, integrity and purity, in their products In addition to creating a healthy alternative beverage with a lot less sugar than most bottled drinks. Honest Tea should always try to maintain honest relationships with their employees, suppliers, customers. Honest Tea should create and promote great-taste, truly healthy, organic beverages. As laws/Legislations are in favor of Honest Tea so company should try to maintain good relations with suppliers to expand sales. By maintaining good relations with labor, Honest Tea should try to maximize their production. Honest Tea should use new technology for manufacturing and packaging of the organic product to maintain the quality. Honest tea has great potential and opportunity to enter international arena. It will be beneficial for the company.

Recommendations to Management
Improvement should be made in the 4 Ps of marketing. Be first with new flavors. Honest Tea should continue to seek out environmentally
friendly options for its label inks and adhesives. This may include exploring soy-based inks, less adhesive, or a printing process hat allows for fully recycled paper. The relationship

15

with the printer/labeler should be based on shared information concerning new environmental discoveries and technology

Honest Tea should develop a clear, written policy on Honest

Tea/Service Provider relations. A specific payment schedule An ethical code for Honest Tea purchases Safety and environmental standards Human and civil rights policies particularly covering suppliers Honest Tea should develop fair, written human resources policies that fully cover remuneration, goal setting and performance appraisals, diversity, grievance, sexual harassment, and transparent throughout the company. Everyone should be able to participate in the short-term financial success of the company. All levels of staff should be encouraged to take a longer term financial stake in the company. Honest Tea should develop policies that allow equal opportunity for all. Honest Tea should strive for true diversity of thought and experience not simply diversity in terms of race or gender.

Annexure
We celebrated our 10th anniversary in February and also announced that The Coca-Cola Company purchased 40 percent of Honest Tea, presenting opportunities for even further growth and expansion nationwide. Five new flavors included Citrus Green Energy Tea, Peach White Tea, and Lemon Black Tea in 16.9 oz. PET bottles, as
16

well as Citrus Spice Decaf and Jasmine Green Energy Tea in 16 oz. glass bottles. Consumer Reports again ranks Lori's Lemon as the best bottled tea in its May issue...

17