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As detailed in The New York Times, Honest Tea is a specialty juice and tea company with 2009 revenues of $47 million. Coca-Cola owns 40% of the company with an option to buy the remainder next year. One of Honest Tea’s products marketed for consumption by children features “no high-fructose corn syrup” on its label.  Coca-Cola asked Honest Tea to change or
remove the label. Coke doesn’t want the ingredient disparaged because it uses it in other products.

Who has the leverage advantage? You might assume Coca-Cola because it is much larger and may soon own Honest Tea outright. However, size alone does not guarantee a leverage advantage. In fact, size is much less important than a) both sides’ need levels and b) both sides’ best alternatives (or Plan Bs to doing the deal with each other).

Here, Honest Tea’s need level is low because they legally retained control over its products’ contents in its agreement with Coke and could harm its customers’ trust if it removed or watered-down the label. At the same time, Honest Tea wants to protect its relationship with Coke which provides much wider distribution and may soon become its sole owner.  Maintaining the status quo (no agreement) is a much better alternative for Honest Tea than losing Coca-Cola’s distribution.

From Coke’s perspective, despite its size advantage, its need level is higher because its products containing high-fructose corn syrup are much more important to the company’s bottom-line.  At the same time, it is facing decreasing demand for soft drinks and is seeking ways to increase its presence in the growing natural andhealth drink markets.  If a resolution can’t be reached, Coca-Cola could maintain the status quo or look for alternative health drink companies to invest in but neither may be as desirable to Coke as reaching an acceptable compromise with Honest Tea.

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