Guayaki Wants to Take Yerba Mate from Niche to 7-Eleven Staple

Yerba mate -- a caffeinated South American drink brewed like tea from the dried leaves of the mate plant -- is a niche product in North America. Guayaki wants to take it mainstream. The 40-employee Sebastopol, Calif., company is trying to prove that a beverage popular with Whole Foods customers can win over 7-Eleven and Kroger’s shoppers, too. Selling loose mate leaves and bottles and cans of the brew, 14-year-old Guayaki had $10 million in sales last year and is projecting $13 million in 2010. Few other beverage makers sell mate in the U.S. Two Coca-Cola brands recently entered the market: Honest Tea launched a mate line last year and Minute Maid started selling juices flavored with the herb in March.

Guayaki also wants to use its business to rescue the forests in Brazil, Argentina, and Paraguay, where mate is grown. To date, the company says it has restored 20,000 acres of forest. As part of the Clinton Global Initiative, it committed to restore 40,000 acres of the Atlantic Rainforest in southern Brazil and create living wage jobs for 250 families in the area’s indigenous Marrecas community. Now it’s seeking $1.5 million in grants and loans from the initiative’s partners to meet that goal in the next two years. Guayaki co-founders David Karr and Alex Pryor, both 39, spoke recently with Bloomberg.com’s John Tozzi about expanding their business and their social mission. Edited excerpts of their conversation follow.

John Tozzi: Describe the yerba mate market.

David Karr: Yerba mate is part of a half-trillion-dollar stimulant category. Of all the stimulants on the market -- coffee, tea, kola nut, mate, guarana, cacao -- it’s the new and emerging category. It’s probably $1.5 billion or $2 billion at most. We’ve taken this product and we put it into multiple formats and created a market-driven restoration business model around it. If anyone buys the product, they’re driving [forest] restoration down in Brazil, Paraguay, and Argentina. That’s the only place in the world that mate grows, in the subtropical Atlantic Forest between the 20th and 30th parallels.

Q: What are the problems in those countries that your business model is trying to solve?

Alex Pryor: There’s 7 percent of the original forest left. It’s second-highest in biodiversity, right below the Amazon. Of that 7 percent that’s left, the major causes of deforestation are different industries like corn, soybeans, and the lumber industry that are cutting the forest down. The consequences are huge: It just becomes big corporations that own this land and cultivate cash crops. You’ve got contamination of the rivers and soil. What Guayaki is doing is bringing an economic alternative that will restore the forest and restore the watersheds.

Q: You’re $10 million of a $1.5 billion yerba mate market. How do you handle the costs of using fair-trade labor and restoring forests when you have competitors with lower costs?

David Karr: Even the largest yerba mate company down there tried to come to the U.S. market and they failed. We’ve innovated. We have shots and bottles and cans. We’re making it available to the ‘gringo’ in the way the gringo wants to take it. Even with the loose mate, which is still half our business, when you grow it in the forest you have a higher-quality product. We’re proving that it’s profitable to restore communities and restore forests.

Alex Pryor: Is it challenging for us, internalizing all these costs? Yes, it is. After being in business for 14 years, we’re bringing a profitable model. We’re being recognized at the Clinton Global Initiative as a market-based solution to social and environmental problems.

Q: How do you get from where you are now to being a $100 million company?

David Karr: The cans. We only launched our first [packaged] beverage in 2005. We started in 1996 and we had tea bags and loose mate for the first eight years of our business. Then in 2005, with $100,000, we launched bottled beverages. We’ve basically been selling mate into natural food stores, the Whole Foods of the world. This year we launched the cans. Instead of selling at $2.49, these are $1.99, three for $5 -- everyday prices. Those are going into Kroger’s and 7-Elevens and mass- market stores. We’ve been playing in 2 percent of the universe. Now we’re going after the other 98 percent.

Q: How do you maintain your social mission as you reach that mass market?

Alex Pryor: We put in the same balance: the economic goals together with the social goals, together with the environmental goals. We need these three objectives to go parallel. So far we’ve been able to achieve that. We’ll see how challenging it becomes in the future. In a way, the more demand we have, the better, because the more yerba mate we sell, the more [forest] we can restore. That’s the whole reason why we started the business, to create this market solution.

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