Better Food for More People

A cup of yogurt won’t change the world, but how we make it might. 

Hamdi Ulukaya, owner, founder and CEO of Chobani, had an ardor for yogurt as a young boy growing up in Turkey, only to be disgusted by the overly sugary and overly watery American yogurt when he moved to the U.S in 1994. In America, the only yogurt he enjoyed was that which he made himself.

In March 2005, Ulukaya stumbled upon an advertisement for a fully equipped yogurt factory that was for sale. The factory had belonged to Kraft, who had decided to exit the yogurt business, and was serendipitously located in upstate New York, about 65 miles from the feta cheese company Ulukaya had started a few years prior. While a closed factory embodies economic decline to many, it represents a low-cost opportunity to entrepreneurs who require expensive capital to architect their visions into reality. Curiosity burgeoned.

chobani

THE CHOBANI JOURNEY: GROWTH SANS EXTERNAL INVESTORS

One fascinating and unique aspect of the Chobani journey is the fact that nothing became something without the reliance on external investors that so many early-stage ventures simply cannot succeed without. Ulukaya bought the old yogurt factory with borrowed money, primarily through a bank loan backed by the U.S. Small Business Administration. His first move? Hire a yogurt maker from Turkey.

By late 2007, Chobani was ready to introduce its yogurt to the world. Led by Ulukaya, the company attempted to differentiate at the onset: the packaging was wider than that of normal American yogurt. Product placement was important: the product was stocked in the dairy aisle alongside other existing yogurt brands, even though many Americans had never before heard of Greek yogurt. (In fact, interestingly, Greek yogurt is known as “strained yogurt” around the world, but the delicious food happened to be introduced to the U.S. by a Greek company, FAGE).

Chobani quickly realized that its biggest problem wasn’t going to be selling enough yogurt – it was going to be producing enough yogurt. Ulukaya continued to finance growth through bank loans and reinvested profits back into the company. Many private equity and venture capital firms called Ulukaya, attempting to convince him that he would need their assistance. “Eventually, I simply stopped returning calls from potential investors. There really wasn’t anything to talk about (Ulukaya).”

Today, Chobani is a multi-billion dollar business and prior to giving away partial equity to his employees (to be discussed later in this post), Ulukaya owned the entirety of the company. In fact, nearly 100% of Ulukaya’s net worth was invested in Chobani – a financial planner’s nightmare due to complete lack of diversification, but an impressive and astonishing vote of confidence in the company from its brainchild. Chobani is revered by many as the propeller of the Greek Yogurt Phenomenon, a trend that is still flourishing and growing today, as competitors of the likes of Dannon and General Mills have eagerly ramped up production in order to hop on the rapidly moving greek yogurt train.

AN ORGANIC BREAK UP: WHOLE FOODS RIDS ITS SHELVES OF CHOBANI

In 2013, two of the biggest success stories in the entire food industry parted ways: Whole Foods announced it would be eliminating Chobani products from its shelves, grasping the attention of the Wall Street Journal, The New York Times, the Washington Post, and a plethora of other news sources, each attempting to define the cause of the tension.

The WSJ reported that Whole Foods only wished to sell organic or non-GMO Greek yogurt. Whole Foods did not approve of Chobani’s sourcing of milk from traditionally-raised cows that consume genetically engineered feed. For context, over 90% of cows in the U.S. eat GMO feed. Under the Whole Foods logic of what constitutes a GMO, animal byproducts from an animal that has at one point consumed GMO feed is now a GMO, which means that you and I and anyone else that has ever eaten GMO food is also a GMO. Whole Foods asked Chobani to source its milk elsewhere, to which Ulukaya retaliated it would be impossible to do so in a cost-efficient manner. Ulukaya stated he would rather sell nutritious food to everyone at an affordable price, rather than selling the same product with more expensive ingredients to fewer people – thus, adhering to the company’s mission of better food for more people.

Whole Foods reported that the cause of the tension was that the retailer had asked all of its Greek yogurt suppliers to create a brand specific for Whole Foods, to which Chobani had said no thank you.

THE SOCIAL STIGMA OF GMOs

GMOs – genetically modified organisms – are increasingly being avoided by consumers. As buyer skepticism has grown, so too has the pressure on companies to exhibit transparency and label all products and ingredients. Although there exists no real evidence of GMO-induced health catastrophes, the negative social stigma towards GMOs is overwhelmingly strong. A 2015 study from the Pew Research Center reported that 9 out of 10 scientists stated that GMOs were “generally safe” to eat. Yet, over 50% of the surveyed adults reported a belief that GMOs must not be consumed for health reasons. In the food industry, perceived effects are arguably more relevant to company profitability and reputation than actual effects. If there existed a certain food that was extremely healthy for humanity, but humanity believed it was terrible for their health, that food would not be consumed. Perception trumps.

THE MISSION BEHIND THE YOGURT:

After the Whole Foods breakup and subsequent attack from anti-GMO organizations, such as GMO Inside, which accused Chobani of being dishonest by labeling its products as “real” and “natural” despite its indirect use of GMOs through its cows, Chobani put its money where its mouth was. In 2014, the beloved yogurt maker partnered with Green America in order to better understand milk sourcing options from cows that have not consumed GMO feed. Chobani launched three certified organic Green yogurt flavors in 2015.

We’ve been dedicated to open and honest conversations to evolve the country’s milk supply, from increasing the number of cows not treated with rBST and improving animal welfare to exploring how to increase non-GMO feed options. While this remains an upstream agricultural issue, we are proud to partner with Green America to help make meaningful changes across the dairy industry. – Peter McGuinness, Chief Marketing and Brand Officer, Chobani.

In addition to working towards complete use of non-GMO ingredients, Chobani is also fulfilling its mission of better food for more people by adhering to local sourcing, donating a portion of profits to Chobani Foundation, which focuses on empowering small business owners, and exhibiting strong transparency through careful labeling of all products and ingredients.

AT CHOBANI, NOW ITS NOT JUST THE YOGURT THAT’S RICH”

In April of 2016, The New York Times published an article about an unusual generosity on behalf of the CEO of Chobani: Ulukaya had announced he was offering Chobani shares to all 2,000 full-time employees, equating to 10% of the entire company’s equity. The shares came directly from Ulukaya’s own portion and the number of shares were bestowed to employees based on tenure. The company’s value is between $3 and $5 billion, which means Chobani’s earliest employees received equity shares worth well over $1 million. While employees were rejoicing, private equity firm TPG Capital, who had provided Chobani a loan two years prior, was less than pleased as the PE firm had a warrant to buy at least 20% of Chobani shares – this percentage would now be calculated from the 90% of the remaining shares, as 10% of the company was now in the hands of its employees, thus diluting TPG’s potential equity stake. TPG refused to provide a comment.

Employee stock ownership is not unusual, as exemplified by the many technology startups that often pay employees in equity throughout the early days, often times a strategy to recruit talent. But it is rare that businesses with such established value, such as Chobani, grant shares to employees after said value has been established. NPR reported an immense amount of hugging and crying at the announcement ceremony. “There’s a very emotional bond and an emotional connection that you don’t typically associate with a manufacturing facility, or a yogurt plant.” The loyalty and satisfaction among Chobani employees represents the immense power of the brand.

greek-yogurt

Per capita yogurt consumption has augmented 400 percent over the past three decades (IbisWorld) and Greek yogurt has rocketed to approximately 35% of the overall yogurt market (Bernstein Research). As consumers become more and more health conscious, the low-sugar, high-protein “Greek” yogurt is becoming increasingly “worth” the higher price point.

Nielsen revealed that while the overall U.S. retail yogurt category experienced a decline in revenue of 0.9% in 2016, Chobani’s U.S. operation experienced both significant volume growth and double digit sales. According to experts, Chobani’s performance was driven in large part by the non-GMO Flip yogurt and the company’s successful foray into yogurt drinks. Chobani has extended its reach: its yogurt tubes have been added to McDonald’s Happy Meals and the yogurt itself is used in McCafe smoothies in over 800 retail locations. Chobani yogurt is also offered on American Airlines, United, Delta, and Jet Blue flights. This represents a tremendous expansion for the brand. While the company is continuously innovating and one day will likely be known for a broader food category than that of yogurt, greek or strained yogurt lovers should not forget the company that was responsible for the uproar of Greek yogurt in America: Chobani.

To me there are two kinds of people in this world. The people who work at Chobani and the people who don’t. -Hamdi Ulukaya, CEO, Chobani.

 


Featured Image sourced from Chobani.com

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