Retail

Chobani And The Surprisingly Innovative World Of Yogurt

Yogurt is an undeniably popular product in the United States. In 2015, Americans ate $7.7 billion dollars worth of yogurt, and that figure is on track to grow to $9 billion by the end of 2019. Considering the average unit of yogurt in the U.S. is a 4–6 ounce plastic cup with a retail sale price that is less than a dollar, Americans are buying an awful lot of yogurt.

And while people like yogurt — apparently, a lot — until very recently, it was not a product anyone really thought much about or tried to innovate. Yogurt, until a few years ago, was just one of those things that was what it was — a slightly healthier but slightly less tasty version of pudding. Beloved of moms making lunches and people with enough will to eat something healthy for lunch but not enough will to eat a vegetable, yogurt was one of grocery retailers more stable products.

Or at least that was the case until 2005, when entrepreneur and unlikely yogurt manganate Hamdi Ulukaya opened an unusual piece of mail shortly after selling off his feta cheese business: Euphrates.

“By 2005, I thought maybe I would relax and have a family. But one day I opened a piece of mail. It said, “Fully equipped yogurt factory for sale.” I threw it away. But then, I thought about it later and went back and got it out of the garbage,” Ulukaya noted. “So, I called. It was nearby in South Edmeston, NY, near Utica. Kraft was closing it and getting out of the yogurt business. There were a million reasons not to buy it. My friends said, ‘Don’t do it.’ But I did. I was listening to my instincts that there’s something in this.”

Ulukaya’s instincts were on track. After hiring the recently laid-off Kraft employees — and a yogurt master — Ulukaya began working on developing Chobani’s signature strained yogurt style — more commonly known as Greek yogurt.

It was apparently the yogurt innovation the American public didn’t know it needed.

And giving Ulukaya full credit for the Greek yogurt explosion is a little bit unfair, as Chobani’s rival, Fage, actually beat Chobani to the U.S. market by about seven years. But Chobani, with its mass production capability in the U.S., against all odds, pushed Greek yogurt mainstream.

In a big way.

Greek yogurt went from a niche product five years ago to accounting for over a third of total U.S. yogurt sales in 2013. As of 2015, about half of the yogurt sold in the U.S. was Greek yogurt. Upstate New York, with its plants owned by Chobani, Fage and Yoplait maker General Mills has been called the Silicon Valley of yogurt.

Chobani’s rapid ascendance has certainly caught the world’s attention, particularly that of its dethroned competitors at Dannon and Yoplait, who’ve seen a market they dominated for decades taken over by strained yogurt. And according to Ulukaya, Chobani is special — both in its capacity to look forward and backward.

 

Innovation-Minded

Typically, supermarket-associated brands with their own quirky little retail locations have been all the rage of late. If one wants a highly customized brand of cereal, Kellogg’s has just the dining location in Manhattan. For those who want to eat cookies — and nothing else — Nestle’s Toll House Cafes are scattered throughout the U.S ready to support the dream of living entirely on cookies and milk alone.

But largely kicking off this recent trend were the forward thinkers at Chobani that opened up their SoHo-based yogurt cafe almost four years ago. Described as frozen yogurt minus the freezing, it’s the same yogurt Chobani is brewing in upstate New York, though served in sweet and savory variations from a custom selected menu.

And those cafes are expanding, with an assist from Target.

Target is doing some innovating of its own, as it is opening its first smaller-scale urban venue in Tribeca near the World Trade Center. The 45,000-square-foot store is looking to build some buzz, and it has partnered with Chobani to service it up. Apart from yogurt, the cafe will offer Mediterranean-themed sandwiches and salads.

Chobani is also rethinking its relationship with its employees and the incentive structures they operate under. Earlier this year, Ulukaya announced that, when Chobani goes public, the 2,000 or so workers at Chobani’s upstate New York plant will all be given ownership shares in the company worth up to 10 percent.

Chobani was last valued (during a loan process) at $3 billion–$5 billion. At the $3 billion valuation, the average employee payout would be $150,000. The earliest employees, though, will most likely be given many more shares, possibly worth over $1 million.

Ulukaya’s rationale at the time? It’s the right thing to do, and it’s also really good for the bottom line.

“I’ve built something I never thought would be such a success, but I cannot think of Chobani being built without all these people,” Ulukaya said in an interview. “Now, they’ll be working to build the company even more and building their future at the same time.”

It’s a rationale familiar to those who work in tech, where stock allotment and shares are somewhat common (though, generally, not so long after a high valuation has been established), and almost completely alien in food production.

But Ulukaya said he doesn’t view his ideas in this regard as new so much as a return to normal.

 

Looking Backward

One of the more amusing ironies in the runaway succecss of Chobani is that Ulukaya initially came to the U.S. from Eastern Turkey to escape his family’s traditional occupation of making cheese and yogurt. He wanted to go to business school, and in 1994, he enrolled.

But never finished. Instead, he got into the cheese-making businesses because, during a visit, his father commented that the cheese and yogurt in the U.S. was subpar and that his son should do something about it.

“The yogurt story in this country is just getting started. We feel that, as long as we stay true to who we are — quality, good-tasting products that are priced fairly and honestly positioned — our growth is limitless. So, that’s what we’re doing, and we won’t compromise.”

And while most food makers are in the business of making good-tasting quality products, few take staying true to themselves quite as seriously as Chobani. By most reports, Ulukaya spends most of his time on his factory floors in a blue hairnet and gloves.

He is probably the only CEO in the United States who has left a standing instruction with his staff to “punch me in the face” if he diverges too far from Chobani’s core, founding values. Not his senior staff — the entire 2,000-person workforce at his factory in New York.

Is yogurt’s story just getting started? Hard to say. Until very recently, no one but Hamdi Ulukaya thought there was anything more to say in the yogurt story at all. The temptation, however, is to trust his instincts, since, at this point, it seems fair to conclude he knows more about yogurt than the rest of us.

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