Chobani: keeping its foot on the accelerator

NORWICH — “Our cows are working overtime,” New York State Senator James L. Seward (R–Oneonta) was quoted as saying at the New York State Yogurt Summit held in Albany in August 2012. Seward, who represents the Senate district in which Chobani is located (Chenango County), offered his comment following Gov. Andrew Cuomo, who boasted that New York’s yogurt industry included 29 plants, consumed 1.2 billion pounds of milk annually, and employed over 8,000 people. Sheldon Silver, the State Assembly Speaker (D–Manhattan) who is not known for hyperbole, thought that the state could become “… the yogurt capital of the United States, if not the world.”

Explosive growth

Driving this yogurt explosion is Chobani, Inc., headquartered at 147 State Highway 320 in Norwich. The company controls 50 percent of America’s Greek yogurt market, according to Nielsen Co. data and 17 percent of the total yogurt market according to Chicago-based research firm SymphonyIRI Group.

Chobani, founded by Hamdi Ulukaya, delivered its first 200 cases in 2007. “Today, we ship two million cases weekly,” according to Chobani’s chief financial officer, James McConeghy. Annual sales have rocketed from $1 million in the first year of shipping product to over $700 million by the end of fiscal year 2012.

McConeghy projects sales “… of more than $1 billion dollars for 2013, as a new $450-million, 1-million-square-foot plant in Twin Falls, Idaho comes on line.” The plant officially opened on Dec. 17, 2012 and has the capacity to equal the 3 million pounds-per-day of milk consumption of the South Edmeston, New York facility. In 2012, Inc magazine clocked Chobani’s revenue growth at 2,662 percent for the preceding three years.

Chobani’s growth is all the more surprising when you consider the company mixes milk and cultures in New York, not the Internet and software development in Silicon Valley. No company in history has scaled up more quickly except for the daily-deal web company Groupon (NASDAQ: GRPN), which required extensive venture-capital investment and has had difficulty generating substantial profit.

“Chobani is very profitable,” said Ulukaya last August at a luncheon held at the Century Club in Syracuse. The company has grown with no outside investment, “relying on conventional bank loans and cash flow,” says McConeghy. Bank of America is the firm’s lead banker. Bloomberg’s “Billionaires Index” now includes Ulukaya, who is the sole stockholder in Chobani, with a net worth of $1.1 billion.

Chobani began as Agro-Farma, Inc. in 2005 when Ulukaya bought a shuttered Kraft yogurt plant in South Edmeston with the help of a $700,000 SBA loan. Starting with just five employees, Chobani now employs 2,000 with 1,300 in Central New York. Besides its New York and Idaho locations, Chobani bought Bead Foods in Melbourne, Australia in July 2011, an award-winning yogurt and dessert maker, and established Chobani Australia. The company regularly ships its products by air to England, where it is distributed in a number of retail outlets. McConeghy says “we’ve had a good reception both in England and Australia.” Chobani also distributes its products to Canada. He adds that the company now “… owns more than 2 million square feet of space.”

Secrets of success

Some of Chobani’s meteoric rise can be attributed first to timing. Greek yogurt is the hottest product to hit the food market in years, according to Robert Ralyea, senior extension associate at Cornell University’s Food Processing and Development Laboratory. Greek yogurt now makes up 36 percent of the $6.5 billion in total U.S. yogurt sales, according to the investment firm AllianceBernstein.

Second, Ulukaya aggressively expanded his production and marketing to meet the growing demand. Third, he doesn’t believe in customer research, preferring to listen to the consumers directly and insisting that feedback and complaints come to his smart phone. Fourth, America’s king of Greek yogurt is a perfectionist. He spent two years developing his product before he released it, insisting on using the traditional straining process of his native Turkey, using only real fruits, and ensuring a probiotic, natural product — either low in fat or with no fat and hormone free. Chobani yogurt is also gluten-free, and free of corn, nut, and soy allergens. Ulukaya even oversaw the design and manufacture of the containers into which the yogurt would be poured.

Chobani’s success also depends on offering variety. In January 2011, the company released Chobani Champions, its first option to the standard six-ounce cup. Champions packs two ounces of low-fat Chobani yogurt and fruit puree in a tube, eliminating the need for a spoon. The product is targeted to kids. In June 2012, U.S. Senator Charles E. Schumer (D–NY) announced a plan to make Greek yogurt “… an affordable, healthy (sic) option for public-school meals.” Chobani has also introduced Chobani Bites, a 3.5 ounce, four-pack container of its yogurt with 100 calories or fewer and Chobani Flip, a square yogurt package containing nuts, dried fruit, and granola for mixing.

Variety doesn’t just come in packages. Last year, Chobani opened a Mediterranean yogurt bar at 150 Prince St. in New York City’s SoHo district. McConeghy says the “store is a big hit … we get a lot of foot traffic,” offering different toppings for customers to create their own blends. McConeghy is non-committal on calling the SoHo store a pilot project or the beginning of a retail chain. “The SoHo store is a test,’ says McConeghy. “We want to expose people to Chobani.”

McConeghy also attributes Chobani’s success to the employees, whom he describes as “passionate, hard-working, and dedicated to growing the company.” In particular, the CFO cites the leadership team at Chobani: Ulukaya, CEO and president; Kyle O’Brien, executive vice president of sales; Halil Ulukaya, VP of operations; Grace Simmons, chief of staff and VP of strategic initiatives; Nicki Briggs, director of communication; John Heath, senior vice president of innovations and interim chief marketing officer; and Craig Gomez, head of global HR

McConeghy is clearly a key employee on the Chobani team. His 30-year career in business includes being the vice president of finance at Bausch & Lomb and a principal at Signet Management, LLC. McConeghy is a CPA who also earned his MBA at the William Simon Graduate School of Business at the University of Rochester. He started at Chobani three years ago as the interim CFO, before assuming the title.

Hamdi Ulukaya came to the U.S. in 1994 to learn English and to take some business courses. He started in business making feta cheese at a plant in Johnstown (Fulton County) when he saw an ad in 2005 for the closed Kraft plant. Convinced that Americans could enjoy Greek yogurt as a snack, a side dish, or as an ingredient in cooking, Ulukaya bought the Kraft plant, planning to scale up.

His success and that of the other state yogurt makers has strained New York’s current capacity to supply raw milk. Because Greek yogurt requires three times as much milk as non-strained yogurt and Americans are devouring Greek yogurt, “the state has a five percent milk deficit,” Ulukaya said at the August 2012 luncheon in Syracuse. Dairylea, a milk-farmers co-op headquartered in Syracuse, supplies most of Chobani’s milk. The state is encouraging its dairy farmers to increase their herds to keep up with demand

Ulukaya is poised to make Sheldon Silver’s dream a reality: New York as the world’s yogurt capital. At age 40, Ulukaya has the energy, money, marketing savvy, and organizational talent to remain the U.S. market leader and the ambition to be the world leader. But Chobani does face headwinds.

Challenges

First, there is competition from major yogurt makers like Fage, Dannon, Mueller Quaker Dairy (a joint venture between PepsiCo and a German dairy company), and Yoplait to potentially displace Chobani’s lead. McConeghy’s response is that “there is plenty of room for all the competitors to grow. Americans consume only half the yogurt of Canadians and one-sixth the yogurt of Europeans.” Second, Chobani has to constantly battle for retail refrigerated space as it offers new products and steps up its production. Third, the company faces a continuing problem of whey disposal. Whey is a thin, acidic liquid by-product of the yogurt process. Chobani currently pays area farmers to take the whey and use it as fertilizer and as a feed supplement. The company is in contact with New York state and with research groups to find alternate uses of whey such as conversion to biogas or bio-plastics.

Fourth, Ulukaya’s ex-wife, Ayse Giray, sued the yogurt-maker last August in New York state court, according to multiple published reports. She claimed that the couple launched a cheese-making operation in 1997 called Euphrates using her credit and a $200,000 investment. Ayse and Hamdi remained business partners after the divorce in 1999, and she claims that she gave Hamdi another $300,000 between 2002 and 2003 to help expand Euphrates into other dairy products. The ex-wife is claiming a 53-percent stake in Chobani, according to the media reports.

Full speed ahead

Ulukaya has been generous to the community. “He set up the Shepherd’s Gift Foundation (Chobani is the Turkish word for “shepherd”) and annually gives 10 percent of the company’s net profit to dozens of organizations,” says McConeghy.

Ulukaya has clearly taken Chobani from a boutique maker of Greek Yogurt to a national powerhouse and, in the process, put New York state on the yogurt map. He has created an industry and attracted a growing field of competitors to help quench America’s growing appetite, which at this point appears unlimited. While no one can predict the future, there is one thing that is predictable: Chobani is not putting the brakes on anytime soon.

“The company is innovative, aggressive, and nimble,” says McConeghy as he tries to stay ahead of the curve of a company experiencing rocket-like growth.

Contact Poltenson at npoltenson@tgbbj.com