Meet Chobani, the Turkish King of Greek Yogurt
Hamdi Ulukaya sits in a restaurant in upstate New York, waggling a rolled-up slice of pizza, making bombastic pronouncements about yogurt. As the founder and chief executive of Chobani, the brand of Greek yogurt that has stormed the stainless steel refrigerators of coconut water drinkers and ancient grain eaters, he has some standing in the matter, although he’s actually Turkish.
The yogurt that most Americans ate for decades was a travesty, in his view: too thin, too sweet, too fake. “So horrible,” he says in his Turkish accent, his eyes bright against a lean face. “Terrible.” As he sees it, we were all snookered by big food companies that cared little for our taste buds or health. Greek yogurt’s high protein content makes it more filling, and it contains little or no fat. His doesn’t have preservatives, either. “There is no reason for us to put preservatives in the food,” Ulukaya says. “I would say to the big guys, ‘Watch out. You’d better change your ways. The consumer knows now, and the consumer will punish you if you don’t do the right thing.’ ”
He has kind words for one competitor, albeit briefly. Fage, the Athens-based company that first brought Greek yogurt to the U.S. 15 years ago, “makes great yogurt,” he says. But when I start writing that down, he almost jumps out of his chair. “No, no, no,” he says, “Fage does not make great yogurt.” Then he laughs.
He can afford to pass out compliments. Chobani has made Ulukaya a billionaire, according to Bloomberg data. Five years ago Chobani had almost no revenue. This year, the company will sell more than $1 billion worth of yogurt, says Ulukaya, who’s the sole owner. Once a niche business, Greek yogurt now accounts for 36 percent of the $6.5 billion in total U.S. yogurt sales, according to investment firm AllianceBernstein (AB). Upstate New York, with its 28 plants owned by Chobani, Fage, Yoplait maker General Mills (GIS), and others, has become something like the Silicon Valley of yogurt.
Near the restaurant, trucks rumble by, headed to a Chobani plant 5 miles away in the hills of South Edmeston. Most days, more than 150 come at all hours to deliver milk or haul away fresh yogurt. The plant’s 1,300 employees work around the clock to produce more than a million cases of yogurt a week—the equivalent of 12 million 6-ounce containers of Chobani plain, strawberry, blueberry, peach, pomegranate, passion fruit, blood orange, and a dozen other flavors.
Ulukaya, 40, lives with German shepherds named Panja and Cedric in a modest house near South Edmeston. He says he’s building a man cave with a pool table and big-screen TV. On a recent day he puts on a white smock and blue hairnet and saunters through his factory like a kid on a playground full of pals. Workers offer hugs and handshakes while calling out, “Hamdi,” and “Boss.” He snatches a Chobani six-pack from a pallet destined for a Costco store. “This is for people who wanted to buy too many cups to carry,” he says. “It’s for heavy users, or actually now”—he smiles—“average users.”
For all of his cheerful swagger, there are no sinecures atop the dynamic yogurt market. Dannon, Yoplait, and smaller rivals are churning out their own Greek products. Ulukaya’s payroll has almost doubled in the past year, and he has built plants in Idaho and Australia, offices in Manhattan and Amsterdam, and a retail store in New York City’s SoHo. His ex-wife is suing him for $1 billion, saying she helped fund Chobani and is entitled to at least 33 percent of the shares. (Ulukaya says the suit is meritless.)
Sitting in his small office, surrounded by photos of dairy farms, Ulukaya says he worries most that he or his employees could forget how they succeeded in the first place. “We focus on the one cup of yogurt,” he says. “We stayed close to the plant. We are very good food manufacturers—that’s who we are. We are makers.” He gathered key staffers a while back to emphasize this point. He told them that if they detected unwelcome changes in him, they had his permission to punch him in the face. “I was serious,” he says.
Ulukaya grew up milking sheep at his family’s dairy in eastern Turkey. He ate the thick, tangy yogurt of his homeland day and night. “My mother used to make the most amazing yogurt,” he says. He and his five brothers fought over who would get the scrim of cream on the surface.
He came to New York City in 1994 to learn English. Uncomfortable in the city, Ulukaya moved upstate, where he found farm work while attending classes at State University of New York at Albany. After a visit from his father, who complained about American feta cheese, Ulukaya started a company in Johnstown to make feta for restaurants and food distributors. He named it Euphrates and still owns it.
One day in 2004, as he was tidying up his office, he came across a postcard advertising a yogurt plant Kraft Foods (KRFT) was closing. He dropped the ad in the garbage, thought for a while, and fished it back out. The next day, Ulukaya drove to South Edmeston and visited the plant, an 84-year-old facility squatting in a valley between a hilltop graveyard and a biker bar. The walls were splotchy gray, and the equipment was old. Ulukaya wanted it anyway, and in August 2005, with the help of a U.S. Small Business Administration loan, he bought it for a sum he won’t disclose. His first employees were four ex-Kraft workers and Mustafa Dogan, a yogurt maker in Turkey Ulukaya knew by reputation. The first thing they did was paint the walls.
Yogurt is an ancient food: milk fermented with the aid of bacterial cultures. Greek yogurt is known in Europe and Asia as “strained” because whey—the water left after milk has been cultured—is filtered out, resulting in a thicker, creamier product. It takes a cup of milk to produce a cup of regular yogurt, but it takes 3 or more cups to make a cup of Greek. Chobani uses 3 cups of milk to Fage’s 4, saving the company money it can plow into plants or into discounting products in new markets.
To strain out the whey, Ulukaya needed a machine called a separator. He found a used one in Wisconsin for $50,000. On his trip to pick it up, the name Chobani—a variation on çoban, Turkish for shepherd—popped into his head. For months, he and Dogan experimented. They wanted yogurt that would retain its good taste and texture for at least six weeks and tested hundreds of recipes using different bacterial cultures with milk at varying durations and temperatures. Ulukaya often spent the night in his South Edmeston office; lunch most days was a slice of cheese pizza and salad at a nearby pizzeria. To bring in a little revenue, he made conventional yogurt for private-label brands. After about 18 months of trial and error—and a great many batches of crappy yogurt—Ulukaya and Dogan hit on the right recipe.
In 2006, Chobani hired its first salesman: Kyle O’Brien, then 33, a veteran of packaged food startups. He and Ulukaya set a goal of selling 20,000 cases of Chobani a week, which they thought would make the company profitable. “If we couldn’t get to it in 36 months, we said we’d hug it out and go our separate ways,” O’Brien says. “He said, ‘We will change the yogurt category forever.’ I loved that.”
Chobani couldn’t afford to advertise, so the packaging became almost as important as the yogurt itself. “If you’re going to be buried in the lower left corner of the shelves, it had to pop,” says Joshua Margolis, co-author of a new Harvard Business Review study on Chobani. Garbage bags full of sample cups piled up in Ulukaya’s office. He decided he wanted a European-style cup with a circular opening 95 millimeters across. It made for a squatter, fatter tub that looked bigger than others. The packaging manufacturers Ulukaya contacted in the U.S. wanted $250,000 just to create a mold. He found a Colombian supplier that was able to make his cups at a much lower price, but wound up spending $250,000 anyway—half his working capital—on cup design. Instead of painted-on labels, Ulukaya wanted shrunken-on sleeves offering sharper colors. “People say, ‘It’s yogurt, who cares?’ But there’s emotion to it,” he says. “You can make this a moment: the opening of it, the eating of it, the experience. I spent so much time on every single detail …”
Ulukaya still obsesses over the cups. In his office, he plucks a Chobani plain out of a mini fridge and traces a fingertip along a green stripe below the lip. “It has to be the same all the way around, flush with the top,” he says. “I get really pissed off when the label is not put on right.” He peels the foil cover back. A smear of yogurt is stuck to the inner lining. “I see this yogurt on the lid, I go nuts. It shouldn’t be like that.” He tosses the uneaten cup into a garbage can.
To keep control of their product, Ulukaya and O’Brien approached retailers directly rather than going through distributors. Whenever a grocer offered to put Chobani in the organic section instead of the regular dairy case, O’Brien declined. Prices were set high enough to recover Chobani’s costs but not so high, in Ulukaya’s opinion, that rivals could easily undercut. Today, prices remain at about $1.30 for a 6-oz. cup.
One night in October 2007, Ulukaya and his staff finished packing the first order of Chobani: 300 cases of peach, strawberry, and blueberry for a supermarket on Long Island. At the time, Dannon and Yoplait claimed 71 percent of the U.S. yogurt market, according to AllianceBernstein. Greek yogurt had 2 percent, nearly all of which was Fage. Ulukaya waited an anxious week before calling the Long Island supermarket to see how sales were going. The news couldn’t have been better: Not only had customers returned for more Chobani, but they also were also telling friends. The grocer ordered 300 more cases. By the middle of 2009, Chobani was selling 200,000 cases a week.
It’s rare that an upstart can bust into a business as entrenched as packaged food, command a premium, then withstand the counterattacks of large, established players. Boston Beer (SAM), maker of Samuel Adams, has pulled it off. Whole Foods Market (WFM) did the same in supermarkets. Industry analysts expect rivals to squeeze Chobani by discounting prices, though Lu Ann Williams, research manager at Innova Market Insights, doubts that will work. Chobani has “delivered against consumer expectations,” she says. “I don’t think a Chobani consumer would trade easily.” Harvard’s Margolis says eating Chobani, like shopping at Whole Foods, isn’t about any one thing but many—from the label to the cup to the stuff inside. Ulukaya, he says, “thought through the buying experience.”
Dannon has chipped away at Chobani’s Greek market share with its new 80-calorie Light & Fit Greek line, while Yoplait rolled out a 100-calorie product and Yoplait Greek Pro-Force for children. A joint venture of PepsiCo (PEP) and German dairy giant Theo Müller is importing yogurt and building a plant in Batavia, N.Y. Ulukaya expects industry sales to double in five years, saying, “If all the manufacturers start making really good yogurt, there’s room for everybody.”
In 2009, Chobani’s projections warranted a doubling of weekly production to 400,000 cases. But Ulukaya worried that such a jump in production would be like kicking two large sleeping dogs, Yoplait and Dannon. “It’s very dangerous territory,” he says. “For a startup, you need to stay small so the others don’t attack, or you aim to be one of the big guys. If you don’t do it right, you might lose everything.” He decided Chobani would gear up to produce not 400,000 but 1 million cases a week.
The challenges of growing fast are clear at the South Edmeston factory, a labyrinth of vast rooms connected by an Escher-like web of stairways, doors, and an enclosed bridge over Otsego County Road 25. Buried inside are the innards of the old Kraft plant, a steamy tangle of pipes and potbellied machines that ferment the milk and strain out the whey. Ulukaya, in his smock and hairnet, lifts the lid on a cylinder jutting from a separator and dips a ladle inside, dishing out bowls of warm yogurt. In the sleeving room, cups click and labels whoosh overhead; 10 production lines can assemble as many as 6 million cups a day. Ulukaya grabs an empty Chobani blood orange cup as it chugs past and says, “Before us, nobody sleeved yogurt. Now others are sleeving.”
The plant runs 24/7 to keep up with demand. Most machines go for 10 hours, then stop for four hours of cleaning. Some people were working 10 days in a row until 2010, when the plant switched to a four-shift system with employees working two 12-hour days, then taking two full days off.
Dogan, whose official title is Yogurt Master, roams the plant tasting yogurt and fruit at various stages of production. He says he eats more than 4 pounds of yogurt a day. Asked what else is in his diet, he smiles. “Black tea,” he says. Lately he’s been traveling to Idaho and Australia. He can’t be everywhere at once, so the company is nurturing new yogurt experts, including Dogan’s son.
As orders rose to 1.2 million cases a week in 2011, Chobani found it harder to get enough milk. Because milk prices are largely controlled by the federal government, New York dairy farmers are reluctant to spend on herd expansions. Ulukaya wanted to branch out into different flavors and packages, but his sole plant was going all-out just to make enough product. In December, Ulukaya and Idaho Governor Butch Otter dedicated a $450 million plant in Twin Falls. At around a million square feet, it’s the largest yogurt plant in the world, Ulukaya says. It will draw on an abundant milk supply; Idaho in recent years passed New York to become the third-largest milk-producing state. The plant has the capacity to produce at least 1 million cases of yogurt weekly, many of them new products such as 3.5-oz. servings called Bites.
Ulukaya’s been spending more time on Chobani’s corporate jet. In 2011, Chobani bought Bead Foods, an Australian dairy, and spent $30 million upgrading its yogurt plant near Melbourne. Ulukaya hopes to export yogurt from there to Asia. The company also opened the international sales office in Amsterdam.
Emily Schildt, 25, Chobani’s director of consumer engagement, works with other twenty- and thirty-somethings at Chobani’s loft-like marketing office in lower Manhattan. She used to answer every person who mentioned Chobani on Twitter and Facebook (FB). Now a staff of nine must settle for retweeting and other less-direct responses. “There’s a new kind of strategy so that everyone feels loved,” she says. A few blocks away at the boutique opened last year, consumers can try exotic combinations like plain yogurt with pistachios, chocolate, honey, oranges, and mint—and Chobani can gauge which ones might work in the mass market.
Ulukaya says that during the company’s first big growth spurt two years ago, he tried to find an experienced executive to take over as CEO, but never met anyone he thought would be better. He vows that Chobani will remain independent, “so I can run the company the way I want to.” Never mind that he just imposed a companywide smoking ban that forces him to leave the premises for a cigarette. “I didn’t get into this just to get an exit,” he says. “I love what I’m doing.”
Crossing the enclosed walkway in the South Edmeston factory, Ulukaya stops to gaze up at video screens displaying photographs from the Idaho plant opening. “That’s the governor,” he says, pointing. “He’s a cool guy.” He looks at pictures of himself in a charcoal cashmere topcoat and gray scarf, and grins. “Man, I was killer.”
SOURCE: BusinessWeek.com, gcase.org