2012 Processor of the Year: Chobani

Dec. 5, 2012
Turkish immigrant Hamdi Ulukaya wanted yogurt like that back home, so he made some – like a billion dollars' worth of it.
Chobani CEO Hamdi Ulukaya grew up on a dairy farm in Erzinkan in eastern Turkey, his family made cheese primarily, and a little yogurt, both mostly using sheep's milk.

It's difficult deciding which Chobani story to tell first. The Horatio Alger story of a Turkish immigrant who bought a shuttered yogurt plant and became a successful businessman. The creation of a new and intensely hot food category. How a startup based on a single product grew into a billion-dollar company.

After a year in which Greek yogurt became the hottest-growth food category, we name Chobani Inc. our eighth Processor of the Year. In just five years, Chobani became the biggest-selling single brand in the overall yogurt category (admittedly, Dannon and Yoplait segment their brands much more).

While we'll recount the road to this phenomenal success story, it's essential to note up front 2013 will be a make-or-break year for this company. Can it operate a second U.S. plant, a greenfield that will be the world's biggest yogurt factory? Can it extend its success to other parts of the globe? Should Horatio Alger hire a professional manager? How far can you run on a single product category?

Those are issues Chobani is considering, and we all will witness the decisions and their outcomes. But for now, the party is for Chobani 2012, and all we're serving is Greek yogurt.

Horatio Alger of yogurt

Hamdi Ulukaya wanted to come to the U.S. to learn English since he was a child. Growing up on a dairy farm in Erzinkan in eastern Turkey, his family made cheese primarily, and a little yogurt, both mostly using sheep's milk.

He worked in the family business and studied political science at Turkey's Ankara University. But in 1994, he enrolled in Adelphi University, on New York's Long Island, to learn the English language. Within a year he moved to central New York, enrolling in the State University of New York's Albany campus intending to study business. But his family pressured him to get into business, rather than study it, and soon he was importing his family's feta cheese and selling it in central New York.

Chobani Inc.
Headquarters: Norwich, N.Y.Employees: More than 1,700 globallyKey Executives: Hamdi Ulukaya, founder and president/CEO. Kyle O'Brien, executive vice president of sales. Brand Names: Chobani, Chobani Champions, Chobani SoHo Plant Locations: South Edmeston, N.Y.; Twin Falls, Idaho; Dandenong, Australia. Other Facilities: Charlotte, N.C. (sales); New York City (marketing, communications, innovations and Chobani SoHo retail store)

"Sales were pretty good. I took it as a good sign," he says. "So I got a loan from the local economic development organization and bought a small plant in Johnstown, N.Y., to make feta."

That was 2002, and the company, Euphrates Inc., he still manages. He was struggling, making a living, but this was not to be a billion-dollar company.

In 2005, he saw an advertisement for a Kraft plant in nearby South Edmeston that was in the process of shutting down. As a dairy plant, the site dated back to 1885, and parts of the current buildings dated back to 1901. There was just a skeleton crew still hand-packing Breyers yogurt and starting to wind down the plant.

"It was like a cemetery. The environment was sad. The paint was peeling, water was dripping," Ulukaya recalls. "But the shell of the plant was OK. A lot of equipment remained – not in perfect shape, but a few weeks earlier it had been operating. It had tanks, pasteurizers, fillers. But it was clear Kraft had not invested much in the plant in the past 10-15 years."

Despite the category finally catching on in this country, Kraft was exiting the yogurt business, having just sold the Breyers business. Ulukaya was not fond of American-style yogurt. "It's like candy, full of sweeteners and texturizers and stabilizers," he said. "In Turkey, we eat strained yogurt – we don't call it Greek yogurt. It's a little bit sour, like sour cream or almost cheese, and has much more protein."

Ulukaya's family may not have called it Greek yogurt, but Fage did. The Greek company started importing strained yogurt from its homeland factory in the late 1990s, and in 2005 built its first U.S. plant – ironically, in Johnstown, N.Y.

Yogurt plays a large role in Mediterranean and Middle Eastern diets. It's not only a breakfast, it's a drink, a side dish to some meals and an ingredient in many more. "Yogurt is everywhere [in Turkey]," he recalls. "I can't think of a day when we did not eat some yogurt."

Central New York a Hotbed of Yogurt

Chobani (then Agro-Farma) apparently was the first Greek-style yogurt company to call central New York home when Hamdi Ulukaya bought a winding-down Kraft yogurt plant in South Edmeston in 2004. But it wasn't the last.

The Greek company Fage (pronounced fah-yay) for several years had been importing yogurt from Greece (and apparently is credited with establishing the term Greek yogurt). It decided in 2005 to build its first U.S. plant in Johnstown, N.Y. The facility started up in 2008.

The two companies ignited the Greek yogurt market. Alpina Foods, the U.S. arm of a Colombian dairy company, in September opened a $20 million, 40,000-sq.-ft. plant in Batavia to make its Revive brand of Greek yogurt.

Germany's Mueller Dairy, in a joint venture with PepsiCo, broke ground early this year in Batavia, N.Y., for its first U.S. plant. It will cost $206 million, employ 186 and is expected to come on line sometime in 2013.

While a strained yogurt was his goal, making money came first, so Ulukaya hired four of the last Kraft employees and started copacking traditional cup-set yogurt. However, he immediately sent for Mustafa Dogan, who had a reputation as a "master yogurt maker" back in Turkey. Dogan moved to central New York to start working on the formulation that would be Chobani. Together, they worked 18 month at getting the recipe correct.

"There were several times I would taste a batch and say, 'This is awesome.' But a few days or weeks later, it didn't taste so good," says Ulukaya. The resulting product was not identical to the yogurt his family made in Turkey. It was close, but it did have some variations.

"There are a lot of reasons you can't do things the same way [we did in Turkey] for the U.S. market and distribution. Most yogurt in Turkey is plain; not here. Fruits are big in the U.S. – not in Turkey. We had no experience with that. You're dealing with a growing thing. Milk is different from batch to batch, and the cultures react differently. But we wanted to keep it natural, with no preservatives and colorants and a simple ingredient statement.

"I was very picky. It took us 18 months to get the recipe right. But in late 2007, we had it. I knew I had only one shot, and it had to be perfect."

Apparently it was perfect. And the name? Chobani (or chopani) means shepherd in Turkish and other Mediterranean languages. The company name at the time was Agro Farma Inc., but that was changed to Chobani Inc. in this past February.

Building a business

The early days brought plenty of worry. "All the odds were against us. Here I am in an old plant, with very limited resources. I had never done business direct with the retail world. I'm in a business dominated by large corporations. I had no budget for marketing," he says.

From the very start, Ulukaya wanted distribution in major grocery chains and in their main dairy cases, not in their niche or organic sections or in natural foods or specialty stores. It wasn't just because of bigger money or greater volumes.

"Hamdi truly believed that Greek yogurt was something Americans had a palate for, if they tried it," says Kyle O'Brien, who had joined the company in 2006. He's now executive vice president of sales for Chobani Global Holdings.

"Fage had been in America for nearly 10 years by the time we hit shelves, but they were positioned as a niche/specialty product, only in gourmet or natural stores," O'Brien recalls.

"Greek yogurt wasn't accessible to the masses, and we positioned our brand, product and price point so that everyone, regardless of income, could enjoy our product."

Moreover: "Yogurt was a sleepy category, and we were ready to shake it up," he says.

"Once we started getting repeat orders from our first few stores out in Long Island, that was a big relief. People were buying our products and coming back for more," O'Brien says.

It took another 18 months, but the Stop & Shop chain, with 375 stores throughout New England, New York and New Jersey, picked up the new product and placed it in its main dairy case. "That was a milestone. That's when we knew we were on to something," Ulukaya reflects. O'Brien adds: "When we signed on BJ's and Costco in late 2009, it really showed we made it to the big leagues."

Ulukaya credits 90 percent of the company's initial success to its focus on manufacturing and personal attention to the plant. Hamdi brought his nephew, Halil Ulukaya, over from the Euphrates plant in 2011 to run the Chobani plant. "We had a lot of work to do in this plant," recalls Halil, who is vice president of operations. "All the equipment was old, so we had to fix and clean it. Some of it we had to throw out, and we bought some new equipment [especially separators]. The key step in making Greek yogurt is to remove more of the whey, and lactose, too."

At the outset, one truck of milk would arrive daily, and there were times when it took more than a day to use that one up. Now Chobani uses 70 truckloads a day, about 4.2 million lbs., and ships approximately 1.7 million cases a week. Sales are expected to near $1 billion by the end of this year.

The plant grew in spurts. There were small additions and internal renovations to the original Kraft plant – "we've been in a constant state of expansion," said one employee – as the main processing plant grew from 69,000 sq. ft. to now nearly 96,000 sq. ft. In 2009, Chobani built on the other side of County Road 25. The yogurt still is made in the north side plant, but after filling, the cups ride an elevator up and over the highway to a 150,000-sq.-ft. refrigerated warehouse on the south side, where they spend 5-7 days.

The company claims to have invested more than $250 million in the facility.

The organization grew in nontraditional ways as well. The small corporate office is 20 miles away in Norwich, N.Y. O'Brien heads the sales office, which is in Charlotte, N.C. The Innovation Team, which is as close as Chobani gets to a product development organization, is in New York City. Nicki Briggs, vice president of corporate communications, is a one-person office in Boston. An international team is growing in Amsterdam, ready to grow the brand worldwide.

The next level

Chobani needs to grow from 1.7 million cases of yogurt a week when we visited in October to 2.4 million cases a week by March 2013, based on current commitments. The South Edmeston plant is maxed out, but a new plant in Twin Falls, Idaho, will come online by the end of this month.

Officials claim it will be the world's largest yogurt plant, with 1 million sq. ft., and costing $450 million. As production ramps up, it will match the capacity of South Edmeston, with the potential to exceed it. But it will have only 40 percent of the employees, due to a high level of automation.

"One of the most impressive things about it is it was built in just over nine months," says Uwe Sacher, who has the title interim chief operating officer. A German consultant with a record of managing plants and companies in the food and pharmaceutical industries, he was brought on earlier this year to help manage this growth spurt.

Currently, he's halfway through a one-year contract, and the Twin Falls plant is his main concern, but there's talk of keeping him on. "Things are moving very fast now," he comments.
In addition to overseeing the new plant's construction, Sacher is trying to work automation and efficiencies, such as overall equipment effectiveness (OEE), into South Edmeston.

In addition to maxing out the capacity in South Edmeston, Chobani also is maxing out the area's milk supply. Chobani uses roughly 12 percent of New York State's milk production, and that supply will be stretched further when other yogurt plants come on line in the general area (see accompanying story).

Twin Falls will give Chobani a new and plentiful milk supply and will position it much closer to West Coast markets. It also appears destined to be the source of any new products that Chobani may introduce.

Then there's Australia. In June 2011, Chobani bought Bead Foods, a dairy processor and distributor and owner of the Gippsland Dairy brand, which included an organic yogurt. The plan is to "grow Gippsland Dairy into one of Australia's most successful yogurt brands," said a Chobani statement at the time.

Chobani immediately invested $30 million toward a new yogurt factory in Dandenong, Australia. "The company's Greek yoghurt [is] now stocked in every major Woolworths across the country," according to an Australian media report.

Currently imported into the Toronto area, Chobani is working with the Canadian government to open a production facility there.

Ulukaya is a little vague on what new products could be. He clearly says Chobani should remain committed to authentic Greek-style yogurt to bring new consumers into the overall yogurt category. He believes Chobani can help evolve the American palate (and mind) from thinking of yogurt as just a breakfast food to the multi-occasion, multipurpose ingredient it is back in Turkey. And he thinks his company has not even made a dent in markets around the world.

"In early September, we launched in a few hundred Tesco stores in the UK, and response has been extremely positive," says O'Brien. "We're being strategic in how we expand globally, though we'd love to go wherever our fans across the globe want us to go."

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