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From SCDigest's On-Target E-Magazine

- May 26, 2015 -

Greek Yogurt Pioneer Nearly Loses it All Due to Supply Chain Woes


Chobani Invented the Category, but Supply Chain Couldn't Keep Up with Massive Growth; Chobani Responds



SCDigest Editorial Staff

Is supply chain important to a company's success? Just ask the founder of yogurt maker Chobani, who saw his company nearly go under, in large measure due to supply chain issues, but who has now found some supply chain religion.

Turkish native Hamdi Ulukaya started Chobani in 2005, after buying an old yogurt factory from Kraft Foods in upstate New York, and started selling the company's first yogurt to retailers in 2007. The company basically invented the now wildly successful category of Greek yogurt. With more protein, fewer carbohydrates and a thicker, creamier texture, Chobani sparked a massive shift in yogurt demand. The Greek lines now account for more than half of all the yogurt sold in the US.

SCDigest Says:


By October 2014, Chobani's new procurement team had saved $10 million from negotiating better prices for things like packaging materials, fruit for flavored yogurt and business insurance.

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In its first year, Chobani had sales of $25 million. Growth accelerated rapidly, eventually pushing sales to over $1 billion in 2012 - but the company did not build the supply chain and sales and marketing organizations and talent required to manage the now much larger company.

"We didn't have any corporate executive types," Ulukaya once said. "I didn't want to hear all that marketing, supply chain, logistics stuff - most of it is BS."

Early on, big retailers had questions about the small company's ability to reliably supply product. But the Chobani didn't yet have much competition in the Greek category, and would show retailers a picture of the large old factory - even though inside was only a single production line.

According to a recent article in the Wall Street Journal, there were a number of supply chain missteps. Procurement was inefficient, leading to costs that were millions of dollars more than they needed to be.

With fast growth, Chobani used much of the cash to expand far beyond the capacity needed at the time, buying whatever equipment Ulukaya wanted in anticipation of continued rapid growth.

"A board would have never allowed that," Ulukaya admitted to the the Wall Street Journal in a recent article.

As the volumes ramped up, Chobani borrowed money to construct a new $450 million factory in Twin Falls, Idaho, nearly 2,000 miles from its headquarters. Though the location offered nearby access to an abundant dairy supply, the plant's remote location stretched Chobani's management, and differences in the local milk's protein composition and in the machinery required tinkering with Chobani's recipe. The plant was also much larger than it really needed to be, and saddled the company with much debt.

It took a year to get the factory up to target production levels, but several quality issues remained. A weak distribution network also made Chobani vulnerable to delivery delays due to weather or other factors.

Grocery stores were getting impatient.

"When we weren't coming through with the products, the retailers started to decrease our shelf space," a former regional sales director for Chobani told the Wall Street Journal.

Meanwhile, traditional yogurt giants such as Dannon and Yoplait had entered the Greek yogurt category.

And then more quality troubles.

In August of 2013, customers starting complaining of "fizzy" yogurt and bloated packaging. Under pressure from the US Food and Drug Administration, Chobani issued a recall Sept. 5 impacting all yogurt made at the Idaho plant. Some retailers threw out packages that weren't affected by the recall, taking deductions on the invoices from Chobani for all that product too.

"He [Ulukaya ] had a sweet ride, but now he's got every competitor coming after him," Dileep Rao, a professor at Florida International University who studies entrepreneurs, told the Journal. "At that point, he has to realize he can't run a good company without professionals."

(Manufacturing Article Continued Below)




Chobani's earnings before interest, taxes, depreciation and amortization (EBITDA) swung to a loss of about $115 million in the second half of 2013, from a profit of about $40 million in the first half. The company also had some $700 million in debt.

Finally at that point Chobabi started making changes. In the three months after the recall, the company hired a new chief financial officer; a head of food safety and quality; and a head of supply chain and operations, each of whom had at least 18 years of experience at major consumer and food companies.

"I should've changed [the people in] those positions three or four times in the time we went from $0 to $1 billion. But I didn't change anything, because they are awesome people," Ulukaya told the Journal.

Ultimately, Chobani took an investment from private equity company TPG. Combine that with the new executive hires, and things started changing fast.

TPG installed nine of its operational consultants at Chobani, more than it typically does for companies it invests in.

Kevin Burns, who had been TPG's head of global operations, became Chobani's interim president and chief operating officer last August. Now, he is likely to take over the CEO role from Ulukaya as well, the Journal reports.

By October 2014, Chobani's new procurement team had saved $10 million from negotiating better prices for things like packaging materials, fruit for flavored yogurt and business insurance.

TPG also identified $76 million in waste, much of which came from tossing out bad batches at the Idaho plant rather than identifying and fixing the cause.

Chobani has also revamped it sales team, adding more people, especially those with deep experience selling to the largest retailers.

The overly large Idaho plant is still an overhang, however, especially now that Greek yogurt sales growth has slowed dramatically.

Having already lost market share when Dannon and Yoplait entered the category, Chobani lost still more after the recall. Though it still commands a 44% share of the Greek category, that is down 15 points from its peak in 2012.

The ultimate lesson, still CEO for now Ulukaya says, is this: seek professional advisors early on, "before you need them, so you can get to know them."


After we published our story, a Chobani representative contact SCDigest, taking issue with some of the coverage in the Wall Street Journal article on which our story was laergely based. That statement in its entirety is published below:


Statement from Chobain:


The WSJ story incorrectly framed potential changes in our company. Hamdi remains our CEO, Chairman, Founder and Owner and will continue to lead the company in this capacity for the foreseeable future and until he identifies a partner to help with the operational side of the business.

We pioneered the Greek Yogurt category and, because of our commitment to making food the right and natural way, we continue to lead with distance in the U.S. from a market share and sales perspective. Our performance is well above our 2015 plan and we’ve made strong double-digit distribution gains across our portfolio that will continue to fuel our growth.

It's fairly common for companies that experience tremendous growth to reposition towards more sustainable and efficient operating structures. Our capital raise in 2014 enabled us to accelerate and execute on our existing plans and to invest in new product platforms to continue our growth.

This, combined with the new team we have in place, our operational improvements and our recent performance, has delivered double-digit growth in Q1 2015 and positions us for strong full-year growth.

This month we launched our new, fully integrated marketing campaign and remain focused on elevating our brand and our business - making high quality, delicious yogurt more available - we continue to execute against our founding mission to provide better food for more people.


Any reaction the Chobani supply chain story? Common for small companies with rapid growth? Let us know your thoughts at the Feedback section below.

Recent Feedback

No one goes from zero to a billion in sales without some issues. We can all still marvel at what Hamdi has done. Hamdi proved to be very wise again to select TPG partners as his investment partners.   

Andre Leonard,
May, 27 2015

In 2011, before the new Idaho facility came on line, two of my wholesale food distribution clients reported issues with Chobani's fuzzy and bloated yogurt.  In both cases, unopened product returned from the cafeterias and restaurants demonstrated bloating and mold growth. 

Chobani's customer service deflected calls from these distributors about the issue, claiming that there had to a problem in the shipment or in the way the distributor handled the product, allowing it to warm.  In the case of one distributor, we looked into the handling practices and found that the distributor maintained the "cold chain" from delivery at the warehouse to delivery at the customer.  Analysis pointed to specific batches, as customer returns tended to be of specific lots of product.

It is easy enough to excuse the founder of a wonder growth company that creates a consumer product category for having some issues.  However, it is something else to excuse that founder for dismissing the details of things like supply chain management and operational excellance as "BS".  TPG needed to bring control into the house. 

David Schneider
Jun, 03 2015