Greek Yogurt

Chobani

2016.12

Chobani millionaires: Chobani yogurt CEO gives 10% of his shares to workers, potentially making them millionaires
Greek Yogurt
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I. Introduction: the story of the Turkish entrepreneur who achieved the American Dream

In April 2016, the American public turned its attention to a Turkish businessman who announced to his employees that he would be giving them 10% of the shares in his company.

  • This man was Hamdi Ulukaya, the owner, founder, Chairman, and CEO of Chobani LLC, an American brand of strained yogurt. Ulukaya had distributed 10% of the company to his 2,000 employees.
  • The average employee payout was $150,000, but his earliest employees were given many more shares, possibly worth over $1M.

Who is Hamdi Ulukaya? What led to his success? Why did he give away 10% of his shares to his employees?


II. A dairy farm boy from Turkey comes to study in the United States

Hamdi Ulukaya is raised in a dairy farming family in a small village in Turkey. In 1994, at age 22, Ulukaya decides to move to the United States to study English.

  • Ulukaya was born in 1972 to a family that raised sheep and goat and produced cheese and yogurt from the milk obtained from their livestock.
  • Ulukaya graduated with a degree in political science from Turkey’s Ankara University. He then was accepted into New York’s Adelphi University, where he would master his English.

During his time in the US, Ulukaya discovers a huge, [1] untapped potential in the American dairy market and launches a business manufacturing cheese. This endeavor proves to be unsuccessful.

  • Ulukaya transferred to the University at Albany, SUNY, and while taking a business course, he discovered opportunities in the American dairy market.
  • Americans were consuming large quantities of domestic dairy products, even though their quality was markedly inferior to that of Turkish dairy goods.
  • Hence, Ulukaya started a modest feta-cheese factory in Johnstown, New York in 2002.
  • However, feta-cheese sales were unremarkable, and by 2004, Ulukaya had sold enough to just cover the costs of setting up the factory.

With growing doubts about the cheese industry, Ulukaya discovers a [2] defunct yogurt factory previously owned by Kraft Foods. He decides to buy the factory and enter the yogurt industry.

  • In 2005, a yogurt factory owned by Kraft Foods, located in South Edmeston, shut down.
  • Judging that the yogurt industry had greater unmet needs than the cheese industry, Ulukaya bought the plant with an $800,000 loan from the Small Business Administration.
  • Ulukaya proceeded to hire yogurt experts from Turkey as well as workers who had been let go from the Kraft operation. In a matter of two years, the plant was producing yogurt wholly different from those produced by existing manufacturers.


III. Chobani: an industry standard for quality, Turkish yogurt

After two years of hard work, Ulukaya succeeds in launching his line of Turkish yogurt, Chobani.

  • The yogurt available in the US at the time were runny and filled with sugar, food coloring, and a multitude of additives. Not only were they unhealthful, but they also did not taste much like yogurt at all.
  • Ulukaya invested time and effort into manufacturing a yogurt that mirrored the kinds he would eat in Turkey. Chobani’s yogurt was made with three times as much milk as was used in existing yogurt products, and Ulukaya insisted on using milk only from [3]free-range cattle. He preserved the natural dairy taste and refused to include preservatives, artificial flavoring, or gelatin (a thickener).
  • Chobani’s yogurt was thick, nutritious, and natural-tasting. Americans now refer to this style of yogurt by a misnomer: “Greek Yogurt.”

Using strategic product positioning and other marketing tactics, Chobani sells yogurt to everyday Americans.

  • Ulukaya wanted the general public to be the primary audience for his healthful yogurt, rather than targeting high-paying customers with an image of being a “premium” product.
  • Instead of introducing Chobani to high-end, organic grocery stores, Ulukaya brought Chobani to aisles in more affordable, wholesale stores.
  • Following its success in the grocery store to which the yogurt was first introduced, Chobani grew in popularity. In 2009, Chobani expanded to Shop & Stop, ShopRite, and Costco.
  • Confident in the quality of his product, Ulukaya chose to market Chobani through Facebook, where he would be able to communicate with customers and spread awareness of the company by word-of-mouth. Chobani thus invested the money saved from this cost-effective advertising strategy into research on labor-enhancing technology and on improving the quality of the yogurt.
  • Chobani succeeded in establishing itself as a recognized yogurt brand in most American grocery stores. Its sales doubled yearly until 2013.

Ulukaya continues by expanding Chobani’s product line. In 2012, Chobani opens one of the world’s largest yogurt-processing plants and becomes an internationally-renowned yogurt supplier.

  • Chobani has expanded its product line. They include:
    • Fruit on the Bottom - yogurt built on a foundation of real fruit (2007)
    • Chobani Tots - yogurt for young children (2010)
    • Chobani Bite - yogurt blended with chocolate (2013)
    • Chobani Simply 100 - 100-calorie Greek Yogurt sweetened naturally (2013)
    • Chobani Oats - yogurt blended with oats (2014)

  • Expanding the manufacturing capacity. In 2012, Chobani spent $450M to build one of the world’s largest yogurt-processing plants in Twin Falls, Idaho. In 2016, the company invested an additional $100M to enlarge the plant.
  • Area expansion. Beginning with Australia in 2011, Chobani has expanded its market to Malaysia, Singapore, Panama, and other parts of SE Asia and South America.
  • → Greek yogurt’s share in the yogurt market has jumped from 1% to 70%. Chobani hit record sales in 2012 at $1B.
    → In 2014, Chobani became a unicorn in the food industry with a valuation of $3-5B.

Chobani overcomes a financial crisis in 2014 and has since retained its position as a strong contender in the US yogurt industry.

  • Due to aggressive investments and industry competition, Chobani experienced a lower rate of return that resulted in a loss of profit.
  • But the company received a $750M loan from TPG Capital, a private equity firm, and managed to salvage itself from a near liquidity crisis.
  • By expanding its product line and upgrading the quality of its products, Chobani has differentiated itself from competitors and has experienced stable returns as of recent (2015, sales were $1.5B).


IV. Sharing Chobani’s Stocks: returning 10% of the wealth to the employees

The reason that Chobani is taking center stage, however, is not the yogurt it makes, but rather, it is Ulukaya’s radical decision to return to employees their earnings and provide jobs for the underprivileged.

  • Hiring refugees. Chobani hired 600 refugees from Afghanistan, Iraq, and Turkey to work in its factories. These employees are being paid far above minimum wage to aid in their settlement and acquisition of a US citizenship.
  • High income. About 2,000 of Chobani’s employees are paid the highest wage in the industry (an average annual salary of $80,000).
  • Donations. Ulukaya has donated $2M to the UN for the refugee crisis and established the Tent Foundation, a non-profit organization that aims to improve the lives of people who have been forcibly displaced from their native countries.

Furthermore, in April, Ulukaya announced that he would distribute 10% of the company stocks to his employees.

  • In April 2016, Ulukaya sat his entire staff down and surprised them with his decision.
  • The shares were distributed according to each employee’s term of service and experience, and the average employee received stocks worth $150,000.
  • Each employee received an envelope containing documents issuing their stocks.

Ulukaya acted on behalf of a personal philosophy of giving back.

  • “I was also an immigrant who came from Turkey to the United States. I want to help others pursue happiness in this country.”
  • “Chobani’s success was possible because of my employees. I am only [4] returning to them what is rightfully theirs. They are also owners of this company. I also wish that everyone be happy.”
  • "Business is still the strongest, most effective way to change the world."

What enabled Hamdi Ulukaya to be successful in the yogurt industry? Why did he give his stocks to his employees? Taking the company investors into consideration, do you think that this decision was necessarily a wise one? What would you have done had you been Ulukaya?

Please discuss this topic with your Ringle Tutor, and take the opportunity to improve your spoken English.

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