Five years ago, Chobani didn’t exist. Now it’s a billion-dollar business. How the son of a small-town shepherd made good.
[dropcap]A[/dropcap] Turkish kurd comes to the U.S. with $3,000 in his pocket, gets a feel for the country, ends up buying an ancient yogurt factory abandoned by a Fortune 500 company, and ships his first order of so-called Greek yogurt to a kosher grocery on Long Island. Five years later, the company notches $1 billion in revenue, Forbes deems the green-card-holding entrepreneur a billionaire, and the company—Chobani—stands as a case study of how a tiny consumer-products company can slug it out with giants.
Only in America.
Hamdi Ulukaya isn’t the type of immigrant that technology executives have in mind when they advocate less-restrictive policies. He didn’t arrive with an engineering degree or with cash to invest. He doesn’t know how to code. But he is likely to have an economic and consumer impact far greater and longer-lasting than that of the founders of Zynga or Instagram. Chobani Yogurt employs about 3,000 people around the world, hoovers up 40 million pounds of domestically produced milk per week, and has helped turn an economically depressed region of upstate New York into a capital of Greek yogurt production. Oh, and unlike so many large companies, he’s hiring. In May, Chobani had 290 job openings.
Chobani has also overturned some long-held prejudices about the American consumer. For decades, Pepsico, Coca-Cola, General Mills, and Kraft have pushed processed, sugary, unhealthy junk into grocery stores because they think that’s what American palates demand. And then they watch, at first in bemusement and later in alarm, as niche, higher-quality products go mainstream and gain mass. It happened with Sam Adams beer, Starbucks coffee, and Chipotle fast food. Now it’s happening with Chobani. Greek yogurt—essentially, thicker, strained yogurt—offers a lot of protein without much cholesterol or many carbs. And because the process removes the sour watery material, it has a milder taste than other yogurts. “Chobani figured out that if they made it thicker, that people would like it better. And they did it without adding sugar,” said Marion Nestle, a New York University professor of nutrition who is frequently a harsh critic of the packaged-food industry. “Even Stonyfield,” the organic-yogurt pioneer, “has added an awful lot of sugar to make it more palatable. So lots of applause for these guys.” With annual sales of more than $1 billion, Chobani is the leading Greek yogurt brand in the U.S. And it has a healthy chunk of the market for all types of yogurt; in the 12 months that ended in April 2013, Nielsen says all yogurt sales totaled nearly $6.1 billion.
Ulukaya talks about his company in organic terms. When entrepreneurs start businesses, they tap into their own natural resources. “What you brought wasn’t the money or the clothes, you brought what you learned from your culture. Mine was learning from my father how he dealt with the business, and the products which he loved. That’s my seed,” he says. “But this is an amazing soil in which that seed can grow.” We’re sitting in Hamdi’s office—everyone calls him by his first name—at Chobani’s plant in New Berlin, New York. His office is spare—there are no deal-commemorating Lucite plaques or glory photos of him with big shots, just some dairy-themed pictures, a few pieces of basic office furniture that could have come from Ikea, a white lab coat for when he goes into the production facilities. Ulukaya, 41, is trim. He arrives with two big German shepherds, who loudly lap up water as we speak. He wears jeans and a little red bracelet with the Turkish blue eye good-luck symbol. With his salt-and-pepper beard, angular nose, and expressive eyes, he’s an unlikely industrialist.
Ulukaya is a transplant from his native soil of Ilic, a town of fewer than 1,000 people in the Kurdish region of Anatolia, some 400 miles east of Ankara, where his family tended sheep and made cheese and yogurt. One of seven brothers, Ulukaya came to the U.S. in 1994 to learn English. He studied at Baruch College and Adelphi University, and after visiting a nephew in Albany, took to the rolling hills of upstate New York, which reminded him of home. At SUNY Albany, assigned to write an essay about making something, he wrote what he knew: making feta cheese. Impressed, the professor invited him to come work on her farm.
When Hamdi’s father came to visit, the dutiful son tried to find the best feta cheese to serve. When his father complained of the quality and said Hamdi could do better, he started Euphrates, which makes cow’s milk feta and sells it to wholesalers. With limited business experience, and no mentors, Ulukaya figured out things by trial and error—making the cheese, hiring people, loading the product into a beat-up car and driving around the East Coast to find customers. “I think that the two years from 2002 to 2004 was the most difficult time of my life,” he said. “After two years, it started to stabilize on a small scale, but at least I could breathe.”
In the spring of 2005, he was going through junk mail and saw a postcard. Kraft was selling an 85-year-old, fully-equipped yogurt plant in New Berlin for several hundred thousand dollars. Ulukaya tossed it in the garbage, but later fished it out. “I went to see it out of curiosity,” he said. “The production manager—Rich Lake—gave me a tour.” What he saw was a sad and all-too-common site in America’s rust belt. A factory, nearly 100 years old and long neglected, depopulated, and about to be decommissioned. “On my way back I called my attorney saying I just saw a plant and I want to buy it,” he said.
The output is stunning: each week at Chobani’s New Berlin plant, 28 million pounds of milk are turned into 2 million cases of yogurt. At the current pace, the company keeps about 60,000 cows working each day.
Bankers at Key Bank introduced him to a Small Business Administration program, which guaranteed up to 50 percent of the loan needed for the purchase. And on Aug. 17, 2005, he picked up the keys, hired four people from the 55 employees left including production manager Lake, Maria Wilcox, who answered the phones and did paperwork, Mike Allen, the maintenance guy, and Frank Price, who took care of the wastewater plant. He also brought over Mustafa Dogan, a yogurt master his family knew, from Turkey. Supported by a hastily crafted business plan and a few hundred thousand dollars in grants from local and state economic-development authorities, the half-dozen founding employees of Chobani set to work.
“In the first few months, I knew it was going to be this strained yogurt,” he said. Fage, also based in New York state, had been importing the type of strained yogurt popular throughout the Mediterranean world for years, and it was catching on at specialty stores. People here referred to it as Greek yogurt, which would have raised hackles in Istanbul and Ankara. Ulukaya believed it could be better. “The early thought was that Americans wouldn’t like it unless it was mixed with a lot of sugar,” he said. “But it wasn’t that they didn’t like it. Large companies just didn’t make it.” Ulukaya would go to stores and talk to people who were buying Greek yogurt. “What the market believes and what the people were saying are two different things.” He trekked out to Wisconsin in the middle of a snowstorm to buy a used separator—a piece of equipment needed to make strained yogurt. And for nearly two years, they dabbled, tested, and retested in the cavernous factory, striving to turn the cultures and milk into a consistent, satisfactory product. (The science of how they do this is proprietary.)
In September 2007, he was finally ready to go to market. Chobani had scored a sale from Ever Fresh, a kosher store in Great Neck, New York. “I had no idea about the retail sales,” Ulukaya said. He, salesman Kyle O’Brien, and several others hand-packed the 300 cases of plain, peach, strawberry, blueberry, and vanilla and drove them to Long Island. At $12 a case, the sale netted $4,600.
The first order sold out quickly. Ethnic brands can do well—think of Hebrew National hot dogs or Goya canned beans. But even when they go national, they tend to be relegated to shtetls and barrios within stores. Just as any immigrant wants for his children, Ulukaya wanted his Greek yogurt to swim in the mainstream. “The problem was how we were going to make this awesome food accessible and available to everybody,” he said. Despite the lip service that chains like Whole Foods pay to using local suppliers, big grocery stores aren’t really set up to do so. In fact, the business model is skewed toward giant firms, because grocery stores essentially collect rent, known as slotting fees, to place products on the shelves. Chobani’s first major mainstream retail opportunity came when ShopRite, a larger grocer, agreed to let Chobani pay its required slotting fees with shipments of yogurt instead of cash. “We insisted it should be in the main dairy area, not in the area of specialty and natural,” Ulukaya said.
He opens up some plain yogurt and starts feeding it to his two German shepherds, who lap it up sloppily. “Every time I open this, they go crazy.” And that was essentially the reaction of consumers. Straining allows Chobani to pack 13 to 18 grams of protein into a six-ounce cup, which makes it more satisfying to hungry people. And the low cholesterol and low sugar in the fat-free versions make it acceptable to the legions of consumers who are dieting or have to watch their weight.
Orders boomed, and then boomed again—even in the absence of an expensive marketing campaign. “And from that moment, I knew this wasn’t going to be about selling, it was going to be about making,” he said. Like most food trends, Chobani was chiefly a coastal phenomenon—spreading from the New York area to the Eastern Seaboard before gaining traction in the Midwest and West.
For the past several years, Chobani has been engaged in an effort to expand production, adding on to the factory, building new production lines, and running them 24/7, including Thanksgiving, Christmas, and New Year’s Day. “We never outsourced anything because I wanted to have control of the product from me to the customers,” he said. Capacity of the New Berlin plant has grown from about 55,000 cases per week to nearly 2 million. In December 2012, a new $450 million plant—twice the size of the New Berlin plant—opened in Twin Falls, Idaho, a town of 44,000 about 130 miles southeast of Boise.
Chobani, which means shepherd in Turkish, may conjure up pastoral images. But make no mistake, it is an industrialized process: manager Dave Christiansen, who showed me around, formerly worked in an aviations-materials company. Christiansen took me through most of the facility, parts of which were jerry-built on top of the existing older factory. Trucks arrive—70 tankers of milk each day, the vast majority of them from New York-state farms (the rest come mostly from Pennsylvania and Vermont); fruit fills rows of stainless-steel drums; automated, Rube Goldberg–esque contraptions wrap the lining around cups, convey them to the fill stations, where the two lines—one for fruit, the other for yogurt—eject short bursts of product.
The output is stunning: each week at Chobani’s New Berlin plant, 28 million pounds of milk are turned into 2 million cases of yogurt. In 2012 the plant purchased 1.26 billion pounds of milk—50 percent more than it did in 2011. At the current pace, the company keeps about 60,000 cows working each day.
[dropcap]M[/dropcap]any economic analysts fetishize manufacturing, arguing that it holds the key to revitalization—especially for rural areas like these, which will never attract the creative classes that are helping cities boom. The nearest Starbucks is 23 miles away, in Oneonta, and Chobani’s creatives—the marketing and public-relations staffers—work in New York City.
The plants are highly automated, as most factories are. But the employment impact is felt far beyond New Berlin. When you build and use manufacturing capacity, you build and use other people’s capacity. “We went from [making] zero cups to a billion cups,” says Mike Roeder, president and chief operating officer at Fabri-Kal, in Kalamazoo, Michigan. Fabri-Kal, a privately held firm with about 1,000 employees, supplies the cups for the New Berlin plant. “The numbers were just huge compared with what we had seen in 60 years of business.”
In an age of impersonal, globalized business—what sociologists call geselleschaft—Ulukaya is a devotee of gemeinschaft. (The honorary degree he just received from Colgate University is in humane letters, not in economics.) Business is something that is conducted between people and in communities. Chobani, though, is a national product, and it is a sponsor of the U.S. Olympic Team, alongside cosmopolitan giants like Home Depot and McDonald’s. But it remains firmly rooted in the hills and valleys around New Berlin (population 1,146), which is a one-horse town. Literally. When we came out of the town’s lone restaurant, New York Pizzeria, where Ulukaya hangs out frequently with owners Frank and Betsy Baio, a one-horse buggy was standing at the lone stoplight.
Before Chobani, says Terry Porter, mayor of New Berlin, “there were jobs, but jobs that people had to travel to, or jobs that were marginal as far as providing for a family.” He ticked off a dozen names of people he knew who worked at Chobani, as well as landscaping, excavating, and construction companies who derive a significant chunk of their business from building and maintaining Chobani’s facilities. “They’ve created jobs that are sustainable.” Porter notes that houses that lingered on the market are selling, and two eyesores have been bought and fixed up to rent to out-of-town Chobani employees. “People are even making comments about traffic on Main Street,” Porter said.
So an immigrant comes to the U.S. with very little, makes a fortune, builds a baseball field and sponsors the Olympics. The only thing more American would be selling out to a deep-pocketed buyer.
Between the plants in New Berlin and Idaho, Chobani has invested more than $700 million in factories in rural areas. Ulukaya takes satisfaction in the fact that cash has flowed into the local economy, and that he has been able to provide steady work for local companies. He pointed out the window of his office to a group of hard hats outside—“that’s a father and three sons, electricians, and they’ve been in [the factories] for the last five years.” Most of the suppliers and contractors, like most of the cows, reside within a 50-mile radius of the company. About 90 of the cows that provide milk to Chobani are on the Gorrell Family Farm, set on 180 rolling acres a few miles away from the factory. Mike Gorrell, 33, showed me around the farm, with his four kids in tow. Gorrell sells his milk to the South New Berlin Milk Cooperative, which in turn sells 75 percent of its output to Chobani. “Never before did you know where the milk was going,” he said, as a calf aggressively licked my hands.
Indeed, Chobani harks back to a sort of corporate paternalism that used to be much more evident in these areas. There’s something of the old-fashioned company town, of the type that was built here in the late 19th century, when canals, steam, and electricity turned farming areas into industrial powerhouses. Plant manager Dave Christiansen tells a story of Ulukaya bringing in prime rib for the workers who had to man the lines on Christmas Day. In another act of community involvement, Chobani chipped in $200,000, and brought along its contractors, to build Chobani Champion’s Field, a pint-size fenced-in ballpark with high-quality dugouts, bleachers, an announcing booth, and lights. It was a much-needed addition to a town that had no functioning ballfields and kids in Little League had to be driven around the area, playing all their games away.
So an immigrant comes to the U.S. with very little, makes a fortune, builds a baseball field and sponsors the Olympics. The only thing more American would be selling out to a deep-pocketed buyer. “When we put our booths in the food shows, the private-equity guys started calling,” he said. “I didn’t know that system existed.” Large corporations have also called to kick the tires. But Ulukaya, who still has a green card, is fixated on maintaining control of the company.
Of course, that could change. Despite Chobani’s pastoral, feel-good vibe, the yogurt business—like every other business—is a tough, messy, and challenging one. This is a far cry from farmers selling batches of organic yogurt out of their pickup trucks at farmers’ markets. Cows turn grass into milk, but also into a less savory byproduct: manure. Straining yogurt creates a waste byproduct known as acid whey, which can be environmentally toxic. To get to and from Chobani’s plants, large trucks have to rumble along two-lane country roads. And Chobani’s rising tide hasn’t lifted all boats equally. Farmer Mike Gorrell says Chobani’s presence hasn’t necessarily boosted the price he receives for the milk he makes. “It’s been hard. Costs are high and the price isn’t going up,” he said. Then there’s the competition. Should they decide to mount an assault on Chobani’s market position, Dannon, Kraft, and several other competitors have the brains and brawn to do so. All great growth stories hit bumps in the road.
For now, however, Chobani remains fiercely independent. Like many entrepreneurs, Ulukaya is part evangelist. And he’s not yet done preaching the gospel of strained yogurt. The new plant in Idaho is doubling its capacity. Having convinced American consumers of the virtues of thicker, not-so-sweet dairy products at breakfast, Chobani is now pushing to make yogurt a daylong obsession. So it’s introducing snack-size cups, more indulgent flavors (coffee with chocolate), and containers that come with side compartments of pistachios. Plus, there’s the rest of the world to conquer. Chobani imports New York-made yogurt in the U.K. In 2011 it bought Bead Foods, an Australian dairy producer, and began producing Chobani down under last year.
By staying put and on the job, Ulukaya believes he is sending a message to America’s business elite. “Just as we made Wall Street cool, and apps and tech cool, we have to make manufacturing cool,” he said. “You don’t have to be a Stanford dropout and go to San Francisco or Seattle to be able to do some awesome things. Entrepreneurship can happen in villages like this.” Software and the cloud let individuals compete with giant companies in technology. But it can happen in manufacturing as well. Whether it is reviving auto plants in Michigan, or putting up solar panels on school roofs in Arizona, or making yogurt in upstate New York, the simple act of producing something tends to lead to positive economic outcomes. And Chobani’s success should lead bankers and investors who salivate over revenue-lite (or revenue-less) companies like Instagram and Tumblr to reexamine the way they evaluate old-line manufacturers. Just like e-commerce platforms, “we help other people grow,” Ulukaya said. “You see people buying homes, painting homes, coming back, taking pride in their villages. I go to sleep feeling really good.”
From our June 28, 2013, issue.