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Chobani CEO Says New Plant Should Get Brand Past $1 Billion Mark

Date : 12/13/2012 @ 3:49AM
Source : Dow Jones News
Stock : General Mills, Inc. (GIS)
Quote : 51.95  0.5 (0.97%) @ 2:30AM
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Chobani CEO Says New Plant Should Get Brand Past $1 Billion Mark

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   By Paul Ziobro 
 

Chobani founder and owner Hamdi Ulukaya says a new manufacturing plant should easily push the Greek yogurt brand past $1 billion in annual sales and provide more ammunition for the company against brands like Yoplait and Dannon that are nibbling away at Chobani's leading share.

Next week, Chobani plans to open a new one million-square-foot plant in Twin Falls, Idaho, that cost $450 million to get up and running. Paired with its existing plants in upstate New York, the new plant will allow Chobani to ship more yogurt to stores where Mr. Ulukaya said it had been unable to meet demand. He said the new plant also will help Chobani come up with new products, like a children's yogurt sold in tubes.

"Our aim is to bring more people into the category," Mr. Ulukaya said Wednesday during an interview in New York.

The new plant also will allow Chobani to do more promotions, Mr. Ulukaya said. That was something it was unable to do in many parts of the country, even as more mainstream yogurt brands, like General Mills Inc.'s (GIS) Yoplait and Danone SA's (BN.FR, DANOY), have used more discounts to steer consumers to their Greek yogurts. Other companies, like PepsiCo Inc. (PEP), are also trying to get in on rapid growth in Greek yogurt.

Chobani has exploded onto the yogurt scene over the last five years with its thicker, more protein-rich product. With sales expected to approach $1 billion in 2012, Mr. Ulukaya says Chobani controls about 20% of the U.S. yogurt market, and that the Greek yogurt market could double in size over the next few years.

But Chobani has begun to experience some growing pains. Its triple-digit growth rate has slowed to about 65% this year, according to investment bank Sanford Bernstein. Its market share also slipped to 40% of the Greek yogurt category, down from more than 50% in 2011. Part of that has been due to capacity constraints, but it has also come as the Dannon and Yoplait brands have fought fiercely to combat the share loss they have experienced in recent years.

While Danone has been able to play catch-up lately to become a solid No. 2 player in Greek yogurt with its Dannon Oikos brand, General Mills's inability to find a foothold--it has just a 9.1% share of the market--has caused some investors angst and weighed on its share price.

General Mills has poured more money into its yogurt brands, coming out with products like a 100-calorie Yoplait Greek yogurt, and significantly increased promotions. Nearly half of General Mills's Greek yogurt was sold using discounts for the four weeks ended Oct. 12, Bernstein estimates, raising concerns that the gains may not hold.

"We worry that General Mills might just be 'buying' share with aggressive [promotions]," Bernstein analysts wrote in a research report last month. General Mills reports fiscal second-quarter earnings next week.

Mr. Ulukaya said he isn't too concerned with rivals, although he hinted that an upcoming marketing campaign would focus on the quality of Chobani, which doesn't use milk protein concentrate or other thickeners like some other brands. Every pound of Chobani is made from three pounds of milk, whereas competitors tends to use two pounds of milk. He said other brands are gaining share through marketing.

"You could make a bowl of macaroni and cheese and call it Greek yogurt, and there's no regulation against that," he said.

Mr. Ulukaya has said Chobani rejected buyout offers from several major food companies in the past and isn't currently mulling an initial public offering or other transaction anytime soon.

"We really don't have an exit strategy," he said.

Chobani generates nearly all its sales in the U.S., with some coming also from Canada, the U.K. and Australia, where it recently launched. The Australia plant will likely be an outpost to expand into Asia, with Singapore a likely early market being eyed, Mr. Ulukaya said.

Write to Paul Ziobro at paul.ziobro@dowjones.com

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