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September 20, 2018

Chobani founder adamant will never sell the business, but open to IPO

Hamdi Ulukaya, the entrepreneur behind the innovative Greek-style yogurt business Chobani, says he would never consider selling the US company he founded more than a decade ago to a global food heavyweight after a number of approaches in recent years.

Hamdi Ulukaya, the entrepreneur behind the innovative Greek-style yogurt business Chobani, says he would never consider selling the US company he founded more than a decade ago to a global food heavyweight after a number of approaches in recent years. 

Addressing an audience in New York at Recodes’ Code Commerce event, Turkey-born Ulukaya talked about the difficulties he faced when he first started out in the US business world and the struggles food start-ups encounter in fending off bigger rivals and staying true to their roots. The Chobani founder and chief executive also spoke about how he believes supermarkets are going to get smaller, with fewer brands, as more and more consumers take to online shopping.

Ulukaya says Chobani was built around the idea that he could make changes in peoples’ lives as an entrepreneur or innovator, and was always thinking about innovation and how to “disrupt” the food space. And he has given his staff a say in Chobani, too, having offered 2,000 full-time workers a stake in the company in 2016.

“Staying independent was one of the big things for me,” he told Kara Swisher, an editor-at-large for Recode, a technology news website focused on Silicon Valley. “A focus on returns just doesn’t work for us.”

Asked by Swisher if he would ever consider selling Chobani to a large food organisation, Ulukaya responded: “No. I’ve said it now from day one. The reason I had so much pain is because I choose the difficult way. The easy way is to sell, make money and go sailing. The most difficult way is you stay and try to compete with the guy whose going to say to me, ‘you either sell to me or I’m going to make the same thing, and I have billions'”.

Chobani was said to have been approached by US food and beverage giant PepsiCo in 2016, and rival The Coca-Cola Co. in 2015, among others, but nothing came to fruition. Earlier this year, Chobani announced it had received fresh investment from the Canadian pension fund Healthcare of Ontario Pension Plan (HOOPP) after private-equity firm TPG withdrew.

From the beginning of 2007 to the end of 2013, Ulukaya said Chobani started with less than US$1m and grew to over $1bn in sales in five years, but did everything independently using the company’s own cash-flows and bank loans. 

However, after building what he says was the world’s largest yogurt plant in the state of Idaho, the company had to engage financial institutions for assistance for the first time. “We built the factory fast but it was not ready, and we had some operational issues that needed cash to come in”, Ulukaya said. “Money was needed to build infrastructure.”

Nevertheless, Ulukaya’s response to Swisher when asked if he would consider going public, suggested he might be open to an offering of shares at some point.

“I’m not against it, but there has to be a reason for it. I’m probably the fasting-growing [company] in this field, and I have been for six or seven years. We innovate more than anybody else. Our costs are a lot less than everybody else and I have 2,000 people partnered in the company.”

But when pressed “do you imagine if you would go public?” Ulukaya responded: “I do sometimes. But when I read Elon Musk and all that stuff, I think maybe not. But I do like that as a tool. If I can take Chobani to where it is, expand this way and that way, and if that’s going to give me a tool to be able to do it, then I would definitely do it.”

Chobani has launched incubator programmes in the US and Australia, with the autumn participants to the former just revealed this week and Ulukaya offered an insight into the difficulties faced by food start-up enterprises. 

He said it is important to think in the longer term, understand where the food industry is going and react to it with a “long-term vision of investment in the CPG world”. Drawing on his own experience, Ulukaya acknowledged how start-ups encounter financial problems when trying to build their infrastructure. Often it means inviting in a private-equity firm, which can lead to small companies losing control of the business and losing sight of their goals, he conceded.

“The problem is in the world of food, or packaged foods, for start-ups to become a main player is extremely difficult. It took me 20 years from going from a start-up to be able to be competing with some of the major brands out there. Because of their financial structure, PE firms or whatever it is, 99% of them become part of the larger organisations. And when they become part of the large organisations they are basically at the end of their promise.”

When it comes to serving Chobani customers, Ulukaya said he favours the direct-to-consumer approach so long as the quality of food stays the same and the costs do not go up. “I always miss my milkman bringing my bread in the morning,” he opined, adding: “It is all about how do I get quality food, the best food, and make it accessible to ordinary people?”

But Ulukaya believes the supermarket space will eventually shrink, and some players will be squeezed out amid advances in technology and as online shopping grows. There will also be a tighter linkage and relationship between brands and consumers, he said. 

“We are going into an era of power brands, where the brand and consumer are connected one way or another. We are coming into an era of true brand relationship with the end users.

“I think the supermarkets are going to change. Supermarkets are going to get smaller, a lot smaller. The varieties and availabilities are going to get a lot less. The supermarkets are going to choose one or two brands – they are not going to have ten brands. And then the people are going to give up on certain items because they know it’s going to come online, you don’t have to be in the store. So the footprints are going to come closer. It’s a race, who knows who’s going to win this race.”

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