Chobani’s On Sale — Who’s Buying?

Carol Ortenberg

It’s the entrepreneurial food brand that has turned into the firmament of its category, but Chobani, now a staple of many a shopping list, might even be targeted for purchase by strategic investors, as well.

News agency Reuters reported last week that beverage behemoths the Coca-Cola Co., Inc. and PepsiCo were both reportedly duking it out over the opportunity to invest in the company, which brought tart, protein-heavy Greek-style yogurt to the grocery store just a few years ago. While Coke reportedly dropped out of bidding soon after, the fact that Chobani is reportedly interested in selling a minority stake in the company has created speculation that the brand might be an impressive pickup by a struggling pop purveyor.

After all, hoping to make up for lost sales as consumers abandon sugary and artificially sweetened beverages, both Coke and PepsiCo are hot on the trail of diversified offerings, particularly in healthier segments.

Greek yogurt, the thinking goes, would be an appealing segment to move into for several reasons, starting with the fact that unlike other riskier food categories, it’s still making money. Greek yogurt sales were pegged at about $550 million in 2010, according to Bloomberg, and they’ve since jumped 500 percent, capturing about half the yogurt market. The category also has high brand loyalty and attracts health-conscious shoppers — in fact, it’s one of the few categories that have shown increased brand loyalty since 2011, according to this year’s Deloitte American Pantry Study.

But why Chobani and not another brand, particularly for PepsiCo, which already owns several related products under its Quaker Oats subsidiary? It’s a matter of scale, according to Bob Burke, the founder of Natural Products Consulting.

“With the imperative for growth and to diversify towards healthier offerings, less reliance on carbonated soft drinks and beverage, chobani just has the size and scale to move the needle for [Pepsi],” Burke said.

One other factor might be that the time is right. While Chobani has had consistent, massive growth to exceed $1 billion in revenue, it has faced some ups and downs since its inception in 2005. Founded by Turkish immigrant Hamdi Ulukaya, the company grew so much that it struggled to fill the influx of orders from its only manufacturing facility in upstate New York; in 2012 it opened a new facility in Idaho. The new plant, however, struggled with production issues, including a large recall in 2013 for mold-contaminated yogurt.

To get through this rough patch, Chobani took a $750 million loan from private equity firm TPG Capital LP in 2013. As part of the deal, Kevin Burns, a TPG partner, became Chobani’s interim president and chief operating officer. After much planning and reorganization, Chobani started seeing significant improvements. Bloomberg reports that Chobani says it’s posted positive earnings for 15 straight months.

And that could mean that TPG is thinking about cashing out, according to Ross Colbert, an investment banker at Rabobank International.

“TPG, they have a great track record for being able to pick the right exit at very healthy multiples,” Colbert said. “So I think the goal of selling Chobani to a more strategic investor, [is what you would] expect.”

And PepsiCo does have experience in dairy: this decade the company has acquired Russian dairy company Wimm-Bill-Dann, and it has a joint stake in Muller yogurt with the Theo Muller Group. Additionally, PepsiCo-owned Sabra hummus line is often part of a grocer’s dairy section.

This doesn’t mean PepsiCo is the perfect partner, though. According to Colbert, “PepsiCo’s investment in dairy have not really been as successful as one would have thought. When they first went into Wimm-Bill-Dann there were expectations that this was step one of a major push into dairy for Pepsi. And they had mixed results with Will-Bill-Dann…and the subsequent joint venture with Mueller I think has also been a bit of a disappointment.”

The departure of Coca-Cola as a possible investor and Pepsi’s lack of robust experience could leave the door open for other brands that have even more success with the category, such as ConAgra Foods, Nestle, Danone and Lactalis.

“In a big corporate player like PepsiCo, where you’ve got snacks, you’ve got soft drinks, you’ve got value-added dairy. All of these categories have to compete for the same resources,” Colbert said. “It becomes a function of where do you get the best return on your investment because they all need capital, they all need funding, they need [capital expenditures]. So, it’s tougher. Where if you have a pure play dairy player, it’s easier to harness the resources and capital internally.”

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