Should $1 Billion Chobani Slow Down?
Back in January, Chobani founder Hamdi Ulukaya made a show of his obsession with product quality. "It has to be the same all the way around," he told a Bloomberg Businessweek reporter, running his finger around the circle design on the foil lid of one of his yogurt containers. When he peeled back the foil, a little dollop of yogurt was stuck to the top. "It shouldn't be like that," he said. He threw it in the trash, uneaten.
As the company has grown at breakneck speed, Ulukaya's standards haven't kept pace. On September 5, Chobani announced that it was voluntarily recalling certain yogurts after customers complained of "swelling and bloating" containers--and the company found mold contamination in its Idaho facility. The company said less than 5 percent of production was affected. Still, for a company that now ships over 1.5 million cases a week, that's a lot of yogurt to throw out.
Chobani should remain "overly cautious," says Aimee Drolet Rossi, a professor at UCLA's Anderson School of Management, in an email. "New brands don't have much equity to burn."
Has Chobani Grown Too Fast for Its Own Good?
Balancing growth with quality, safety, and efficiency is never easy for any entrepreneur. But then consider Chobani's trajectory, and it feels staggering.
In 2007, the company shipped 200 cases a week. Chobani now projects 2013 revenue of more than $1 billion. In six years, the company increased staff from five people to nearly 2,000. Before 2012, it manufactured its trademark Greek yogurt only in a former Kraft yogurt plant in New Berlin, New York, which Ulukaya purchased for less than $1 million using a Small Business Adminstration loan. Then it went to 24/7 production there, and then added two more plants. (The third is a plant it bought and upgraded near Melbourne, Australia.) The site of the contamination in Idaho was a $450 million, 1 million square foot facility--which the company built in just 326 days, and opened less than a year ago. It wasn't an unprecedented accomplishment just for Ulukaya, who owned a small feta cheese maker before starting the Chobani yogurt brand. It was unprecedented, period: the Idaho facility was billed as the largest yogurt plant in the world.
Earlier Growing Pains
Chobani has hit bumps on the way to making its smooth, creamy yogurt before. In March 2012, following an employee complaint, the U.S. Department of Labor's Occupational Safety and Health Administration proposed fines of $178,000 after it found 34 health and safety violations at Chobani's facility in New Berlin, New York, including unguarded moving machine parts, electrical hazards, lack of personal protective equipment, and lack of fall protection for employees accessing top of milk trucks.
"The growth of the company has been so dramatic," Ulukaya told the Wall Street Journal in a June 2012 interview, responding to the safety citations. "Sometimes you don't do everything 100 percent right in the beginning because you're learning," he said. (Chobani did not respond to an Inc. request for comment.)
Indecisive Public Relations
As the mold fiasco unfolded over the past week, the company adjusted its public relations response. On August 31, the day after customers complained on its Facebook page that yogurt was "unnervingly fizzy," the company said it was working with retailers to remove the affected product, and left it at that. But following reports that the FDA opened an investigation, and an FDA spokesperson called Chobani's public response "unusual," the company said it would work to perform a formal recall. The company’s homepage is now loaded with a picture of a contrite-looking Ulukaya, along with a letter from him apologizing--albeit with little plug for the yogurt mixed in. "I'm sorry we let you down," he wrote. "While this type of mold is common in the dairy environment, particularly when using only natural ingredients that are absent of artificial preservatives, it's still unacceptable."
Professor Drolet Rossi advises Chobani be more candid about how many people have gotten sick, and not downplay what happened. "Otherwise, consumers will be even more suspicious," she adds. Better to throttle your own growth and focus on quality, than have a public backlash--and federal regulators--do it for you.
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