On the drive home I called my attorney, who is my main business adviser. I told him I wanted to buy the factory. He thought it was a terrible idea. He had three good argu- ments: First, because I’d be buying it “as is,” I really had no idea how well it would function. Second, Kraft is a pretty success- ful company, and if it was giving up on this facility, this town, and the yogurt industry, maybe it knew something I didn’t. Third, and maybe the strongest objection, where was I going to get that kind of money? He was right: At that point, I had nowhere near enough money for such a big purchase.
Insisting that Chobani be stocked in the dairy aisle rather than the gourmet section is probably the single most important decision we made.
But as it turned out, I was able to borrow the money to buy the factory—and after Chobani hit the market, I financed our growth through further bank loans and re invested profits. This is a crucial piece of the Chobani story. Our ability to grow without reliance on external investors—the venture capitalists, private equity types, strategic partners, and potential acquirers who’ve offered us money since we launched—was vital to our success. Today Chobani is a $1 billion business, and I remain the sole owner. That means I can run the company the way I choose and plan for its future without pressure from outsiders.
Too many entrepreneurs believe it’s impossible to scale a business without relying on VCs or other equity investors. That view is wrong. If I could grow a company from zero to $1 billion in less than a decade in a capital-intensive industry, many other busi- nesses can too.
Slotting Our Cups
To buy the yogurt factory, I obtained a bank loan backed by the U.S. Small Business Ad- ministration. I learned about SBA loans from two loan officers at KeyBank. I spent two days writing a business plan, offered a personal guarantee, and put up 10% of the purchase price. The bank and the gov- ernment put up the other 90%, with a low interest rate and a 10-year term. The loan was sufficient to create a small amount of working capital in addition to the purchase price. The process took about five months, and on August 17, 2005, I had the keys to the factory.
I immediately hired a master yogurt maker from Turkey, and we spent the next two years perfecting our recipe. I hired four employees who’d worked at the Kraft plant, and because we had nothing to produce, I kept them busy repainting and repairing the factory for a few months. By early 2006 we’d begun making private-label American- style yogurt as a contract manufacturer for other companies, just to bring in some revenue.
In addition to fine-tuning our own recipe, we worked hard to get the packag-
ing right. This was a big expense—about $250,000. American yogurt has always been sold in containers with relatively nar- row openings. In Europe yogurt containers are wider and squatter, and that’s what I wanted for Chobani—I wanted the package to signal that the product inside was very different.
By late 2007 we were ready to go to mar- ket. At that point we made several crucial decisions that allowed us to finance our growth once the business took off.
First, we insisted that Chobani be sold in mainstream grocery stores rather than specialty stores, and that it be stocked in the dairy aisle, alongside existing yogurt brands, rather than in the gourmet or natu- ral food aisles. That’s probably the single most important decision we made. Al- though many Americans had never heard of Greek yogurt until Chobani launched, at least one rival brand had been selling Greek yogurt in specialty stores since the mid-1990s. But because it had limited dis- tribution, it remained a tiny niche product. We wanted Chobani to be accessible to ev- eryone. If we’d said yes to early offers from specialty stores, the company never would have grown as quickly as it did.
Second, we negotiated with retailers over their slotting fees. Most big supermar- kets were asking a minimum of $10,000 per SKU to stock our product, and some were asking up to $100,000, so if we wanted to put six flavors of yogurt in a store, it would want an up-front payment of at least $60,000. We didn’t have that kind of money. So we negotiated to pay off the slotting fees over time as the yogurt sold.Chobani becomes the best-selling brand of all yogurt in the United States and expands to Canada and Australia.