Culturing a Subcategory

Christine Birkner
Marketing News
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Key Takeaways
  • In 2006, Greek yogurt was considered a specialty item in the U.S., making up just 0.7% of the overall U.S. yogurt market, according to UBS.
  • In mid-2009, Chobani was selling 200,000 cases a week. By 2013, Chobani’s New York plant shipped more than 2 million cases per week, and domestic and international sales soon made Chobani a billion-dollar brand.
  • Greek yogurt now accounts for 52% of sales in the yogurt category, according to Nielsen.

​Chobani helped define the Greek yogurt subcategory in the U.S. marketplace, and became a billion-dollar brand in the process. As more yogurt giants go Greek, Chobani is staying on top by looking to its source.

 

Yogurt used to be the domain of waistline-conscious women and bag-lunch-toting children. Apart from the emergence of frozen yogurt as a trendy treat circa 1990 with brands such as TCBY—and its recent re-emergence thanks to chains such as Pinkberry and Red Mango—the yogurt category hasn’t made much of a blip on consumers’ radars. Now yogurt is a multibillion-dollar industry, with global flair.

Greek yogurt has helped reinvigorate the yogurt category. Over the past decade, the thicker, more protein-rich varietal has gone from being considered a specialty product to a subcategory unto itself, with Norwich, N.Y.-based Chobani Inc. leading the way. 

Over the past nine years, Chobani has helped both define and popularize the Greek yogurt subcategory, and now it’s competing head to head with yogurt heavyweights Dannon and Yoplait. In an effort to remain on top, Chobani launched a new campaign focusing on its ingredients, using their sourcing as a point of differentiation in the integrated effort.

“The sleeping giants are waking up and the sleeping giants are very angry,” says Peter McGuiness, Chobani’s chief marketing and brand officer. “The yogurt wars have officially begun.” 

Going Greek

A decade ago, yogurt, in general, was a burgeoning category, thanks in part to the health trends encouraging protein-rich diets. “There was tons of variety: whipped, fat-free, yogurt with fiber,” says Tracy Landau, partner and chief marketing officer at Marketplace, a St. Louis-based food marketing agency whose clients include Prairie Farms yogurt. But Greek yogurt was considered a specialty item in the U.S., making up just 0.7% of the overall U.S. yogurt market in 2006, according to UBS. 

Just one brand, Athens-based Fage, had a strong presence on supermarket shelves. Fage initially was carried in Whole Foods, Trader Joe’s and Wild Oats stores, before broadening to mainstream grocery stores. In its early days, Fage conducted sampling efforts in grocery stores across the U.S. to introduce consumers to Greek yogurt, and in 2007, Fage targeted upscale consumers with a co-branded print ad campaign with Tourneau watches and Honora pearl necklaces that ran in New York magazine, Los Angeles Confidential magazine, Ocean Drive magazine and Hamptons Magazine.  

With Fage’s success and few competitors, entrepreneur Hamdi Ulukaya saw an opportunity to create a challenger brand. Ulukaya, a native of Turkey, had moved to the U.S. in 1994 and had founded a feta cheese company, Euphrates, in 1999, which he still owns. In 2005, he bought a former Kraft yogurt plant in South Edmeston, N.Y., to try his hand at Greek yogurt, which is made with more milk than traditional yogurt and has a straining process that removes excess liquid whey, resulting in a thicker, creamier and more protein-rich product. 

He named his company Chobani, inspired by the Turkish word for shepherd, “coban,” and spent 18 months perfecting his Greek yogurt recipe. He hired his first salesman in 2006, and one year later, Chobani hit store shelves at a small grocer in Long Island, N.Y. Retailers including Publix, ShopRite, Stop & Shop and BJ’s Wholesale Club soon followed. 

Ulukaya and his team made some savvy marketing decisions early on, says Joshua Margolis, professor of business administration at Cambridge, Mass.-based Harvard University and author of a Harvard Business School case study on Chobani. First, he eschewed the ethnic food aisle in favor of placing Chobani alongside regular yogurt brands. “From the beginning, they said: ‘We’re going mass-market. We’re not going specialty aisle.’ That was a gamble,” Margolis says. Second, Chobani chose a unique package design, making the product stand out from other yogurts’ tall, thin cups with a shorter, fatter cup. “We take that cup for granted now because so many companies are using a comparable form, but the cup, itself, and its vivid color really grabbed people aesthetically.” 

In mid-2009, Chobani was selling 200,000 cases a week. In December 2012, the company expanded in the U.S. and internationally, opening plants in Twin Falls, Idaho, and Dandenong, Australia. By 2013, Chobani’s New York plant shipped more than 2 million cases per week, and domestic and international sales soon made Chobani a billion-dollar brand.  

“Chobani went from zero to $1.4 billion in five and a half years,” McGuinness says. Ulukaya was named Ernst & Young Entrepreneur of the Year in 2012, and in March 2014, Chobani began exploring options to raise capital for an IPO that could value the company at $5 billion, according to The Wall Street Journal.

The Yogurt Wars

Chobani’s success helped define the Greek yogurt subcategory, and by 2010, established yogurt brands including Dannon and Yoplait expanded their own portfolios to compete. Other yogurt makers including Stonyfield Farm, Greek Gods and Voskos soon followed. 

Greek yogurt now accounts for 52% of sales in the yogurt category compared with 4% in 2008, according to Nielsen. More than one-third of yogurt in a typical grocery store is now Greek, and Greek yogurt is pushing out other items in the dairy case such as pudding and margarine, The Wall Street Journal reports. 

In 2013, Chobani owned 40% market share in the Greek yogurt subcategory, with Dannon Oikos at 26%, Fage at 15% and Yoplait Greek at 9%, according to Bloomberg Businessweek. 

“It reminds me of light beer,” says Bill Chidley, senior vice president of shopper sciences at Interbrand Design Forum, a Dayton, Ohio-based division of global branding firm Interbrand that focuses on retail experiences for food brands. “Light beer created almost two different beer categories and eventually became bigger than beer. Greek’s becoming the de facto yogurt now. It’s reaching that point where yogurt is just Greek yogurt. Chobani’s done to yogurt what Barilla did to pasta. They came in and instantly took over the shelves.” 

Chobani faces stiff competition, particularly from Dannon Oikos, and its market share has dipped over the past few years, according to Nielsen. In 2013, Chobani’s sales rose 21.3% to 

$1 billion, while Oikos had $432 million in sales, a 164.7% increase over its 2012 revenue, according to London-based research firm Mintel Ltd. 

Greek yogurt makes up 45% of Dannon’s portfolio, according to Michael Neuwirth, senior director of public relations at The Dannon Co. Inc., the White Plains, N.Y.-based subsidiary of Paris-based Groupe Danone Ltd. Oikos has worked to build brand awareness via a TV-centered marketing effort targeting women and featuring celebrity spokesman John Stamos of Full House fame—and of Greek descent—and the slogan, “Fuel your pleasure.” “Americans look at Greek yogurt as a wonderful protein source. That’s the ‘fuel’ part of the equation. Our advertising with John Stamos is about the ‘pleasure’ side of the equation, the unexpected situations that John Stamos finds himself in and how Oikos plays a role in those,” Neuwirth says.

Fage also relies on a celebrity endorser, chef Bobby Flay, who touts the brand as the first Greek yogurt brand in America, and the most authentic, given the company’s Greek origins and its leadership position there. In TV ads, Flay talks about other brands “jumping on the Greek yogurt bandwagon” and says, “If you’re going to cook with Greek yogurt, stick with the real deal.” 

The challenger brands also compete on price, Chidley says. “People will shop more and more by price, and they’ll see more parity in the product and you’ll get some significant segments of consumers who buy based on what’s ‘on deal.’ That forces everyone to be on deal and then your brand becomes commoditized. You can’t neglect what happens at the shelf. That’s the front line.”

Chobani discounts occasionally, with 10 for $10 deals on traditional cups, for example, but for the most part, it works to maintain its price premium, McGuinness says. “We have 11 of the top 15-selling SKUs in the nation. Our stuff moves fast, and that’s with a price premium. Pricing’s a big deal. Traditionally, yogurt is 60 cents, it’s promoted all the time and you buy it in 24-packs. It’s our job to preserve the Greek specialness. We don’t think it should be below a buck. … If you’re making authentically strained Greek yogurt that strains at least three pounds of yogurt, that’s what makes it thicker and creamier and healthier, and that should come at a premium, so we need to preserve that. We will promote every now and then, but we won’t be consistently on promotion and we won’t be a buck a cup every day because we don’t think that’s where we should be, or where the category should be.”

Regardless of how it’s priced, growth in the Greek yogurt subcategory will depend on getting people to eat more of it and product innovation will fuel that growth, says Christopher Cornyn, president of DINE Marketing, a Foster City, Calif.-based food marketing agency. “Staying on top in the food business is about new, new and new, and that means new product innovation. What’s going to drive their business and keep them relevant is inventing new products. No matter how much advertising you do, you [have to] get a customer to go to the grocery store and pick up a product and put it in their mouth.” 

To that end, both Chobani and Dannon are expanding their product lines. Chobani offers a 100-calorie version, Simply 100, and Chobani Flip, yogurt with added toppings such as blueberries and coconut. In July, Chobani will launch a breakfast line, Chobani Oats, Greek yogurt mixed with steel-cut oats; a dessert product, Chobani Indulgent; a line of seasonally inspired yogurt flavors such as watermelon and pink grapefruit, Chobani Seasonal; a line of dips; and a line of full-fat yogurt in large containers designed for cooking and as a substitute for ingredients such as sour cream. 

Meanwhile, Dannon offers a line of Oikos dips, and plans to launch Greek yogurt parfaits at Starbucks over the next year and in grocery stores by 2015. “Our strategy to grow the category is based on making yogurt available in the ways shoppers are looking for it and in places where they are,” Neuwirth says. “It’s not about our competitor, meaning another yogurt maker. At some point, it’ll get to that, but today, our primary battle is establishing yogurt as a go-to staple in American diets, rather than be concerned with market share among competitors in the yogurt-making world.”

The two subcategory leaders also are working to round out their distribution models. Both brands have opened retail locations in New York. Dannon’s Yogurt Culture Company store in Midtown and the Chobani SoHo café both offer custom-made yogurts with various toppings and flavors. Chobani’s café also offers savory options and soups. 

For Chobani, the café serves as an R&D testing ground. The café’s Blueberry Power yogurt topping, with blueberries, chia seeds, hemp seeds and honey was a hit with customers, so Chobani added a Blueberry Power Flip to its product line. “If you ask Hamdi, he’d say the café is the most forward-looking way of where the brand will go,” McGuinness says, adding that Chobani plans to open cafés in other cities. “It’s a big idea and it’s doing extremely well.”  

‘How Matters’

Building on its product innovation, pricing and distribution strategies, Chobani recently launched a new integrated campaign in an attempt to help retain the brand’s leadership position. Called “How Matters,” the campaign highlights the company’s commitment to natural ingredients. “We have a beautiful ‘how,’ so we’re celebrating and leveraging it,” McGuinness says. “For other brands, the ‘how’ isn’t always pretty. You don’t want to know how hot dogs are made. In our case, we can leverage it against our competitors. They can outspend us, but we can have a sharper, more authentic [message].”

“How Matters” is a big step forward, marketing-wise, as four years ago, the company’s marketing strategy focused heavily on sampling. In 2010, Chobani ran the “Chomobile,” a national sampling tour via a branded truck.

McGuinness joined Chobani as the company’s first CMO in 2013 and, despite the brand’s dominance in its subcategory, now is working to increase overall brand awareness. “We have 37% brand awareness right now,” he says. “Two-thirds of the country has never heard of us. We have more Facebook, Twitter and Instagram fans than our competitors because we skew younger than our competitors, [but] we needed to do traditional advertising to raise awareness.” 

Chobani’s 2014 Super Bowl ad featured an angry, hungry bear knocking over food carts and junk food at convenience stores in New York in search of food with all-natural ingredients, like Chobani. Following on the heels of that ingredient-focused messaging, “How Matters” kicked off in March 2014 with a TV commercial that debuted during the Oscars. The ad contrasted chemical-filled test tubes and plastic cows on a fake farm with Chobani’s all-natural ingredients on a real farm. “How Matters” messaging also is featured on Chobani’s website, blog and social media channels. 

All-natural messaging resonates with Greek yogurt buyers, research shows: In 2013, Mintel surveyed Greek yogurt consumers about factors that would make them choose one product over another, and 66% pointed to the lack of high-fructose corn syrup, 63% focused on all-natural ingredients and 62% looked for premium ingredients.

 “How Matters” will resonate with Greek yogurt buyers the same way that Chipotle’s “Back to the Start” ads, which emphasized the food chain’s commitment to ethically sourced food, did, Cornyn says. “People are asking questions about their food, like, ‘How does this affect my family?’ ‘How does this affect me?’ ‘How does it affect my community?’ and that’s where their whole idea of ‘How Matters’ came from. Chipotle did it before them, with their ‘Back to the Start’ video. How Matters has that same smell. People do want somebody who has social responsibility, who’s looking at supply chain. Chobani’s going to try to stake claim on taking the leadership in that, the way Chipotle’s taking the leadership in fast-casual restaurants.”

Chobani’s current ads are phase one of the “How Matters” messaging. In the future, Chobani plans to use “How Matters” in ads promoting its sponsorship of Olympic athletes and its charitable arm, the Chobani Foundation, which donates 10% of the company’s profits to famine relief in Somalia and other grassroots charities. 

“We started the campaign in a product-centric way and we’ll ramp up from there,” McGuinness says. “Now it’s how you make food matters, how you source your ingredients matters. For the Olympics, it’s how you train matters. Down the road, it could be how you treat the environment matters, with sustainability, or how you treat your employees matters or how you treat the community matters. The thing’s got major legs, but to start, we wanted to zero in on food. Our yogurt’s been around for six years and we hadn’t really told anyone what makes it special.”

In an attempt to be fully transparent about what makes the product special, Chobani explains on its website and blog that the products are made using genetically modified grains that its cows eat, but not genetically modified milk. “Our dry ingredients are GMO-free, our fruit’s GMO-free, we don’t use modified corn starch and we don’t add sugars,” McGuinness says. “We’re working with GMO organizations and we’ll do our part to increase the supply of non-GMO feed. It’s not a dairy issue. It’s a feed issue. Ninety percent of corn in America has been genetically modified and it’s the No. 1 thing cows are fed, so we will do our part, as a leader in yogurt, to increase the supply of non-GMO feed. It’s hard because we don’t control the corn market. We’re pro-organic, but organic is more expensive.” 

Chobani has taken on the “How Matters” approach as a corporate mindset rather than just as a marketing message, McGuinness says. When some of its yogurt was recalled due to mold issues in September 2013, the company responded quickly on its website with a letter from Ulukaya and information on how to get refunds and coupons. “You don’t make it an illusion. You tell the truth. It was a longer news cycle than we wanted and we took our lumps,” McGuinness says. “Our fan base was very hard on us because when you have a lot of brand love, they love you when things are good and they hate you when you make a mistake. But they gave us a second chance. We have to grow into ‘How Matters.’ We’re not perfect, but our mindset is in the right place.”

Ahead of the Pack

Chobani has taken more lumps lately. In late 2013, Whole Foods stopped carrying Chobani, but McGuinness tried to make the best of it. “They said they dropped us initially because of GMOs, but their own private label isn’t GMO-free. It’s about competition,” he says. “Then they revised their statement and said: ‘It’s not about GMOs. Two-thirds of our store is not GMO-free. It’s about exclusive products.’ That was a gift to me as a marketing guy. I came out and said, ‘The last thing in the world that should be exclusive is yogurt.’ … In our portfolio, we want options for everyone, but we want to be a mass brand. We’re mass and proud. We’re not an exclusive brand.”

Whole Foods made a statement about dropping Chobani to The Washington Post, saying: “While we will be phasing Chobani Greek yogurt out of our stores, it is not because of the line’s possible GMO content. … As is the case with any saturated product category, Whole Foods Market challenged our Greek yogurt suppliers to create unique options for shoppers to enjoy—whether it be exclusive flavors, organic choices or non-GMO options. At this time, Chobani has chosen a different business model, so we will be phasing Chobani out of our stores in early 2014 to make room for choices that aren’t readily available on the market.”

The loss of Whole Foods won’t have a long-term impact on Chobani’s business, says Dirk Defenbaugh, managing director at Interbrand Design Forum, a division of global branding firm Interbrand that focuses on retail experiences for food brands. “The perception is much greater than the actual reality. Whole Foods represents such a small portion of their sales. From a customer perception perspective, it does provide some challenges, but their business at a store like Walmart resonates with a much larger population. They’ve done a good job of handling it, and … it won’t slow them down much.”

In April 2014, the brand was confronted with a more pressing challenge: After filing a lawsuit claiming that she owns a 53% stake in Chobani, Ulukaya’s ex-wife, Ayse Giray, filed legal documents in the Supreme Court of the State of New York in New York County that stated: “Commencing in 2007, on numerous occasions Hamdi boasted to me that he had obtained the formula for the Chobani brand of yogurt from Fage yogurt by bribing a former employee of Fage … with 30,000 euros.” 

Chobani issued legal documents opposing the allegations, and in an e-mailed statement to Marketing News, a Chobani spokesman called the allegations “false, completely baseless and without merit.” 

“If the legal action ends up being true, that there was some malfeasance in terms of the recipe, that would impact their business, but until that is proven, I don’t think it will have a big impact on their marketing efforts or in the minds of consumers,” Defenbaugh says. “Every brand goes through times when they’re challenged from a public relations perspective, and Chobani’s been reasonably good in responding to that.” 

David Aaker, vice chairman of San Francisco-based marketing consultancy Prophet, author of Aaker on Branding: 20 Principles That Drive Success and a Marketing News columnist, says that Chobani is positioning not just itself, but its subcategory to succeed. As the subcategory leader, the brand shouldn’t be focusing on just differentiating itself in comparison with other Greek yogurts and should, instead, be focusing on differentiating the whole Greek yogurt subcategory in comparison with the general yogurt category, he says. “When you create a new subcategory, like Chobani did, you have to manage that subcategory instead of managing your brand. It’s about framing the subcategory rather than saying, ‘My brand is better than your brand.’ … They need to redefine the subcategory as having the right kind of ingredients, and that’s what they’re doing. The brand that represents the subcategory has a huge advantage.”

Adds Margolis: “What they need is ambidexterity. They need to master growth while they maintain the culture that got them here. It’s a different challenge from phase one, where they transformed the industry, caught the behemoths by surprise and got their yogurt into the hands of the masses. They’re up against some savvy competitors who are going to outflank them at times. They want to continue to shape the industry so everyone else starts to play by their rules.”​


This article was originally published in the May 2014 issue of Marketing News.

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Christine Birkner
Christine Birkner is the senior staff writer for Marketing News. Contact her at cbirkner@ama.org.
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