Whole Foods' Decision to Drop Chobani Isn't Personal

In a recent interview on CNBC, Hamdi Ulukaya, founder of Greek yogurt phenom Chobani, discussed Whole Foods Market's (NASDAQ: WFM  ) decision to in 2014 drop the product from its store shelves. Ulukaya's reaction was raw and genuine, and it almost sounded as though he was working through the five stages of grief -- denial, anger, bargaining, depression, and acceptance -- right there on the phone.

Ulukaya created Chobani yogurt from modest beginnings, having acquired an old Kraft Foods  (NASDAQ: KRFT  ) plant in 2005, and built it into a billion-dollar brand. Nevertheless, his response was kind of priceless and the snub may speak more to Whole Foods' internal strategy than it does to any supplier, including Chobani. Let's explore Ulukaya's candid reaction and try to get to the root of the issue.  

The following are excerpts from Ulukaya's Dec. 19 interview on CNBC: 

Denial
'It won't hurt our business'..."We grew about 30[%] this year, and we wanted to grow more and more places, not lesser places. Of course we don't like it."  

Anger
"First they said it was GMO and then it was changed to be more exclusive specialty products. On the GMO front...even their own stores and some of their products have GMO-fed cows...But when it comes to yogurt thinking that yogurt should be exclusive, that I don't understand. It's not an expensive watch or imported ham. Why yogurt has to be exclusive, that I don't understand." 

Bargaining-"As a farmer who comes from Turkey who grew up with yogurt, grew up working in the farms..I"m very close w/the farmers....The reality is...more than 800 farmers are not injecting hormones into their cows now. I'm proud of that." 

Depression
"Yesterday I was at the plant when I heard the news. Of course I took it personally."

Acceptance
"Chobani is leading to make sure that when we go further, we make food better, we make milk better, we make farmers better, and everybody wins." 

'It's not about GMOs'
Whole Foods' decision, the grocer said, wasn't about GMO concerns despite the fact that  seems to be the word that Ulukaya heard, too. Instead, Whole Foods told The Washington Post, it was a function of the fact that the Greek yogurt maker didn't accept a challenge to create "unique options for shoppers to enjoy." Incidentally Chobani only days ago introduced Simply 100 Greek Yogurt, a 100-calorie product that is the first of its kind.   

Chobani generates about $1 billion in sales each year, and Whole Foods is a fractional part of that, comprising less than one-half of a percent of total business, Ulukaya said. And as Ulukaya noted, the company has been growing by leaps and bounds in the past year in a broader yogurt market that generated $4.2 billion in revenue in 2013...and Greek yogurt represents nearly one-third of that. 

Perhaps Whole Foods' decision is more about its exclusive-label sales push, as Ulukaya also suggested, where profit margins tend to be higher as it moves into places like Brooklyn, where the organic- and natural-food grocer on Dec. 17 opened its maiden location in the New York borough.

Our exclusive brands are a key component of our differentiation strategy. In fiscal year 2013, our exclusive brands accounted for approximately 16% of our non-perishable sales and approximately 12% of our total retail sales, up slightly from 15% and 11%, respectively, in fiscal year 2012. -- Whole Foods 10-K filing, fiscal 2013

And while Whole Foods remains the market leader in natural- and organic-food grocers, the market has seen heightened competition in recent years, with the players like Sprouts Farmers Market strengthening its presence, taking potential customers and shareholders in the process.

In fact, Whole Foods' decision to nix Chobani might not be about Chobani at all. It may just be a function of the grocer's fight to defend its market position in a dynamic where new organic and natural-food grocery stores are popping up around the country. 

Whole Foods' same-store sales have been rising, but in the fiscal fourth quarter grew at the slowest pace of the year. Worse, Whole Foods narrowed its fiscal 2014 sales growth projections to the downside to a range of 11% to 13% from a previous range of 12% to 14%. 

So perhaps changes are in order and Chobani's shelf space may have just been a casualty of Whole Foods' battle plan. This fallout seems to be less about Greek yogurt and even the control of GMOs than it is about Whole Foods' attempt to increase pricing power and create more of a moat, and in light of the grocer's tactics I wouldn't be surprised if there are more supplier casualties to come. 

Conclusion
You can still get Chobani yogurt elsewhere, from the aisles at Wal-Mart  (NYSE: WMT  ) to Walgreen  (NYSE: WAG  ) and Sprouts. And despite the snub, Ulukaya isn't stuck in denial; he just seems to be taking personally a decision that while it affects his company, to the tune of less than 1% of business, doesn't appear to be personal at all. 

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  • Report this Comment On December 23, 2013, at 7:01 PM, awright69 wrote:

    Chobani is the most horrible swill available on the market (besides perhaps Dannon's namesake product - NOT the Stonyfield Organic!). I work in the dairy industry and Chobani is the laughingstock. No big loss to WFM; there are plenty of much more deserving products able to take its place.

  • Report this Comment On December 25, 2013, at 10:48 AM, byteMeImblonde wrote:

    Whole Foods is an arrogant hypocrite when it comes to claims of protecting the environment and consumers and encouraging local businesses. They sell Washington State apples in New England stores during the fall apple harvest when local orchards are inundated with the fruit. Plus their prices are so high only the very rich can afford to shop there - and don't even look at the meat or fish prices: $25/lb Atlantic salmon,,,right.

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