Like many of its counterparts in the yogurt category, Chobani has become a household name and skyrocketed to success over the past few years. However, the recent reports of drama in Chobani’s C-suite are indicative of larger problems. According to our founder and CEO Dr. Kurt Jetta, Chobani’s recent issues (over-investing in an expensive production facility in Idaho, a product recall in 2013, and disappointing performance of new products) are signs of an overall problem with Chobani’s strategy.
Jetta says that these challenges should come as no surprise, and that early indicators of issues were apparent as early as spring of last year: “The March 2014 data would have been available to TPG Capital right before they cut the $750 million check to Chobani. While they would have seen significant sales and growth— sales had grown by 9% - distribution was up 42%, and distribution for the whole category was up 17%. But it looks like they misread the reasons for growth. In fact, unit sales were down per SKU by 23%. This reduction would have suggested that people have bought products that they aren’t happy with or the new products that were launched just weren’t as popular with consumers. When retailers see that the products aren’t as productive, they then reduce distribution, thereby reducing sales.”
In other words, the data would have shown that the current rate of growth wasn’t going to last forever. Jetta commented, “The situation with Chobani is a case study that validates the TABS Group distribution-based analytics approach.”
Nevertheless, Chobani seemed to be operating on the assumption that their growth was a sure thing. They were spending more than twice than their competitors on advertising, approximately $125 million annually, not including the Sochi Olympic sponsorships, which surely wasn’t cheap.
So, what could Chobani have done differently?
In addition to avoiding the aggressive spending on advertising, Dr. Jetta points out that Chobani should have implemented a more aggressive promotion and deal strategy: “Consumers want and need deals. Like other food categories, the yogurt category is highly receptive to promotions. Dannon and General Mills were increasing their promotions when Chobani wasn’t. By increasing their promotions, they could have been up 20% in sales instead of 9%. They should have embraced the fact that many, if not most, yogurt consumers want deals instead of making their sole focus on trying to position themselves as a high-end “lifestyle” brand.”
The bottom line is that CPG brands should embrace the fact that consumers want and need deals. Promotions need to be a fundamental part of a brand’s strategy. Dr. Jetta strongly recommends that all brands abandon the idea that promotions somehow “discount” a brand. Properly planned trade investments are a sustainable way of increasing sales and growing a business, but companies must fully understand distribution, trade and analytics, and the effects that competition and market saturation can have on a business. In a recent article in the NY Post, Dr. Jetta predicted that Chobani’s sales could fall 10% this year. “They are still barely in positive territory. My forecast is that in mid-year Chobani will see forecasts of being down 15%.” And although the entire yogurt category will suffer in 2015, Chobani’s products will be disproportionately hit. According to Dr. Jetta, the yogurt category is going to be down about 3-5% by December 2015, and that Chobani will be down 10-15%.
For more insights from Dr. Kurt Jetta on the state of the retail and CPG industry, follow him on Twitter @kurtjetta.