Chobani: The Yogurt That Ate America | Fungi and Bankruptcy | 2

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0:20It's August 2013, eight months since Chobani founder Hamdi Ulukaya opened the company's new mega plant in Twin Falls, Idaho. At one million square feet, the plant has the capacity to ferment 11 million pounds of milk into yogurt every day. and his$450 million bet is paying off, Chobani is now the best-selling yogurt brand in America. Four out of every ten cups of Greek yogurt sold in this country bear its name. In seven years, Ulukaya has gone from running a single mothballed plant in upstate New York to earning a billion dollars in annual sales. The company's growing more like a tech startup than a food manufacturer.

1:05Its scale is the physical proof of America's new appetite for healthier food. Customers are swapping traditional yogurts for the Greek version, which generally has less sugar, more protein, and fewer carbs. But inside this mega plant, something has gone wrong. Something invisible. Something already in the cups, on the trucks, heading to stores across the country. and from there into people's homes. Chobani fans are discovering their yogurt isn't what they expected. Cup lids are bulging, bloating, as if something's growing inside. On their tongues, their yogurt fizzes like cream soda. And then people start getting sick.

1:55Right from the beginning, Ulukaya has fostered customer loyalty on social media. Now, those same feeds are full of complaints. On Facebook, Chobaniacs are reporting everything from diarrhea to whole nights spent in the hospital. The result of microbes running wild inside Chobani yogurt. The company tries to play it down. It says the contamination is just a common type of mold, one often found in dairy environments. And it only affected 5 % of Chobani yogurt. But 5 % of a plant aiming to push out 1 million cases a week? Well, that's a lot of yogurt and more than 200 sick customers. And online, the criticism keeps coming.

2:43I'm a loyal Chobani customer and recently stocked up. I was totally disgusted when I realized that all of them were rancid. What a horrible taste that took forever to get out of my mouth. Your delayed actions and reporting problems cost me a night in the emergency room, severe vomiting and stabbing stomach pain. Thanks for letting us know after my child ate five of your moldy yogurts. Eleven weeks pregnant. Thought I was being healthy by eating Chobani. Tastes sour and bad, so I only ate half. I'm worried about my unborn child. After years of adoration and superstellar growth, Chobani is now under fire.

3:26Ulukaya built this brand on one promise. Better ingredients, no shortcuts. If he can't fix this contamination, and fast, that promise, and the billion-dollar company behind it, could quickly collapse.

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5:36In the last episode, Hamdi Ulukaya turned a single abandoned factory into a Greek yogurt empire, one that redefined an entire grocery aisle. By summer 2013, Chobani owned the category. But this dominance is fragile. A contamination crisis has shaken consumer trust and put Chobani's reputation on the line. Whole Foods is about to drop the brand because there are too many Greek yogurts on the market and because Chobani uses milk from cows fed on genetically modified crops. It's a blow to the company's health-conscious image. And the banks that funded Ulukaya's rise? They're about to demand their money back.

6:20And Chobani doesn't have it. This is Episode 2, Fungi and Bankruptcy.

6:34It's August 2013, and Chobani and its customers are reeling from the company's contamination crisis. At least 89 people report nausea and cramps to the Food and Drug Administration. In September, Chobani issues a voluntary recall, asking grocery stores to destroy 35 varieties of its yogurt. Ulukaya apologizes on social media and promises the company is working around the clock to fix the issue. But promises aren't enough. The FDA is coming to investigate.

7:12It's September 2013, and Ulukaya has a heavy morning ahead of him. He runs his hand along the sleek, stainless steel work surface and looks around at his factory, barely nine months old. The knot in his stomach intensifies as he hands a hairnet, blue plastic overshoes, and white coat to the health and safety consultant, who's come to find out what's growing inside Chobani's Idaho factory. As the consultant puts on the protective gear, Ulukaya absentmindedly fiddles with a name badge on his lab coat, hoping that whatever they find today will be easy to fix. This isn't Chobani's first run-in with regulators.

7:56Last year, its original facility in New Berlin, New York, was fined$178 ,000 for multiple workplace safety violations, including mechanical, electrical, and chemical hazards that put employees at risk of being caught in moving machine parts and exposure to toxins. And the safety consultant is well aware of those findings. You've been here before, haven't you, Mr. Ulukaya? Well, not here exactly. It was our New York facility. They head on to the factory floor. The consultant digs through his black case for mold-detecting gear. Swabs, mainly. What was the problem there? Took your eye off the ball?

8:38Ulukaya feels like a kid called the principal's office. It was the growth. The company grew so fast. We went from selling 200 cases of yogurt a week to one and a half million. Sometimes, well, you don't manage to do everything right in the beginning because you're still learning. Really? Here, look at this. The consultant points to what looks like a small circle of matted off-white cat fur on one of the stainless steel surfaces. Any guesses as to what this is? Ulukaya isn't sure, but he doubts it's good. Mold, Mr. Ulukaya. This is mold. Ulukaya nods meekly. They walk around in silence for what seems like forever, the consultant stopping every now and again to scoop up more cat fur with tweezers and to run Q-tips along surfaces and in nooks and crannies.

9:35When the consultant finally puts his swabs away, he doesn't sugarcoat it. Obviously, I have to take all this back to the lab, but there's mold everywhere. It's in the yogurt, it's on the surfaces, it's in the rooms. You got a big cleanup job on your hands. Ulukaya takes a deep breath. Not the best day at the office. They're going to have to make some major changes. Although no direct link is ever confirmed between the illnesses and the yogurt, the investigation finds harmful bacteria is in yogurt samples and inside the factory itself. With more than 200 complaints received by the FDA from customers with upset stomachs, vomiting, and nausea, the entire incident leaves the normally upbeat Ulukaya completely shaken.

10:31In the three months after the recall, Chobani makes sweeping changes. It hires a new chief financial officer, a head of food safety and quality, and someone to oversee supply chain and operations. Between them, they have at least 54 years of experience at major food and consumer companies. Ulukaya realizes he should have made these changes sooner. He was loyal to his original team, who'd been there from the start. They were like family. But what works when you're a scrappy startup doesn't work when you're a billion-dollar food giant. But while Chobani is cleaning house, it's not slowing down. Having conquered the market for yogurt cups, Chobani's marketing team has been busy dreaming up new ways to sell even more yogurt, like the Chobani Champions tube it launched in 2013.

11:27It's aimed at kids, two ounces of low-fat Greek yogurt with fruit puree packed into a tube that doesn't require a spoon. Then there are Chobani Bites, small cups of yogurt containing no more than 100 calories. They're sold in packs of four and are intended for stacking. But no matter the product, the company's core message stays the same. Chobani yogurt is good for you. And to push that message, Chobani outspends its rivals, spending more than$30 million a year on advertising, while publicly dissing competitors who don't make yogurt its way. Here's Ulukaya discussing why he thinks most mass-produced yogurt misses the mark in a Chobani promotional video.

12:13We really do believe there's a problem. These large corporations, where they have plants, they have people, they have resources, and simply refusing to make the perfect cup of yogurt. But not everyone is sold on these good-for-you claims. In 2013, The New Yorker reports that some critics think Chobani's marketing implies its yogurts contain no added sugar or thickening agents when they do, and that the company uses organic milk when it doesn't. Some of the cows that supply milk to Chobani are also fed on genetically modified grain. Ulukaya counters that there is a limit on how natural Chobani can be without becoming too expensive for most people.

13:04See, that's the trouble with a holier-than-thou marketing strategy. No product's perfect. There's always going to be someone ready to pick holes. And when you've just had a mold crisis, well, people start looking a lot harder at the fine print. But the sugar content and the GMO grain, those are PR headaches. What's coming next is an existential threat. While Chobani's moving on from its costly mold crisis, or trying to, the banks are not. In its race to grow, Chobani has racked up around$700 million of debt. The megafactory in Idaho was built with bank loans, and the recall has made the banks that issued those loans very nervous.

13:56Now, they want their money back. But despite a billion dollars in sales, Chobani doesn't have the cash to repay them. And that, more than the mold crisis, more than any bad publicity, is going to push the company to the brink of ruin.

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16:34By the end of 2013, Chobani founder Hamdi Ulukaya is on notice. The banks that funded his company's rise are threatening to recall their loans. Ulukaya has two options, neither of which he likes. The first option is extreme. He could file for bankruptcy and try to reorganize the debt, but that will leave the company's fate in the hands of creditors and the courts. The alternative is to seek private equity investment. But the more Ulukaya investigates this option, the more worried he becomes. To get investment, he'll have to surrender some degree of control over Chobani. He doesn't want to do that.

17:21Worse, the investors he talks to can smell blood. They know Chobani is desperate, so they make lowball offers, demanding huge chunks of equity and issuing one-sided take-it-or-leave-it deals. One investor even demands a near-majority stake and Ulukaya's resignation as CEO in return for their help. Ulukaya rejects offer after offer. He refuses to hand Chobani to the Sharks. He just hopes somewhere out there he can find an investor he can actually work with.

18:04It's late 2013. and in his New York City apartment, Ulukaya is on yet another call with yet another investor. He feels out of control, and his patience is wearing thin. Agitation rising, he paces up and down the living room, staring out through the floor-to-ceiling windows to the city below. Then, finally, he interrupts the investor. If I'm going to die, then I am going to die one time, not every day for the rest of my life. There's a moment of silence before the investor responds. Hamdi, what the hell are you going on about? I mean the company, Chobani. I don't want to work under a private equity agreement feeling like I'm dying every single day.

18:55Hey, how about you dial down the drama a little bit? Your company's in real trouble. You need investment to survive, and that's what I'm offering you. I've seen your financial statements. I have no idea how you've managed this, but you've gone from the top of the mountain to the bottom of a hole in less than six months. No. What you're offering is death. I'd rather take my company into bankruptcy. I built Chobani. I will be the one who buries it. You'll be burying your employee. Ulukaya hangs up. His heart is thumping in his chest. He's running out of time, but he can't stomach what letting private equity into Jobani will do to his company.

19:42Ulukaya checks his watch and realizes he has another meeting across town to get to. Another meeting with more lawyers, more financial advisors, more investors. It's all getting to be too much. He rushes out onto the street. As he walks, he realizes he needs to take a beat. He stops off at a small park. Sitting on a bench, alone in the middle of one of the busiest cities in the world, he starts to cry. People walk around him not noticing, too wrapped up in their own lives. As the tears fall down his face, the Lukaya feels grief. Grief at the thought of burying something he built from nothing, something he gave his all to.

20:36Is he really going to do it? Is he willing to let Chobani die?

20:48It's 2014, and after weeks of dead-end calls and predatory offers, Ulukaya is ready to bury Chobani. In the morning, he will file for bankruptcy. The company he built, destroyed by debt. Then, the phone rings. It's one of the banks. They've heard Ulukaya is about to declare bankruptcy, which isn't going to look good on their books either. So, they offer to keep financing Chobani for six more months to give Ulukaya time to find a solution. Hmm. Sounds like a lifeline, right? But when lenders give you just six months, well, that's not largesse. It's a stress test. Banks aren't betting on your vision.

21:42They're betting on whether you can generate enough proof fast to justify not pulling the plug. Founders often think survival hinges on one big move In reality, it's dozens of small visible wins stacked quickly that earn lenders confidence. And that confidence is what keeps capital from running. Armed with the last-minute reprieve, Ulukaya and his senior team look for ways to improve the company's health. They've already shrunk the cup size from 6 ounces down to the 5.3-ounce size sold by most competitors. But while the portions were downsized, the company kept the price the same, boosting income.

22:31But the bigger goal is growth in the U.S. Americans still eat far less yogurt than Canadians or Europeans. Despite Chobani's success, only 37 % of people recognize the brand. Almost two-thirds of the country still doesn't know about Chobani yogurt, suggesting plenty of headroom to grow sales even further. And there's a massive untapped audience, too. Men. So, where do you go to reach the most new eyeballs at once? Well, of course, the biggest TV event in the world.

23:17It's February 2014, and the Super Bowl is being broadcast live to more than 100 million viewers in the U.S. But this year, the battle isn't just on the field. It's also in the yogurt aisle. Chobani launches its first-ever Super Bowl spot, promoting its focus on natural ingredients with an ad where a real-life bear loots a store for its yogurt. The ad pushes the idea that Chobani's ingredients are so natural, even wild bears crave it. It's hard these days to find food made with only real, natural ingredients. But at Chobani, it's the only way we know how. A cup of yogurt won't change the world, but how we make it might.

24:04But Chobani's competition isn't letting Ulukaya grab the limelight. Dannon brings in John Stamos, the Greek-American star of TV sitcom Full House, to promote its Oikos yogurt. And while Yoplait doesn't run a Super Bowl ad, they do release a series of commercials around the same time, going straight for the throat with a blind taste test, where real people decide which Greek yogurt is best, theirs or Chobani's. and the taste testers in its ad all prefer Yoplait. Introducing the Yoplait Greek Taste-Off, where people agree Yoplait Greek blueberry tastes better than Chobani blueberry with fruit in the bottom.

24:47I love this one. That one's definitely my favorite. That one tastes better. Oh, Yoplait! This one's really good. Sorry, it's so much better than Chobani. Let's have a quick reality check on this super bold stuff. You know, oftentimes when the media talks about big Super Bowl ad buys, they frame it in terms of reach. How many people are watching, that sort of thing. And sure, that's important. But these big advertising moments are about signaling, too. They tell competitors, retailers, and investors, we belong at this level. Anyone else catch that 2023 Temu Super Bowl ad, Shop Like a Billionaire?

25:26You know, that wasn't about selling cheap goods to football fans. it was telling Amazon and the rest of the online marketplace that Temu had arrived. But signaling alone won't dig Chobani out of its financial hole. By spring 2014, Ulukaya accepts what he's been resisting for months. The only way forward is for Chobani to strike a deal with a private equity firm. And in April 2014, a deal comes together. The backer is TPG Capital, a Texas firm with interests in everything from hotels and airlines to movies and fast food. It agrees to invest$750 million in Chobani. But now that Ulukaya has invited private equity to buy into his business, things are going to change.

26:23because TPG Capital wants to recoup its investment with plenty of profit. And to make that happen, it wants changes, including at the very top.

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