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Would Chobani Be Better off Without PepsiCo or Coca-Cola?

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As part of its strategy to broaden its geographic footprint, Chobani is rumoured to be looking for a strategic investor in its operations. PepsiCo and Coca-Cola Co are, somewhat unsurprisingly, tipped to be the most likely partners but could an association with either of the soft drinks giant prove to be a poisoned chalice. Whilst Chobani’s need for investment is clear, it should carefully consider its options as it may find that a European dairy giant like Lactalis is a better fit from both a strategic and consumer point of view.

Why are soft drink players investing in Dairy?

The popularity of carbonates has been waning for some time now in traditional high consumption markets as public pressure to reduce sugar consumption through fizzy drinks remains high. Coca-Cola and PepsiCo have long been looking to diversify their portfolios by including healthier food and drinks such as yoghurt. This is very much in line with PepsiCo’s acquisition of Russian yogurt giant Wimm-Bill-Dann Foods back in 2011 and Coca Cola’s recent investment in dairy drink Fairlife.

Leveraging Coca-Cola or PepsiCo’s global distribution seems tempting

The vast majority of Chobani sales are generated in the US where (retail) consumption levels of yoghurt (7kg) lie far behind the Western European average (12kg). In order to reach the company’s full potential Chobani is likely looking for investors that can help get the brand on product shelves overseas where consumers are far more accustomed to eating yoghurt. Both PepsiCo and Coca-Cola could help expand its distribution network through its own supply chain and help get the product where it needs to be.

Purely from a consumption point of view, it makes strategic sense to expand Chobani’s reach to Western Europe where consumers eat yoghurt regularly and are an ideal target audience. Chobani’s portfolio could shake up the European yoghurt market and excite consumers over a whole new range of yoghurts.

But major hurdles remain

The market space in Western Europe is, however, very crowded with over 100 brands having sales exceeding a million dollars in 2015. Competing against dairy giants such as Danone, which accounts for quarter of sales in the region, will be a steep challenge for any emerging yoghurt manufacturer. Another challenge Chobani is likely to face in Europe is its inability to market its products as ‘Greek’ yoghurt, as the company discovered in the UK two years ago.

Lactalis could be a more natural fit for Chobani

In order to gain a better understanding of the local landscape for yoghurt and consumer preferences, Chobani would do well to look for investors that have a high stake in the Western European market and learn from their expertise. From a distribution point of view, Lactalis would be well suited to help Chobani expand in Europe seeing it’s the leading player in dairy. With an already existing joint venture in place with Nestlé in fresh dairy products, it could certainly be a key strategic investor. From Lactalis’s point of view, a partnership with Chobani could help open up the US market where sales have seen quite a strong decline from 2.5% share in cheese in 2010 to just 1% in 2015.

Lactalis’ presence in the fast growing yoghurt Brazilian market is another reason it may be a better fit than either PepsiCo or Coca-Cola. With the acquisition of BRF’s dairy plants as well as LBR Lácteos Brasil, Lactalis clearly have big plans for this market and the Chobani brand could be just the product to aid its expansion.

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