“With speed comes breakage. You have to wrap your hands around what’s an acceptable level of breakage.”
— Chobani CFO James McConeghy on fast growth, at the CFO magazine Playbook for Private Companies conference in Miami, as reported in CFO by senior editor David Rosenbaum.
As it happens, McConeghy experienced plenty of breakage firsthand. “In 2010 the company had 150 full-time employees. It will end 2012 with 2,000,” reports Rosenbaum. “‘We grow as fast as we can add production capacity,’ McConeghy said, and this year Chobani is opening a new, 900,000 square-foot yogurt factory, the biggest in America. This year it has spent $400 million on new facilities.
“Is this wise? Is this prudent? What about all the uncertainty? Is it possible that Chobani is overinvesting in human and physical capital? Is it possible that demand for its yogurt will not grow as fast as it has for the past four years? What if the economy falters after the election? What if tax rates rise, federal regulations become more onerous, cash becomes more expensive, and another massive storm plays havoc with Chobani’s supply chain, causing pallets of product to spoil on loading docks? Is Chobani moving too fast, hurtling into a future everyone agrees is… uncertain?
“Well, last year, said McConeghy, Chobani ‘disappointed’ customers. ‘Despite Herculean efforts, there were stock-outs. Consumers went to the store to get their Chobani fix and it wasn’t there. We lost a lot of revenue.’
“That, he vowed, would not happen again. Chobani invested and continues to invest. For McConeghy, the risks embodied in all those uncertainties are just that: risks to be mitigated, risks to be balanced against potential gain.
“‘We’re taking some degree of risk. Possibly, we’ve overbuilt on the short term. But we don’t ever want to be behind the 8-ball on capacity. We’ve stepped up to the plate to solve any possible capacity issue.’
“It’s probably safe to say that no finance executive in the crowd of almost 200 at [the] Miami conference is experiencing Chobani-level growth but, just like in poker, you can’t win a hand you don’t play.”
You might still be wondering: Why is Chobani so confident about investing $450-million in its new factory?
Well, here's one reason.
According to Chobani founder and CEO Hamdi Ulukaya in the New York Times, Americans are not eating as much yogurt as they will in the future.
“'Americans still eat far less yogurt than people in other parts of the world,'” he told the Times.
The article continues: "He said some retailers are even increasing the amount of refrigerated shelf space they allot to yogurt to accommodate all the new brands and varieties that are popping up."