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The next Chobani … from Chobani?

ideaRecently, a few clients have asked us to share our thoughts on who we think might be the next Chobani in food. And we are grateful that they are asking this question for two reasons. Firstly, because it suggests that analogies to the iPhone are no longer necessary to motivate ambitious product innovation in food. But more importantly, because it indicates that more and more CPG leaders realize that exponential breakout growth from early-stage companies is possible in the food space. It’s no longer just theory applied from another category. In fact, as we’ve shown in previous work, it has happened nearly a dozen times in the past decade (see Hartbeat Exec: Incubating Tomorrow's Billion Dollar Food Brands). While we are actively scanning early-stage companies for the telltale math that indicates such a breakout brand (watch Hartbeat in January 2015 for a special, selected reveal), the reality is that they are relatively rare still. When they do occur, they are almost always the result of external investment from venture capital (VC) or private equity (PE) firms or angel investors, not simply the result of consumer enthusiasm. 

The biggest question posed by the rise of the Skate Ramp growth curve Chobani has exemplified is: Why do CPG companies fail to execute this go-to-market model or even invest in it early enough to avoid a costly M&A at increasingly high multiples? 

Most CPG food companies are aware of the increasing levels of investment in small, early-stage companies by VC/equity players. What many are not aware of is how early on in the life cycle these traditional middlemen are connecting with emerging food and beverage companies. On multiple occasions, we have witnessed VC firms inviting new brands to trade show networking parties without the company having a single $ of revenue in the market yet. But VC firms almost never invest in companies below $1M in revenue, despite how early they may ‘connect’ and ‘watch.’ They too require some retail proof of concept. 

Below $1M is therefore the zone of incubation. Traditionally, most new food businesses self-fund, take out small business loans or obtain angel loans to get themselves to the $1M mark. Crowdsourcing entities like Kickstarter and CircleUp are allowing more and more folks without angel investors or large inheritances to get in on the act. 

In November, however, the world of food incubation saw a different kind of innovation. Chobani suddenly announced it would add business incubation to its operations. As the largest single new premium brand in the U.S. retail market, with over $1B in annual revenues, it is in a unique position to take some of its profits and use them to incubate new businesses. After all, the founder is still there and has embedded entrepreneurial thinking into a young organization. He doesn’t need to be taught any skills on how to launch an early-stage company upmarket. And the profits are there to make these small investments. 

Chobani’s $2M incubation allowance is not likely to trigger an earthquake in the ecosystem of food manufacturing. But it is an event that raises key questions for mainline CPG firms: 

  1. If Chobani succeeds in incubating new premium businesses in unrelated categories, what is to stop it from buying them later, thereby eliminating the customary VC/PE markup AND forming a new premium holding company that could seriously threaten the top 10 players?
  2. Is Chobani’s move helping to accelerate the new premium incubation ecosystem and thereby accelerating the long-term threat to CPG market share, which is already declining in many categories?
  3. Is the traditional habit of buying early-stage companies from traditional middlemen a sustainable practice any longer, when there is so much competition from CPG firms for these rising premium stars?
  4. Is it finally time for CPG companies to think more seriously about leapfrogging VC players entirely (and avoiding the multiples involved) and joining Chobani in the upmarket incubation business? 

What Chobani’s incubator achieves remains to be seen, but it’s a signal of a broader strengthening of the early-stage food ecosystem, one that is almost entirely oriented to what we call the New Premium marketplace. In fact, two of the key rules Hamdi Ulukaya will be following in selecting new food companies for investment pose perhaps the biggest challenge to contemporary food companies: “Number one, it has to be delicious ... It has to be natural. It has to be nutritious. And it has to be accessible.”[1] 

Redefining “delicious” upmarket and embedding “natural” production and sourcing protocols continue to be the biggest challenge for CPG companies trying to enter the new premium market place. While they can continue to acquire new premium brands once they have crossed the $100M threshold and pay large multiples as they do, they often find that they have challenges integrating them into their core operations, oriented for decades to a very different quality standard. 

We do not claim to have the answers to all the questions posed above. But we are confident that, if CPG companies do not try to enter the incubation zone themselves someday soon, they will miss out on a) a crucial, low-cost organizational immersion and b) the ability to internalize and achieve a more cost-effective path to new premium M&A. 


[1] Fast Company,


Consumer Package Goods Private Label and National Brands Trends Point Of View


As leaders in the study of American food culture, The Hartman Group has been tracking how Americans shop for food since the 1990s. From one-stop shopping to multichannel shopping to online markets and click-and-collect, we continue to track consumers’ evolving perceptions, needs, habits and relationships with food retailers. New to the 2017 report is a special section on the expansion of the discount grocery channel, the emerging fresh-format channel and smaller-footprint retail formats.


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