Chobani Opens a “Non-Greek” Front in the Yogurt Wars
Since its founding in 2005, Chobani has grown into an almost $2 billion-a-year thorn in the side of the dairy aisle’s established giants. It introduced Americans to Greek yogurt by promoting its thick texture and higher protein content, and now Chobani is the top-selling yogurt brand in the U.S., having surpassed General Mills Inc.’s Yoplait last year. But lately sales of the Greek variety have slowed, falling almost 5% in the past year. That is causing Chobani LLC Chief Executive Officer Hamdi Ulukaya to embrace an unlikely product to fuel growth: conventional yogurt.
Despite having long branded the traditional variety as overly sweet, boring, and stuffed with artificial ingredients, Chobani has begun rolling out Smooth, a set of five flavored yogurts that are lighter and smoother than its Greek variety. The new product line, made with more milk than traditional yogurt but less than Greek-style, is part of Ulukaya’s bid to win over Americans who do not eat yogurt or have moved on to such things as snack bars or beef jerky. “I knew everybody didn’t want to eat Greek yogurt,” he says. “I’m trying to find a solution for the people who are leaving.”
After hitting store shelves in 2007, Chobani’s Greek-style product surpassed $1 billion in annual sales within five years, winning customers from General Mills and Dannon, the U.S. brand of the French food giant Danone SA. As recently as 2011, Yoplait controlled 25% of the U.S. yogurt market. An 11% sales decline in 2016 dropped Yoplait into second place behind Chobani. Dannon, whose broad portfolio includes the Oikos brand of Greek yogurt, remains the top yogurt seller in the U.S., with sales exceeding $3 billion last year. Ulukaya wants that spot and thinks regular yogurt will feed Chobani’s growth over the next 10 years.
Chobani stumbled after its quick rise, struggling with the operation of a massive new plant in Idaho. There was a yogurt recall, along with delays filling orders and some calls for Ulukaya to be replaced. But the billionaire founder, who flirted with selling a stake in the company to PepsiCo Inc. before spurning the soda giant last year, has overseen a rebound: Chobani posted sales growth of 14% in 2016, according to Euromonitor International.
Still, over the past year, industrywide Greek sales slipped 4.6%, outpacing the 2.8% decline for yogurt overall, according to researcher Nielsen Holdings Plc. Ulukaya blames the weakness on the bevy of Greek yogurt products that flooded the market after Chobani’s rapid rise, only to see their sales fade as the novelty wore off. Chobani Smooth, which sells in two-packs for $1.79, is meant to appeal directly to a mass audience shopping for groceries at Kroger Co. and Wal-Mart Stores Inc. That means the company has to steal market share in a highly competitive category where sales are falling. “They built their brand on what they were not—they were not traditional yogurt,” says Allen Adamson, the former North American chairman of the branding firm Landor Associates. “They had a natural enemy, and it really served them well.”
While Yoplait’s struggles forced General Mills to cut its profit forecast for the fiscal year that ended in May, the food giant has cooked up a recipe for a yogurt rebound. The company, which missed the initial Greek craze and failed in a bid to sell its own version, is launching a yogurt called Oui—made using whole milk and no artificial colors or preservatives—that boasts a French heritage. Thicker than conventional yogurt and sold in small glass jars, the product has been marketed in France for more than two decades. Who is their target consumer? That would be someone who has gotten tired of Greek yogurt. “They like the simplicity of Greek, but the taste’s not there,” says David Clark, president of the U.S. yogurt unit at General Mills. “Greek is 10 years old. The category is ready for something different.”
Ulukaya insists he would welcome improved products from Yoplait and Dannon, because they would draw more Americans to visit the dairy case and encourage retailers to dedicate more space for yogurt—ultimately boosting Chobani’s bottom line. “If every cup of yogurt is better,” he says, “then the yogurt war is won.”
Citations
- https://bloom.bg/2uhhN9p BusinessWeek
- http://for.tn/2ut22wl – Fortune
Having Won its Battle to Operate, the Keystone XL Pipeline Struggles to Find Customers
Keystone XL is facing a new challenge: The oil producers and refiners the pipeline was originally meant to serve are not interested in it anymore. Delayed for nearly a decade by protests and regulatory roadblocks, Keystone XL got the green light from the President in March. But the pipeline’s operator, TransCanada Corp., is struggling to line up customers to ship crude from Canada to the U.S. Gulf Coast. TransCanada Chief Executive Russ Girling remains committed to completing Keystone XL and believes it will prove profitable in the long term—but it may be years before the company recoups its investment in the pipeline.
TransCanada has spent $3 billion to date on Keystone XL, much of it on steel pipe, land rights, and lobbying. When completed, the pipeline would travel 1,700 miles from Alberta to Steele City, Neb., where it would link up with existing pipelines that run to the Gulf Coast. The lack of interest has put the pipeline’s fate in jeopardy. The company, based in Calgary, Alberta, has said it wants enough customers to fill 90% of Keystone’s capacity before it proceeds. It started to aggressively court potential customers earlier this year as it seeks to meet that target. TransCanada expects the pipeline, which would carry up to 830,000 barrels of oil a day, to cost $8 billion, compared with its initial estimate of $7 billion. The company took a $2 billion write-down related to the pipeline last year.
A TransCanada spokesman said the company is making progress with customers and anticipates it will firm up support in coming months. The company has said construction could begin next year and finish as early as 2020. But much has changed in the oil markets since TransCanada first filed an application with the State Department in 2008 for a cross-border permit. Back then, the price of oil had surpassed $130 a barrel, producers were rushing to pump as much as possible and refiners were itching to secure steady supplies. Today, oil is trading around $45 amid a global supply glut caused in part by the emergence of American shale drillers.
Refiners want the flexibility of being able to buy oil from wherever it is cheapest. In a world awash in low-price oil, Canadian crude doesn’t look as attractive as it once did. Many refiners thus far are unwilling to commit to long-term deals for Canadian crude. “A lot of water has gone under the bridge over the last seven or eight years since we proposed that project with respect to where energy prices are today,” Mr. Girling told investors in May. “So it all sort of complicates the negotiation.”
Meanwhile, uncertainty about output growth from Canada’s oil sands has given producers pause about signing long-term agreements for space on a pipeline they may not need, people familiar with the matter say. While forecasters predict production there will grow into the next decade, largely due to investments already made, some analysts warn increases beyond that are far from assured. The oil-sands industry faces potential regulatory headwinds as Canada seeks to reduce carbon emissions to comply with global climate agreements. Some shippers are choosing to move crude out of Canada by rail. Transporting crude to U.S. refineries this way is $2 to $8 a barrel more than pipeline tolls, which average around $8.50 a barrel from Alberta to Texas, according to analysts. But rail shipments generally don’t require long-term commitments.
While Keystone XL stalled for years, other projects moved forward. Goldman Sachs analysts estimate that Enbridge Inc.’s expansion of an existing pipeline connecting Alberta and Superior, Wis., will be completed by 2019, while Kinder Morgan Inc.’s expansion of the Trans Mountain Pipeline from Alberta to the coast of British Columbia will be finished by 2020. They predict Keystone XL may not be finished until 2021. Keystone XL still requires final approval from Nebraska and faces the prospect of additional protests from a reinvigorated anti-pipeline movement in the U.S. following the fight over the Dakota Access Pipeline. The other pipeline projects face similar obstacles.
TransCanada is betting the demand that spurred the project still exists. Analysts project that over the long term the Gulf Coast’s demand for Canadian crude will rise as oil imports from Venezuela and Mexico fall. The company’s U.S.-denominated shares have risen by almost 50% since Keystone XL was blocked in November 2015, signaling the market’s belief that the company can afford to move on. Investors warmed to TransCanada after the company bought Columbia Pipeline Group Inc. for about $10 billion in 2016, a deal which offers the opportunity to expand its natural-gas operations in the U.S. Northeast. Revenue from TransCanada’s power operations has continued to grow, as has its natural-gas pipeline business, which expanded into Mexico. “We don’t own TransCanada because of Keystone,” said Rob Thummel, portfolio manager at Tortoise Capital Advisors LLC, which manages about $16 billion. “We own it because of the potential for expansion of natural-gas infrastructure in the Northeast.”
Citations
- http://on.wsj.com/2s5hmOP – Wall Street Journal
- http://read.bi/2t9HxVN – Business Insider
The Good News Is . . .
- The government revised the first-quarter growth in gross domestic product (GDP) to a 1.4% annualized rate vs the prior estimate of 1.2%. Growth in consumer spending was also revised upward to 1.1% from its prior estimates of 0.6%. The government report showed that inventory growth in the first quarter was weak, but final sales, which exclude inventories, grew at a rate of 2.6%. Both residential investment and business investment were the big positives that offset consumer weakness, adding 0.5 points and 1.2 points respectively.
- KB Home Corp., a leading home builder, reported earnings of $0.33 per share, an increase of 94.1% over year-earlier earnings of $0.17 per share. The firm’s earnings topped the consensus estimate of analysts by $0.07. The company reported revenues of $1.0 billion, an increase of 23.6%. Management attributed the results to increased deliveries driven by strength in the housing market, as well as a rise in the average selling price of its homes and operational efficiencies.
- Staples, a mainstay in the office supplies business, has agreed to sell the company to a private equity firm. The deal is the latest instance of a once-prominent name in retailing being laid low by the powerful forces reshaping how people shop. Sycamore Partners—a private equity firm that specializes in retailers and already owns Talbots, The Limited, and Hot Topic—said that it would acquire Staples for $6.9 billion or $10.25 per share. The company has faced stiff competition from online retailers such as Amazon.com, mass merchants such as Walmart and Target, warehouse clubs such as Costco, and computer and electronics retail stores such as Best Buy. Staples sells only a minority of its goods at bricks-and-mortar locations. Some $10.6 billion of its sales are delivered to customers, compared with about $6.6 billion sold in stores. That suggests that even as stores close and consumers shop online, Staples has a large and potentially profitable opportunity. This factor, its minimal debt load, and its size made it an attractive acquisition for private equity investors.
Citations
- https://bloom.bg/2eVhfSb – Bloomberg
- http://cnb.cx/2lwnm3s – CNBC
- http://bit.ly/2sqwtqe – KB Home Corp.
- http://nyti.ms/2u8abqy – NY Times Dealbook
Planning Tips
Strategies for Building and Preserving Wealth in Retirement
Increasing your wealth over time takes patience. You need to develop a plan for saving, investing, and minimizing taxes that will help you achieve your financial goals. Below are a few lesser-known strategies and ways of thinking that can help you along the way. Be sure to consult with your financial advisor to determine if these strategies are appropriate for your situation.
Non-Deductible IRA vs. Roth IRA – If you do not qualify for a tax-deductible IRA you may still contribute to a non-deductible (no tax deduction) IRA or you may qualify for a Roth IRA. Given the choice, contributing to a Roth IRA is always a much better choice than a non-deductible IRA. While you do not get a tax deduction for either, the money in the Roth IRA will be tax-free when withdrawn, while the non-deductible IRA will be taxable to the extent of growth in the account.
Plan Which Assets to Spend First in Retirement – The spending order of your assets in retirement matters. In general, it is preferable to spend principal from your non-IRA investments rather than taking a taxable distribution from your IRA and/or retirement plan. This is based upon paying lower capital gains tax rates (now) in the non-IRA account versus ordinary income tax rates (later) in the IRA and or retirement account. Generally, the spending order should be:
• Income Sources – Pensions, dividends, interest and capital gains, Social Security.
• Non-IRA Assets – Investments that will sell at a loss or break even, than more highly appreciated assets.
• IRA and Retirement Plan Assets – IRA, 403(b), 401(k) and so forth, dollars over and above required minimum distributions.
• Roth IRA – Roth IRA dollars.
Preserve Wealth with a Roth Conversion – Converting IRA assets to a Roth IRA will preserve tax-free distributions for generations. Under current law, the Roth IRA will grow income-tax free for the rest of your life, the rest of your spouse’s life and lives of your children, your grandchildren and potentially even your great grandchildren.
Avoid Having Withdrawals Bump You Into a Higher Tax Bracket – If you want to be a little more strategic with your withdrawals, you may consider taking withdrawals from a mix of taxable, tax-deferred, and possibly tax-free accounts. This can help you avoid moving into a higher tax bracket. This strategy may help you generate the cash flow you need to help meet expenses, while potentially reducing your taxes. If performed consistently over time, it may help you preserve more of your investments for the future. Be sure to check with your tax advisor to make sure this approach is appropriate for you. There are cases where the benefits of this strategy may not be worth the upfront cost.
Give Away More Than Annual Gift Tax Exclusion and Not Pay Taxes – Because of the generous lifetime gifting/estate tax exemption under current tax law the annual gift tax exemption limit is not meaningful. Many are under the assumption that making a gift greater than the current $14,000 exclusion per donee will result in tax. However, no tax will be owed because any amount over the $14,000 will simply reduce your estate or lifetime gift tax exclusion of $5.45 million by the amount of the gift value over $14,000. The only thing you would need to do is file Form 709 informing the IRS that the current year gift consumed part of your estate exemption.
Citations
- http://bit.ly/2j283Pf – Fidelity
- http://bit.ly/2saX9qW – Kiplinger
- http://bit.ly/2u86elJ – Investopedia
- http://on.mktw.net/1IXsGhO – MarketWatch.com
- http://bit.ly/2t9PA4W – WealthPreservationStrategies.net
