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C.W. Post Economics Chair Profiles the Greek Yogurt Craze in America

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Brookville, N.Y. - Dr. Panos Mourdoukoutas, chair and professor of the Economics Department at the C.W. Post Campus of Long Island University, profiles the explosion of Greek yogurt onto the American market. Read his blog below or click here.

How Greek Yogurt Captured the American Market: The other Half of the CNBC Story

When Greece makes the news in the US these days, it is usually for its soaring debt and ailing economy. Lately, Greece is making the news for another reason, its yogurt that flies off supermarket shelves. On July 14th, CNBC featured New York-based manufacturer of Greek yogurt Chobani that saw its sales soar, from nothing in 2007 to $500 million by 2011, leaving traditional yogurt makers like General Mills (NYSE:GIS) and Kraft (NYSE:KFT) back in the dust.

But that was the second half of the story, as it doesn't seem to know the first part: How Greek yogurt came to America, and became such a smashing success. But I do know the man who does know that part of the story. He is Kostas Mastoras owner and founder of Optima and Titan Foods in Astoria, Queens, in New York. Costas is the man who discovered FAGE, the first Greek company that mass-produced the centuries old strained yogurt, and brought it in America.

Last weekend, I did catch up with him and have him go over the story:

"In 1988, I did visit FAGE in Greece to purchase feta cheese for my store, when one of the company's managers asked me whether I was also interested in strained yogurt, handling me a sample to try.

Yogurt? I asked. I din't think Greek yogurt will sell in America. Besides, I din't think we will get permission from the US Department of Agriculture to import a product that uses live bacteria cultures.

But I did try the product and I liked. It didn't have that watery taste of the traditional yogurt sold in American supermarkets. So, I did promise to investigate the possibility of importing it to the US.

As it turned out, the US Department of Agriculture has changed the rules, so I did place a small order of 120 6-once containers, and had it shipped by plane—yogurt has a 30-day product-cycle.

In the beginning, FAGE yogurt was selling at my store only, to Greek American customers. Americans do not know about this product, and price was a major issue–$2.49 for a six-once container—about three times conventional yogurt was selling at that time. Yet my sales were doubling every month.

Eventually, Word-of-Mouth did its magic, and I had inquiries from my American customers in Manhattan and Long Island. Now, my sales quadrupled, and I had yogurt shipped from Greece with every major European airliner that flew to New York.

In 2000, FAGE asked me to form a joint import company, but we didn't agree on the conditions, so FAGE created its own subsidiary FAGE USA, but I did continue to distribute the product in New York market. And I did work closely with FAGE US manager Adonis Maridakis to adapt the product to American preferences and promote it in the national market. We asked, for instance, the parent company to develop two additional product codes with 6 percent and 0 percent fat that turnout to be the most popular code—the initial product contained 10 percent fat. We further visited food exhibits to show people how to eat Greek yogurt.

The turning point, however, came when Trades Joe and Whole Foods (NYSE:WFM) decided to carry the product, and sales jumped from $4 to 40 million. Now, FAGE didn't have enough capacity to supply the US market. Besides, what is the point of bringing yogurt from Greece when milk is less expensive in New York? In 2008, FAGE opened its owned factory in upstate NEW York. But, I believe they did a big mistake. They did open factory across Efratis, a feta cheese company that eventually got into the yogurt business of its own, but on a larger scale, dominating the Greek yogurt market. The name of the company is Chobani."

That's the first part of the story of Greek yogurt in America—the most difficult I believe, and it comes with a strategy lesson: The pioneers open-up markets, but the colonizers exploit their full potential.

Posted 10/06/2011

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