Two of America’s most well-known yogurt brands are taking unconventional approaches create stronger ties with some of their stakeholders. Dannon is implementing a new supply system that allows the company to engage directly with its milk suppliers as part of an ambitious plan to influence farm practices, and Chobani will be giving its 2,000 full-time employees an ownership stake worth up to 10 percent of the company when it goes public or is sold.
In a move that Dannon says “redefines how the company works with dairy farmers,” the nation’s leading yogurt maker announced a pledge with significant new commitments related to sustainable agriculture, natural ingredients, and transparency. As The New York Times noted, the program plays into an array of consumer trends such as the desire for better treatment of animals and more simplicity in products’ ingredients.
The largest change will be to Dannon’s supply system. The company plans to source milk directly, whereas typically, dairy farms load their milk onto refrigerated trucks, which take it to a plant where it is combined with milk from other farms and processed. Dannon’s former milk supplier, Dairy Farmers of America, a large cooperative, used that process. Now, Dannon will be sourcing all of its milk from farms and two other co-ops, whose members have agreed to the plan. According to The New York Times, some 40 percent of the company’s milk will come directly from seven family farms, including McCarty Family Farms.
“Once it left our farm, I couldn’t tell you where our milk ended up,” Ken McCarty of McCarty Family Farms told The New York Times. “We felt a great deal of frustration with the traditional co-op model because we had no connection with the customer or the consumer.
The company has pledged to work directly with its dairy farmer partners and their suppliers to increase the use of more agricultural practices and technology that lead to improved soil health, water management and biodiversity while decreasing carbon emissions. Dannon claims it has already begun encouraging practices such as rotating crops and managing fertilizer, pesticide and herbicide application in the production of feed for a portion of the cows providing the company’s milk supply.
“Engaging in this direct way with our milk suppliers allows us to join them in a journey to improve agricultural practices and reduce their footprint on the environment, which in turn reduces Dannon’s footprint on the environment,” said Mariano Lozano, the CEO of the Dannon Company.
“We created a new way to work with dairy farmers to improve our shared sustainability priorities,” Lozano added. “Although our journey is independent from that of our organic sister companies, we have learned a lot from and are inspired by Stonyfield and Happy Family.”
The company is also chiming in on the debate around genetically modified organisms (GMOs). The “naturality” component of the new Dannon Pledge includes a commitment to using fewer ingredients and “more natural ingredients that are not synthetic and non-GMO” in its three flagship brands, Dannon®, Oikos® and Danimals®, which represent 50 percent of the company’s current sales volume. And the company is going one step further: The feed of its farmers’ cows will also be non-GMO by the end of 2017 for its Dannon-branded products and by the end of 2018 for its Oikos and Danimals brands.
Also by December 2017, Dannon will disclose the presence of GMO ingredients in its products nationwide as part of its new transparency commitment. The company also expressed its preference for a nationwide labeling system, but plans to label its products regardless of the actions taken by the federal government.
Of course, Dannon is not the first Big Food company to jump on the GMO labeling bandwagon. Last month, General Mills, Mars, Incorporated, ConAgra Foods, and The Kellogg Co. announced they would disclose GMO ingredients nationwide, and emphasized the need for a national solution. Campbell Soup was the first to make such an announcement, back in January.
Some may believe that the new commitments are much-needed for Dannon, which tied for last place in the April 2016 Behind the Brands scorecard ranking of the “Big 10” food companies. Over time, the company plans to extend these new commitments to its other brands, which include Activia®, Danonino®, and DanActive®.
Meanwhile, founder and CEO Hamdi Ulukaya announced on Tuesday that Chobani’s 2,000 full-time employees will collectively receive shares up to 10 percent of the company when it goes public or is sold. Each worker received a white packet with information inside on how many Chobani shares they were given, based on tenure; the longer an employee has been at the company, the bigger the stake.
The company’s value is estimated between $3 billion and $5 billion. At the $3 billion valuation, The New York Times estimated that the average employee payout would be $150,000, while the earliest employees might receive shares worth over $1 million.
But one of the original five employees Ulukaya hired, lead project manager Rich Lake, explained that – at least for him – it was more about an acknowledgement of what the employees put into the company than the shares’ dollar value.
“It’s better than a bonus or a raise,” Lake told The New York Times. “It’s the best thing because you’re getting a piece of this thing you helped build.”
The shares given to the employees are coming directly from Ulukaya. The employees will be able to hang onto them if they leave or retire, or they may sell them back to the company or in the event that the company goes public or is sold.
“It’s very uncommon and rare, especially in this industry, for these kinds of programs to be rolled out,” said Jessica Kennedy, a principal at Mercer, the consulting firm that worked with Chobani on the new program.
It is even more unconventional that such a transfer of shares is being done after the company’s value is firmly established. It is far more common to see such incentives offered by technology startups in their early days.
Chobani employees are already paid above the minimum wage and full-time employees are offered health and other benefits, such as the option to participate in a 401(k) plan.
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Published Apr 27, 2016 4pm EDT / 1pm PDT / 9pm BST / 10pm CEST