As for consumers, Lee tells FoodNavigator-USA: “If you're not buying Greek today, you're probably never going to buy it. You've probably tried it, but you're sticking with a traditional style yogurt which has a lighter creamier texture. Greek has 47% of the market; we’re going after the other 53%.”
Tarte – which was developed from a Vietnamese recipe from Lee’s mother – has as much protein as Greek yogurt (it’s not strained but he adds whey and milk protein concentrate), the tart flavor of frozen yogurt, a light, creamy texture, and low sugar (he combines sugar and stevia).
Unusually, the sugar is added to the milk before it is cultured, says Lee, a former real estate executive who set up Tarte Foods LLC in Santa Monica with his brother Henry in 2010, secured shelf space at his first major accounts in early 2013, and is now in around 700 stores primarily in southern California, from Target, Costco and Kroger (Ralph's) to Sprouts, Whole Foods, HEB & Jewel Osco.
“We're actually caramelizing milk and sugar together and then culturing it to almost create a dessert-style yogurt. Every other style of yogurt starts off as plain - just milk and cultures - and is then sweetened and flavored.
“The base flavor of Tarte is very similar to frozen yogurt brands like Pinkberry. I was going Pinkberry once a week, because it reminded me of the tart flavored yogurt I had when I was a kid. And when I saw all these frozen yogurt shops, I started thinking, can I come in and carve a niche and own the Asian style yogurt category?”
I grew up with this style, so I'm gonna be the guy to bring it to the shelf
Chobani proved it’s possible to disrupt a well-established category, and that people will pay a significant premium for added value, he says. Meanwhile, yogurt is a high-volume, fast-turn category, which gave it added appeal from a business perspective.
“I looked at a lot of food categories, but you have to ask, how often are you going to buy a bottle of ketchup or BBQ sauce? Yogurt can deliver real volume, and also it just so happened that I had grown up with a style of yogurt that was never introduced onto an American grocery shelf before, this French-Vietnamese style yogurt.
“It was like, I grew up with this style, so I'm gonna be the guy to bring it to the shelf.”
There was no way we were going to invest that kind of capital and not even know if it there was a marketplace for us
However, translating his recipes into commercial products was a huge challenge, with dairy industry consultants initially quoting him $30,000 per flavor (he wanted to launch five) to do it for him, which was prohibitive for a start-up, he says.
“There was no way we were going to invest that kind of capital and not even know if it there was a marketplace for us, so we approached Cal Poly San Luis Obispo, which structured a special project kind of arrangement [in 2011] where I had access to the labs and the professors during office hours for questions. They were also able to introduce me to contract manufacturers and suppliers.”
I was just in shock because we had customer deliveries we had to make
From here, things started to move very quickly.
A manufacturer in Visalia agreed to produce the product, retailers loved it, and things were going swimmingly until the manufacturer in question ran into financial troubles and gave him 30 days’ notice to find an alternative partner.
The next month was “insane”, he recalls: “I was just in shock because we had customer deliveries that we had to make, and we were about to launch into Safeway.”
While he had got other firms in mind should Tarte outgrow its original partner, he didn’t expect to be having those conversations quite this early, admits Lee, who embarked on a desperate scramble to find a new partner that could make his yogurts to his specifications – in record time.
“We were able find a manufacturer in Fullerton that believed in our potential and took us on even though we were small, but it was the craziest 30 days I've ever experienced.”
I was on cloud nine
He’s still working crazy hours, but he doesn’t wake up in a cold sweat wondering if he’s made the biggest mistake of his life by getting into the food industry, he says.
“There were two instrumental moments that really validated what we were doing. The first was when Whole Foods said yes. I was on cloud nine.
“The next milestones were when Costco and Whole Foods gave us expansions; that just gave me a whole new vote of confidence. And then getting Target [as a customer] was amazing.
“That’s not the normal path for a natural foods brand. Usually you’ve got to own a natural foods category first across the country and then you cross over into conventional.”
We didn’t have to give away too much equity
For the first three years, he and his brother were able to self-finance the business.
More recently they have closed a round of growth capital, he says, “but we got our company to the stage where we didn’t have to give away too much equity.
“It's very hard to be a profitable business when you're a start-up, but the metrics and the numbers make sense when you look out three to five years. The data that we're collecting is really encouraging me to keep pushing forward.”