Yogurt relationship goes sour

CONCORD, N.H. -- As a growing number of manufacturers compete to meet consumer demand for thick, tangy Greek-style yogurt, it's not only the yogurt that's getting strained.

For most of the last decade, a Greek dairy company dominated the U.S. market for the yogurt, which is produced by straining out the liquid whey from conventional yogurt. But as the product caught on, competitors cropped up, including New Hampshire-based Stonyfield Farm, the country's largest organic yogurt company.

Now that competition is playing out in federal court. It's hardly the stuff of Greek tragedy, but as one judge put it: "This case involves a dispute among yogurt manufacturers over a relationship gone sour."

When Stonyfield launched its Greek-style yogurt, "Oikos," in 2007, the market was mostly cornered by the Greek company Fage. So Stonyfield teamed up with Agro-Farma Inc., whose Turkish-born owner, Hamdi Ulukaya, already owned a feta cheese company and was looking into producing Greek-style yogurt.

But in late 2008, Oikos disappeared from grocery store shelves for a month. On its website, Stonyfield blamed a glitch as it increased production.

Court documents tell another story. Stonyfield claims Agro-Farma delivered a bad batch of yogurt, then illegally terminated their relationship. In a countersuit, Agro-Farma, which now produces its own Greek-style yogurt called Chobani, claims Stonyfield stole its yogurt-making secrets and handed them to another manufacturer.

The fierce competition is no surprise given yogurt's status as "the food of the decade," said Harry Balzar, vice president of consumer research firm NPD Group. The number of Americans who eat yogurt regularly has increased 75 percent during the last decade, he said.

"For the last 10 years, nothing has increased as much as yogurt," he said. "It's a category that's growing at breakfast, lunch, supper. It's a main dish, it's a side dish, it's a dessert. When we look back on this period in history 200 years from now, an archaeologist finds a little cup of yogurt, they may not know it, but they've stumbled upon what probably is the most identifiable trend associated with eating in America today."

Sales of Chobani yogurt between late June and early September increased 351 percent compared to the previous 12 weeks, according to data that market research firm Information Resources Inc. provided to Agro-Farma. Oikos sales were up 282 percent.

According to the lawsuits, Agro-Farma began producing Oikos for Stonyfield at its New Berlin, N.Y., plant in May 2007. Production stopped in November 2008 after Stonyfield said it had to destroy a shipment of yogurt because it was too acidic; Agro-Farma denied the yogurt was defective.

When Stonyfield refused to pay for the yogurt, Agro-Farma refused to make more. Stonyfield sued. Agro-Farma sued back, also taking aim at Schreiber Foods, the company that took over making Oikos for Stonyfield in early 2009.

Spokesmen for Stonyfield and Schreiber Foods declined to comment on the litigation. Kevin Kearney, a lawyer for Agro-Farma, said the company is focused on making the best yogurt it can, and that includes protecting confidential recipes and processes as intellectual property.

"Smarter" yogurts -- those touting probiotic properties and active live cultures -- paved the way for the popularity of Greek-style yogurt, said Phil Lempert, a grocery industry analyst and editor of the Supermarket Guru website. He said he expects sales to continue to grow.

"We're finally as consumers understanding the benefits of yogurt," he said. "Now people are starting to say, 'Oh! Yogurt isn't supposed to taste like sugar or artificial sweeteners. It's supposed to taste like yogurt.' And once they've taken that step, it's a small step to go to Greek yogurt."

Susan Donnelly, 35, of Boston, has been a fan of Fage's Greek-style yogurt for about two years and eats it several times a week.

"I used to eat Stonyfield French vanilla all the time, but when I tried the Greek I started to eat it more," she said. "I like that it's high protein. I like the texture of it better than other yogurts. It's thicker, creamier."

The lawsuit is scheduled for trial in August.