Creating An Active Culture For A Healthy Product

I'll always be a sucker for an old-fashioned American Dream success story. In the case of Lifeway Kefir, I get the feeling that the chapters yet to be written will be as exciting as the ones already in the book are inspiring.

The company kicks off a 25th anniversary promotional tour across the country next month featuring an Eighties theme, new products such as 3.5 ounce, low-calorie "power shots" called BioKefir and a Rube Goldberg-like bicycle rigged to mixed smoothies in a blender container that sits atop the back tire.

Michael Smolyansky, a mechanical engineer by profession, and his wife, Ludmila, were among the first émigrés from the former Soviet Union to settle in the Chicago area in the late Seventies. As the community grew, they opened a delicatessen that catered to the tastes of other Eastern Europeans who were moving to the area. On a trip to a food show in Germany in 1985, the couple sampled some kefir -- a beverage that is made from milk and probiotic cultures that look like cauliflower florets and are similar in taste and texture to drinkable yogurt -- that reminded them of the homemade staple they had grown up drinking every day. Michael resolved to market the drink in the U.S. and, in 1986, Lifeway Foods was formed.



Julie Smolyansky, who is now president and CEO of Lifeway Foods, and her brother Edward, now CFO, were early "guinea pigs" for various concoctions brewed in the family kitchen that eventually made their way to local grocery stores like Jewel and Dominick's. The drink was not only embraced by the growing number of Eastern Europeans in the area but also caught the winds of the burgeoning natural foods movement. It benefitted, too, from media interest in anything of Russian origin as the cold war ended.

Within two years, Smolyansky had taken the company public to meet demand. Growth was slow but steady and Groupe Danone, the French company with Dannon and Activia among its brands, took a 20% interest in 1998.

When Michael passed away from a heart attack in 2002, sales were about $8 million. Julie, who had joined the company after getting her B.A. from the University of Illinois at Chicago (where she studied effects of advertising and cultural influences on consumer dieting behavior) took over the reins and immediately set out to make the company's products mainstream. She estimates that sales this year will top $70 million and says that Lifeway has 97% share of the expanding kefir market.

Smolyansky attributes the company's success to a very simple formula: "Every year we'd reinvest in marketing, advertising and sales," she says, "and it was a very fine balance." The trick is to avoid creating more demand that you have the capacity to fulfill, she says, a mistake made by many small companies who go national but get tripped up by insufficient operations. Lifeway recently doubled its capacity and, therefore, is doubling its marketing budget.

"We have a very nice cycle," Smolyansky says.

Another key factor in the brand's growth has been a change in packaging, which admittedly had a "medicinal" feel in the early days, even as "probiotics" became a mainstream word thanks to the big yogurt players starting to advertise the concept that there are bacteria that are actually good for you.

"We were the first to talk about it; nobody actually knew what probiotics were," Smolyansky says, "but we were like a little person crying 'We've got probitics' on a street corner in the city." When Dannon (including Activia's controversial claims for Bifidus Regularis) and others started taking about probiotics, the concept of "healthy" bacteria gained traction.

"We're still finding out about all the good things; the health attributes are incredible," Smolyansky says. "I hope to live to see the day when all the research comes out on the benefits." Meanwhile, she says, she's hardly had a cold over the last decade.

The 25th anniversary tour kicks off at the Natural Products Expo West in Anaheim, Calif., next month, then makes week-long stops in Los Angeles, San Francisco, Seattle, Denver, Dallas, Chicago, Cincinnati, Philadelphia, Boston and New York, where the Smolyansky siblings will ring the NASDAQ closing bell in Times Square on May 16.

For every minute that someone peddles the Rube Goldberg-like bicycle/blender on the tour, Lifeway will donate $1 to Healthy Kids Challenge, a organization dedicated to finding simple solutions for families to eat better and move more. Each of the cites it visits -- or a total of $25,000 for its silver anniversary.

The company is also admittedly riding the interest in home cooking that is a combination of the recession and a trend toward healthy eating. "Everybody's a foodie nowadays," Smolyansky points out, and the company is collecting recipes like Creamy Kefir Guacamole and Spicy Jamaican Pumpkin Soup from celebrity chefs to broaden use. Look for a cookbook down the road.

"It's exciting," Smolyansky concludes, "to be able to shape the way people eat in a positive way and I'm thrilled that we are contributing to their health."

It is that excitement -- measured ever so carefully so that it does not promise more than it can deliver -- that will fuel Lifeway's continued push into the mainstream.

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