Lifeway Foods launches probiotic-rich kefir into mainstream.

Recognition from business publications and seemingly most magazine, blog and newspapers is hard-fought yet well-deserved for Morton Grove, Ill.-based kefir processor Lifeway Foods. Its five-year sales growth posts 256 percent change to hit $58.2 million in 2009 sales and appear on this year’s Dairy 100 list for the first time. Sales for 2010 are on track to reach $70 million for the publicly-traded company. And sibling company leadership-Julie and Edward Smolyansky-is just getting primed.

American consumer understanding of the inherent health benefits of probiotic cultures is catching up with international consumers. As probiotic awareness has spread, Lifeway kefir, a cultured dairy beverage containing multiple strains of probiotic cultures, gains. Lifeway continuously expands its kefir product family and dairy case presence through innovative product launches, acquisitions that expand the company’s profile and distribution capabilities and most recently, through social media, the big screen and the launch of a chain of frozen kefir shops.

Kefir is the mainstay of its 100-plus SKUs; probiotic-infused cheeses and a probiotic kefir-covered nutrition bar are also growing the product roster. Distribution agreements have gone beyond major natural foods stores like Whole Foods and into mainstream retailers including Target, club store CostCo and into supermarket chains nationwide. The most recent expansion is into the convenience-store channel via 7-Eleven.

“Six years ago, we were the first to use ‘probiotics’ on the label. A year after that, the ‘big boys’ started to do it. I do like to think of us as a pioneer in that respect for labeling purposes,” says Edward Smolyansky, CFO. And Lifeway isn’t threatened by $100 million in advertising by the ‘big boys’ either, he says. “When the tide goes up, all the boats in the water go up with it,” Edward Smolyansky says. 

Lifeway kicks off a new common stock share repurchase program (up to 200,000 open market shares) announced in May 2010. The repurchase program “demonstrates our continuing commitment to growth and enhancing shareholder value,” notes CEO Julie Smolyansky.

History in the Making

Since its inception, family-run Lifeway Foods has worked overtime to introduce kefir to the American market. Founder Michael Smolyansky and his wife Ludmila launched Lifeway Foods from their basement in 1986. A Russian immigrant, Michael planned to teach Americans to embrace kefir in the manner of consumers in his native land. The whole family helped with the business; the children taste-tested batch after batch of kefir varieties.

Daughter Julie moved up from her taste-testing role to join the Lifeway staff as director of sales and marketing in 1997, putting aside plans for a master’s degree in order to learn the ropes of the business from her father. In need of funding to expand and market its products, Michael led a successful IPO that received a vote of confidence from Groupe Dannone, which purchased a 20 percent holding. Lifeway grew by leaps and bounds; son Edward completed his business degree and joined the executive staff.

With his dream of bringing his cultured kefir products to the masses in reach, the company and the family lost Michael to an unexpected heart attack in 2002. The family knew what he would have wanted-for them to fulfill his ambitions. Daughter Julie took the helm as chief executive officer; Edward assumed the role of chief financial and chief operating officer and their mother Ludmila became the chair of the board of directors.

Under the sibling leadership, Lifeway has expanded the product line, brand awareness, distribution, plant capacity and annual sales gains. Putting kefir into consumer hands and consciousness is an integral part of marketing efforts. It’s all part of the hope to eventually have Lifeway products found in “every single refrigerator that there is,” Edward Smolyansky says.

Culture Club

Original product offerings of plain whole milk kefir have broadened substantially over the years thanks to a major emphasis on new products since 2005.  Lifeway now offers more than 100 individual offerings if flavors, varieties and unit sizes are tallied up. The company places an emphasis on new products to attract new consumers, please loyal fans and also to satisfy a bit of sibling rivalry as the duo tries to top each other with ideas. “We try to make a product for everybody,” Edward Smolyansky says.  “We’re trying to be creative. We’re not just trying to come in here and do our 9-to-5 job; we’re trying to have fun with it at the same time.”

A major push for online consumer interaction via popular social networking venues Facebook and Twitter and at the company’s own virtual kefir bar at is supported by the latest update to Lifeway’s packaging, including its full-wrap 32-ounce kefir packaging. The call for consumers to “like us on Facebook” and “follow us on Twitter” includes logos and anchors long-standing packaging information about the company history and the origins of kefir. The updates will roll out this fall.

Lifeway BioKefir shots in 3.5-ounce bottles launched in late July 2010 as a full line specifically designed to support immunity, heart health and digestion. Sold in four-packs, the new super-powered Kefir drinks are available in five flavors and carry more than 20 billion units of live and active probiotic activity – twice the amount in other regular Kefir and similar yogurt varieties.

All five BioKefir flavors - BioKefir for Immunity in Pomegranate/Blueberry and Kiwi/Passion fruit, BioKefir for Heart Health in Blackberry and Black Cherry, and BioKefir for Digestion in Vanilla - contain ProBoost, Lifeway’s exclusive new blend of live and active probiotic cultures clinically proven to strengthen immune response and alleviate digestive troubles. ProBoost enhances Lifeway’s long-time 10-Kefir culture probiotic combination with two new strains:  Bifidobacterium lactis HN019 and Lactobacillus acidophilus NCFM.

“Our new BioKefir shots will enable health-conscious consumers to get their daily dose of probiotics, Vitamin C, antioxidants, and fiber quickly, easily and with no interference to their schedules or diets,” says Julie Smolyansky.

Lifeway’s newly rolled-out Green Kefir with Phytoboost is a new super-powered kefir in the line. It features all of the immunity-boosting benefits of probiotic-rich Kefir and more. Available in Kiwi Passion Fruit and Pomegranate Acai Blueberry, Green Kefir with Phytoboost carries phytonutrients. A single serving is designed to deliver the disease-fighting antioxidant power of 10 green vegetables plus green tea extract in a single serving, along with the 10 live probiotic cultures found in Lifeway’s regular kefir.

The 2009 launch of Lifeway’s first-ever seasonal flavor, Cranberry Creme Brulee Kefir, was a holiday hit created by consumer demand.  “Eggnog didn’t translate well to kefir,” Edward Smolyansky says. “We decided it didn’t have to be eggnog, there are lots of flavors that are associated with the holidays.”

Flavor notes include vanilla custard, caramelized sugar and tangy cranberry. It will be back in full distribution for the 2010 fall-winter holiday season, along with a new fall flavor, Pumpkin Spice Kefir.

When it comes to new product development, Lifeway often finds inspiration outside of the cultured beverage category, and has a product development advantage over larger companies: speed. “We have the ability to make a huge and wide variety of products and different sizes. We can make small batches and large batches. Edward Smolyansky says, adding “and we can do it very quickly.”

While flavors with flair are a hit, the company’s original Low-Fat Plain Kefir continues to be a top performer. Lifeway likewise reports success with its Greek Style Kefir, which capitalizes on the popularity of Greek-style yogurt, a creamier version of traditional yogurt formulas.

In June 2010, the company’s kefir made from goat milk launched to target premium niche market.

Other globally inspired lines include two Indian-style Lassi varieties, marketed as a “spiritual, wellness, karma, yoga, faith kind of thing,” he says. Lassi is packaged in 8-ounce grab-and-go bottles in Mango and Strawberry flavors. Lifeway also produces a line of Hispanic-targeted flavored yogurt drinks under the La Fruta brand. Available in popular Hispanic flavors such as Mango, Horchata and Tres Leches, La Fruta is a lower priced line made with a standard yogurt culture mix instead of Lifeway’s proprietary probiotic culture mix, Smolyansky says.

Kid Power, Organic Growth

Lifeway’s popular ProBugs organic whole milk kefir line for children has grown at almost triple digit rates since its introduction in 2006.  This year, Lifeway expands from three to four flavors with the 2010 addition of Strawnana Split to existing flavors Sublime Slime Lime, Orange Creamy Crawler and Goo Berry Pie. Launched in curved flex-pouch packaging with patented no-spill spouts, the line will soon also be available in four-packs of kid-friendly 3.5-ounce bottles that will compete head to head with the popular Danimals product.

The company approaches ProBug product development a little differently than for traditional kefirs. The first step in ProBug development is to create a character, which drives the development of its corresponding flavor, Edward Smolyansky says. For the berry flavor known as Goo Berry Pie, the character Princess Penelope was created to join Polly and Peter ProBugs as brand ambassadors.

“When we do events we get a lot of feedback from the kids as to what flavors they would like,” he says. While growth remains impressive, Edward Smolyansky notes ProBugs still is considered a niche product. The product line has a higher price tag due to its organic whole milk base as well as the custom packaging.

“The whole thing for us was the unique package,” he says. “We could have created a generic character and put it on our 8-ounce bottle with a label and called it Kefir for Kids, but it wouldn’t have stood out. ProBugs gives us an edge in that category.”

Probiotic Prevalence

Lifeway is reaping the benefits of ever-growing U.S. consumer knowledge and interest in the benefits of probiotics. “The increased awareness of probiotics has helped us tremendously,” Smolyansky says. “We were actually the first U.S. company to label our products ‘probiotic.’ Before that, the industry shied away from putting ‘probiotic’ on the product because they thought consumers would be afraid of the stuff in there and not know what it is.”

To help educate consumers, Lifeway’s packaging and marketing touts the individual strains that make-up the company’s exclusive blend of ten probiotic cultures developed by European scientists. “The Live & Active 10 is what we call our exclusive blend,” Smolyansky says. “We tried to pick a mix that would run a spectrum of health benefits.”

The company focuses on the Live & Active 10 cultures because more cultures do not necessarily mean more benefits, Smolyansky says. “You can have a million strains in your product, but at some point you’re not going to get any extra benefits,” he says. “We feel that our ten is the most well-rounded mix.”

In addition to culture quality, Lifeway’s kefirs show high probiotics activity levels throughout products’ 70-day shelf lives, the company says. Probiotic activity levels are measured as colony forming units (CFUs). High numbers of CFUs translate to probiotics that are alive and healthy while on the shelf and activate when consumed. The company’s data show its kefirs have 7 to 10 billion CFUs of activity per cup at the time of the expiration date, Smolyansky says.

The kefir’s image got a boost this summer thanks the new ‘Sex and the City 2’ movie. A bottle of Lifeway Kefir can be seen in the kitchen of the fictional character Miranda Hobbes in one scene in the movie, reflecting the appeal of the product to health- and body-conscious women like those depicted in the Emmy award-winning ‘Sex and the City’ television series and its two spin-off feature films.

“Ten years ago, Lifeway Kefir was a niche product. Today it’s mainstream. Nothing makes that clearer than seeing it in a movie like ‘Sex and the City 2’ with stars like Sarah Jessica Parker and a pedigree that includes six years of top TV ratings,” Julie Smolyansky says. “This is excellent exposure for our brand among one of our primary target audiences – health-minded women in the 25-54 age bracket. It’s hard to imagine a better fit for a movie placement.”

While major brands often pay top dollar for product placement, in this case, the daily use of Lifeway’s kefirs by several of the movie’s stars resulted in its incorporation into the film, Edward Smolyansky says. “I can’t say that people are going to rush out after the movie and buy it, but when they are at their local Whole Foods and see it, our product nows rings a bell,” he adds.

Creating a Cult

The Chicago area represents a stronghold for the Lifeway brand, both in terms of distribution and product awareness, Smolyansky says. “We are sold in every supermarket and grocery store in Chicago,” he says. “Now we’re in 7-Eleven, increasing our presence in a new channel - convenience stores.”

The initial distribution agreement with 275 Chicago-area 7-Eleven stores kicked off in December 2009, complemented by a Lifeway marketing campaign. The Chicago stores launched the program with Lifeway’s six most popular 8-ounce kefir bottle varieties, the full ProBugs line and three varieties of the company’s probiotic wellness bars, which feature a probiotic-infused kefir coating.

The success of the program is underscored by plans for Fall 2010 expansion of the distribution agreement to 2,000-3,000 7-Eleven stores nationwide, Smolyansky says. Initial plans call for slotting Lifeway’s 8-ounce kefirs in lowfat blueberry and strawberry varieties.

Advancement of consumers’ overall probiotics awareness has helped provide a boost to Lifeway’s ongoing education and sampling efforts. A dedicated team represents the brand at Chicagoland’s multitude of spring, summer and fall weekend events, including marathons, children’s theater and numerous festivals. At family-focused events, the sampling team is often joined by Polly ProBug, the bigger-than-life ProBug mascot.

Lifeway Foods has added heft to its already-heavy sampling program with its emerging chain of direct-to-consumer Starfruit Café frozen dessert shops featuring frozen and traditional Lifeway kefir products. Four of the café-style shops have opened since 2008, supported by various marketing initiatives including a partnership with the popular Groupon consumer savings web site. (For more Starfruit Café details, see page 94)

On-premise locations represent the next frontier for Lifeway’s distribution, Smolyansky says. The company hopes to expand the availability of its products to restaurants, coffee shops, hotels and beyond. A 2009 distribution agreement with Chicago’s Lincoln Park Zoo places Lifeway Kefir and ProBugs lines in cafes and concession stands, and the company also had a presence at special events held at the family attraction.

Lifeway has likewise become part of the Chicago Cubs mystique via Lifeway Day events at Wrigley Field. After the success of the 2009 event, the Father’s Day 2010 sponsor day found Lifeway doubling its presence by hosting two sampling stations to give away twice the number of samples of kefir and ProBug organic kids’ kefir. The company also handed out ProBug toys to 10,000 young Cubs fans; mascot Polly ProBug threw out the opening pitch with the assistance of Edward Smolyansky. “It went great. We gave away twice the amount of samples as in 2009, it was Father’s Day, the weather was great, and the Cubs even won,” Edward  Smolyansky says.

The relationship with the Cubs has deepened in recent months, with placement of Lifeway’s Starfruit frozen kefir machines in the player locker room and press box, and kefir drinks additionally available in the press room. “Frozen treats have been a part of the national pastime since it started, and Starfruit Café is proud to help carry on that tradition for one of baseball’s oldest and most legendary stadiums,” says Julie Smolyansky.

A deal is in the works to open a Starfruit concession in the ball park’s concourse for the 2011 baseball season, Edward Smolyansky adds. “On a hot day in July, there’s nothing better than frozen kefir,” he says.

Acquiring Marketshare

The company broke into the East Coast market last year through its acquisition of Fresh Made Dairy in Philadelphia, making Lifeway the unchallenged U.S. kefir processor with nearly 98 percent of the market.

The company will maintain the Fresh Made brand as it did following its 2006 acquisition of Minnesota’s Helios Nutrition Inc., which is the No. 2 brand in the kefir category. As Fresh Made provided entrance to the East Coast, Helios grew the company’s potential in the organic kefir category, which is one that is seeing strong growth, Smolyansky says.

In addition to acquisitions, Lifeway has embraced the Internet and social media as an integral part of getting the word out about its products. “We’re finding right now that the Internet is one of the only, and really the best way, to get really good critical customer service,” Edward Smolyansky says.

In July 2009, Lifeway launched a new Web site featuring interactive pages for consumers of all ages and has since expanded its social media presence. “It’s still very early on to say if it’s translating into actual sales and top line revenue, ” Edward Smolyansky says, noting that on Facebook alone, the company’s fans have gone from 400 to 2,000.

The Smolyansky siblings intend to continue pushing the boundaries of the emerging kefir category. They also want to continue introducing new consumers to the product their father helped usher into the U.S. market. The family-run company will continue to run like a family, Smolyansky says.

“It’s important because it’s our passion,” he says. “It’s our goal. It’s what we know, and it’s what we love. We drink the product, we consume the cheeses and all the other products, so it’s important for many customers to know that it’s not just a large conglomerate-run food company, we have the family interest aligned with our own.”  

Editor’s Note: Portions of this coverage originally appeared in sister publication Beverage Industry (February 2010 issue), written by Jennifer Zegler, managing editor.

Consumer-Friendly Kefir at Lifeway’s Starfruit Café

Lifeway Foods is kicking its heavy sampling program up a notch with its emerging chain of direct-to-consumer Starfruit Café frozen dessert shops featuring frozen and traditional Lifeway kefir products.

Morton Grove, Ill.-based Lifeway’s top executives, siblings Julie Smolyansky (CEO) and Edward Smolyansky (CFO), had long brainstormed the feasibility of “kefir boutiques.” But major retail packaging upgrades and product launch initiatives had priority.

In 2008, the time was right. The first two Starfruit Café units launched in Lifeway’s hometown Chicago, serving made-to-order kefir parfaits, kefir smoothies and frozen kefir treats in environmentally-friendly packaging. The stores also provide an outlet for consumer purchases of bottled Lifeway kefir products.

Smolyansky compares Starfruit Cafés’ customizable approach to kefir to Starbucks’ approach to coffee. Consumers choose their own ideal combination of kefir flavor, serving style and toppings. All cups and lids are made of biodegradable, compostable materials such as corn. “It goes beyond just recycling,” he says.

Two additional units opened in 2010, and each of the four shops located carefully to draw new core consumers to the brand and bolster Lifeway’s well-established sampling program. “We are sampling every day, it’s a significant opportunity,” he says.

The 2010 cafés in the Merchandise Mart and Chicago’s Loop at Block 37 join the first stores in Chicago’s Lincoln Park and Wicker Park neighborhood; each spot was chosen for its exposure to varying consumer groups. For instance, Block 37 is a ped-way with foot traffic that averages 20,000 people walking past each day. “And we try to hand each of them a sample of our product,” he laughs.

“It’s a fun way to get people introduced to the product,” he says. “A lot of people who buy our product at the store don’t necessarily know what to do with kefir. Do you drink it? Do you put it in cereal? It’s a way to show people that you can do anything with it…even turn it into a frozen treat.”

Starfruit Café performance is “beyond expectations,” he says, citing 160% sales growth year-over-year for the first two cafés. Lifeway and its kefir are well-established and heavily marketed in Chicago-metro area retail, so it’s difficult to directly correlate the café launch and a lift in retail product volume. However, what he describes as “significant” volume increases since 2009 point to new awareness of Lifeway’s offerings.

With Starfruit Café licensing finalized in 2009, Lifeway is heavily promoting franchise opportunities beyond the Chicago area, and hopes to someday have cafés operating nationwide that help introduce consumers to its kefir products.

Lifeway’s Live & Active 10

As consumers continue to learn more about probiotic cultures and their benefits, Lifeway Foods communicates its probiotic message on its product packaging. Its line of Kefir incorporates the company’s exclusive blend of ten kefir cultures, which are:

L. casei
L. lactis
L. acidophilus
L. plantarum
L. rhamnosus
S. diacetylactis
S. florentinus
B. bacterium longum
Leuconostoc cremoris
B. bacterium breve