Ukrainian businesswoman brings Eastern European recipe to mainstream tastes (08/14/05)

Ukrainian businesswoman brings Eastern European recipe to mainstream tastes

by Andrew Nynka

PARSIPPANY, N.J. - It's been a good year for 30-year-old Julie Smolyansky. Sales for her multi-million dollar company are up, its publicly traded stock continues to rise, and interest in its unique-tasting dairy products is spreading to mainstream American taste buds.

But for Mrs. Smolyansky, who took over as president and chief executive officer of the Chicago-based company three years ago, success has come with a price.

The company, Lifeway Foods, was founded by Mrs. Smolyansky's father, Michael Smolyansky, who along with his wife and 1-year-old daughter, Julie, emigrated from Kyiv in 1976. He brought with him a recipe for the company's core yogurt-like product, kefir, a dietary staple throughout Eastern Europe and the former Soviet Union that is now attracting interest in the United States for its apparent health benefits.

But in 2002 Mrs. Smolyansky's father died unexpectedly of a heart attack at age 55, leaving her in control of America's leading kefir supplier. Mrs. Smolyansky, then 27, took over running the company the very day after her father died.

"I think everybody is always intimidated," Mrs. Smolyansky said when asked about her reaction to being thrust into the leadership role at such a young age. "That's probably a natural human instinct."

Since taking over the leadership role of the company her decisions have helped Lifeway Foods grow to become a corporation with a market value of approximately $149 million. Fortune Small Business named it the 38th fastest growing small business in 2004, while Forbes Magazine named it the 47th best small company.

Business for Lifeway Foods, however, began on a much more modest note. In 1986 Mr. Smolyansky left his engineering job to start a business that manufactured kefir, a thick beverage fermented from cow's milk that originated some 2,000 years ago in the Caucusus Mountains.

Meanwhile, his wife helped make ends meet for the family by running five Eastern European delis scattered throughout Chicago's northern suburbs.

Mrs. Smolyansky, who holds a bachelor of arts degree in clinical psychology from the University of Illinois and has run five marathons, said the company's products are geared to the health conscious.

Its core product, kefir, is a creamy probiotic dairy drink similar to other fermented milk products such as buttermilk, but uses low-fat or non-fat pasteurized milk as its basic ingredient. Probiotics promote the growth of microorganisms described as beneficial to the intestine. The drinks are made from a special culture which contains 10 active "friendly" microorganisms, Mrs. Smolyansky said. In comparison, yogurt contains about two or three.

In addition to the magazine rankings, Lifeway Foods recently earned a Retailer Choice Award at the 2005 Food Marketing Institute show in Chicago and a deal with Target food stores, which announced it would sell strawberry, banana, raspberry and cherry low-fat kefir in 100 to 200 of its stores. Indeed, business has been so good for the company that Lifeway Foods recently purchased a 100,000-square-foot distribution and warehousing facility, equipped with 40,000 square feet of refrigeration, in Niles, Ill.

"We won't be producing in the new space, but we will have space for raw material and warehousing," Mrs. Smolyansky said. "We have enough production capacity in our Morton Grove [Ill.] location at this point, and as our demand grows we will possibly transfer some of the production into the new facility."

Mrs. Smolyansky said Target will sell the drink in stores with expanded food sections, though the arrangement does not specify geographic regions. Shipments to the Minneapolis-based Target Corp., which operates 1,330 stores nationwide, have already begun.

"We get to test market our products and sell it in a high-end, very mainstream store that many people shop at," Mrs. Smolyansky said, referring to the Target deal. "So the availability of our product is much greater."

After the deal with Target was announced on May 24, shares in the company leapt $3.61 on the Nasdaq stock exchange to close at $12 - a 43 percent gain. Currently, shares in the company are selling at just under $18. French food giant Groupe Danone (known in the U.S. as Dannon) owns a 20 percent interest in the company, while members of the Smolyansky family own smaller stakes. Overall, sales of the company's products have also steadily increased. For the second quarter of 2005, Lifeway Foods sales increased 27 percent to $5,069,900 from $4,002,093 during the same period last year.

Currently, Lifeway sells 15 products through 1,200 local stores such as Treasure Island and Whole Foods. Its products are also sold in other parts of the country in grocery and health food stores and can also be found in areas of the country that have large Eastern European enclaves.

Lifeway offers 12 different flavors of its kefir beverage, Organic Kefir and SoyTreat (a soy-based kefir). Lifeway also produces a line of products marketed in U.S. Hispanic communities, called La Fruta Drinkable Yogurt (yogurt drinks distinct from kefir). In addition to its line of kefir products, the company produces a variety of cheese products and recently introduced a line of organic pudding.

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