CHICAGO (Reuters) - The death of a parent is always hard, but for Julie Smolyansky it was compounded by having to quickly take over her father’s successful food company, which makes a cultured milk product called kefir.
Smolyansky recalled the shock of coming to Lifeway Foods Inc.’s (LWAY.O) suburban Chicago offices with her brother, Edward, just days after their 55-year-old father, Michael, suffered a fatal heart attack in 2002. Not only were the two coping with personal grief and a steep learning curve, they had to appease shareholders in a thinly traded public company.
“It was a really hard time, pretty chaotic and confusing,” she said of the period immediately following his death. Smolyansky, who was just 27 at the time, assumed the role of president and CEO, while her brother, five years younger, became CFO. Their mother is chairman of the board.
“It was extremely challenging in terms of the stock,” said Edward Smolyansky, who had just completed a business degree. “The stock was down 20 to 30 percent on very large volume. We were still grieving and mourning.”
The brother-and-sister management team, who frequently worked 18-hour days to keep the business going, adhered to a strict edict set by their Russian immigrant father: “Failure is not an option.”
“It’s in our personalities that we have a strong work ethic,” said Julie Smolyansky. “Our business and our goal have always been to grow our company.”
If the last eight years are any indication, the siblings are off to a strong start. They have elevated Lifeway, a company started in their parents’ basement, to the position of industry leader in a growing niche, with 97 percent of U.S. share. Progress has been helped by increasing interest in probiotics, microorganisms that have been tied to improved digestive functions and other health benefits, which are found naturally in kefir.
“To his credit, he left us a very well-greased, stable, financially secure business with great cash flow,” said Julie Smolyansky, who had previously abandoned plans for a graduate degree in psychology to learn the ropes from her dad, eventually becoming director of sales and marketing.
Michael Smolyansky was a chemical engineer known for his financial discipline, who taught his children to march to their own drum. While other companies were cutting staff and slashing marketing budgets last year in the difficult economy, the Smolyanskys saw an opportunity to gain top-notch employees and bargains on advertising.
Their hiring spree included the addition of a strategist to help roll out their foray into the world of retail, a frozen-kefir chain called Starfruit.
In February 2009, they bought out their remaining competitor in the U.S. kefir market, adding distribution in Pennsylvania and boosting their rolls to more than 200 workers. In 2006, Lifeway had purchased a Minnesota-based rival.
Last year the company’s line of more than 100 products, including popular kefir varieties such as low-fat strawberry and a ProBugs line for kids, logged some $58.1 million in sales, up from $44.5 million the prior year, despite the shaky economy. The Smolyanskys projected revenue could reach $70 million this year, far eclipsing the $12 million level of sales when they took over.
“Our major obstacles were not the obstacles that companies have with financing and capital,” said Edward Smolyansky, recalling his father’s ability to take Lifeway public and raise additional growth funding just two years after founding the company. “Our obstacle was strictly to increase revenue.”
The company’s staff, which includes many Russian immigrants, stayed on after Smolyansky’s death, determined to help maintain the business. So did Lifeway’s biggest outside shareholder, French-based yogurt giant Group Danone, which had earlier affirmed the founder’s vision by buying a 20-percent stake in the firm’s shares.
“I think the company does have staying power,” said Heidi Vanni, a portfolio manager with Boston Trust & Investment Management Co., which took a position in Lifeway in 2006 and owns nearly 403,000 shares. “With an aging population, it’s very likely that Lifeway products will be in more demand.”
The first major initiative of the new management team was to revamp packaging to contemporize the product, wrapping colorful sleeves around the kefir bottles to make them more alluring to broader audiences.
“It wasn’t something appealing to me,” said Julie Smolyansky, recalling that the former packaging had a medicinal look. “And I knew that was my target - younger women, healthier women.”
She also put more energy into educating the public about the potential health benefits of kefir, including claims it can alleviate autoimmune disorders, reduce bad breath, decrease cholesterol and lessen irritable bowel syndrome. Recent initiatives such as the addition of a green kefir variety, containing 10 organic vegetables and soon-to-released kefir shots, appear timed to take advantage of improving consumer trends.
“It seems like critical mass has been reached with kefir in general,” said David Browne, a senior analyst with the market research firm Mintel. “You’re seeing kefir now in conventional markets.”
Refrigerated yogurt, a category in which Mintel groups kefir, is the largest and fastest-growing section of an overall yogurt market that grew 32 percent from 2004 to 2009, reaching $4.1 billion in sales at groceries, drug stores and mass retailers, Mintel said.
The Smolyanskys are eager to tap that demand; ready to best each other with the latest new idea.
“There’s a good, healthy competition between us,” said Edward Smolyansky, who today handles much of Lifeway’s day-to-day operations. “We’re always striving to create another product, another flavor, one up each other, in a good way.”
Both said their father’s lessons remain with them as they move forward with their own ideas. So far they have eschewed advances by private equity firms and other suitors interested in taking control of the company. They also have plans to franchise the chain of four company-owned Starfruit stores, moving beyond Illinois to southern states.
“His entire focus was on quality product and production,” Julie Smolyansky said, adding: “He’d be really proud.”