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How A Soviet Emigre Family Took Kefir Mainstream In America

  • Carl Schreck

Ludmila Smolyansky​ operates a Lifeway stand at a trade show shortly after the company was founded in 1986.

Ludmila Smolyansky​ operates a Lifeway stand at a trade show shortly after the company was founded in 1986.

Julie Smolyansky says her parents fell to their knees and wept when they first witnessed the abundance of an American supermarket after emigrating to the Chicago area from Kyiv in 1976.

But it was their trip nine years later to a West German supermarket -- where they found a dairy drink popular in their native Soviet Union -- that would ultimately transform the family’s fortunes for good.

“They’d bought a couple of bottles of kefir,” Smolyansky, the 39-year-old CEO of Lifeway Foods, told RFE/RL. “And my dad said, ‘Well, America has everything, but it doesn’t have kefir.’ And my mom said, ‘Well, you’re an engineer. Why don’t you make the product, build a factory, and I will distribute?'"

In the three decades since her parents’ trip to Germany, Smolyansky and her family have built a business empire around kefir, a tangy cultured-milk drink ubiquitous across Eastern Europe and the former Soviet Union but, until recently, largely unfamiliar to mainstream America.

Her father, Michael Smolyansky, launched Lifeway Foods in 1986 out of the basement of the family’s home outside Chicago. There, he experimented with recipes using kefir cultures that friends and relatives brought over from the Soviet Union and used his training as an engineer to build a production facility.

Now, Lifeway estimates it occupies 95 percent of the U.S. market in kefir, which the company has helped turn from a niche health-food product to a formidable player in the surging global market for yogurt and other cultured-milk products.

Michael and Julie Smolyansky

Michael and Julie Smolyansky

"Initially, it was created for [Eastern European] immigrants that were coming to the States,” Smolyansky told RFE/RL. "And then [my father] found this niche because the health-food industry was blowing up and growing dramatically. ... And so I think then he saw this opportunity to go more mass market and to grow with the natural-food sector. And then, of course, natural food became mass market."

Lifeway said on March 16 that its gross sales in 2014 totaled $130.2 million, up 20 percent from the previous year. This past year it embarked on an inaugural nationwide print and television advertising campaign in the United States, and production began earlier this month at its new factory in Wisconsin that Smolyansky says will boost the company’s capabilities fivefold.

“I believe we have the capacity to get to $500 million [in annual sales],” Smolyansky said. “I don’t know when, but sometime soon.”

Tragedy And Transition

Smolyansky says her family arrived in the United States in 1976 with a total of $116. Her father, a Kyiv native, was Jewish. He felt suffocated by the Soviet regime and managed to secure a passage out of the country amid the wave of Jewish emigration from the U.S.S.R. in the 1970s.

The family was one of dozens resettled in the Chicago area and quickly embraced the entrepreneurial spirit of their new homeland. Smolyansky’s father found a job as an engineer, while her mother, Ludmila, a Ukrainian from Kharkiv, opened a deli serving Russian and Eastern European food.

The deli quickly expanded to several other locations, after which her mother began supplying other stores selling Eastern European delicacies across the United States. It was during their 1985 trip to a Cologne tradeshow to find goods for Ludmila’s distribution network that the couple came across the bottles of kefir in the supermarket.

“I believe that we have the ability to become a global brand,” says Julie Smolyansky.

“I believe that we have the ability to become a global brand,” says Julie Smolyansky.

Only after her father began making his initial batches in the basement did Smolyansky first try kefir, which is thought to have originated with the peoples of the Caucasus Mountains and has long been considered beneficial for human health thanks to its probiotic properties.

“He made it for me the first time when I was about 11 years old,” she says. “… And I loved it.”

Smolyansky and her younger brother Edward, Lifeway’s chief financial officer, grew up speaking Russian at home. Sometimes she pronounces “kefir” like an American (KEE'-fur). Other times, such as when quoting her father, she deploys the Russian pronunciation (ke-FEER').

Two years after launching Lifeway, Smolyansky’s father took the firm public to boost its expansion capabilities. It debuted on the Nasdaq early in 1988, selling at $1 per share. The proceeds from the offering allowed him to open a new plant, and the company increased its sales from around $800,000 in 1988 to around $6 million in 1997.

Two years later, French food giant Danone purchased a 20 percent share in the firm, in which the Smolyansky family still holds a controlling stake.

By then, Julie Smolyansky had already joined the company and was being groomed by her father to eventually take it over. The transition happened suddenly and tragically in 2002, when Michael Smolyansky died of a heart attack at the age of 55.

His death left the family heartbroken and shareholders shaken. The company’s stock plunged 27 percent to $5.10 a share the day after her father died, prompting Nasdaq to halt trading in Lifeway stock. Smolyansky was named the company’s president, chief executive, director, and treasurer. At 27 years old, she became the youngest female CEO of a publicly traded company in the United States.

Friends advised the family to dump their stock in the company, saying it was “done,” Smolyansky recalls. But she was determined to persevere and worked like a “robot” in the years that followed to stabilize the company, she says.

"I did not want to let everything that my parents worked for, and how hard they worked to get us to where we were and all that they had risked, I did not want that all to go down the drain," Smolyansky told RFE/RL.

The Next Frontier

Having worked under her father as director of sales and marketing, Smolyansky’s tenure atop Lifeway has been marked by an aggressive push to raise the profile both of the brand and of kefir over the past 13 years.

She invested in a machine that encases Lifeway kefir bottles in plastic sleeves offering more room to explain the health benefits of probiotics, which the World Health Organization has defined as “live microorganisms which when administered in adequate amounts confer a health benefit on the host.”

The company has also introduced an array of flavors and variations on kefir, including child-friendly packaging, frozen kefir, and, recently, a high-protein kefir drink aimed at capitalizing on heightened interest in protein-packed diets in the United States.

"We’ve really innovated a product that was really a staple in the Soviet Union, in Eastern Europe, and we’ve done things like a frozen kefir. Kefir’s been around for 2,000 years [and] no one’s ever frozen it into, like, an ice cream,” Smolyansky says.

With its dominant position in the U.S. kefir market long established, Lifeway sees the global market as its next frontier. One market research report last year estimated the global probiotics market would reach $32.6 billion by the end of 2014.

Smolyansky says she wants Lifeway to be to kefir what “Hershey’s is to chocolate or Tropicana is to orange juice.”

“I believe that we have the ability to become a global brand,” she told RFE/RL.

Smolyansky’s father had planned to bring Lifeway kefir back to his native Ukraine in the 1990s, but she says the idea was scrapped after the Ukrainian official her father was working with was mysteriously struck and killed by a car.

Lifeway was on the shelves in Russia in the 1990s but at a premium price affordable only to the rich, Smolyansky says. The shipments halted after the 1998 Russian default and ruble devaluation.

Currently, Lifeway is exporting kefir to Canada, Mexico, Britain, Kuwait, and Hong Kong, among other markets. But there is no current plan for another push into Russia, Smolyansky says.

She considered the idea two or three years ago but gave up after frustrating encounters with corruption. Every time she tried to register a name for one of Lifeway’s products in Russia, people would try to squeeze her for bribes, she said.

“I would go in and start to research the name, and it was available and open,” Smolyansky said. “…Three hours after submitting our application, we were denied, and [they] said, ‘That name already exists. But for $5,000, we could make the name available.’ … I did it with three different names, and then I said, ‘Forget it.’"