Feeling the pain of a declining sales amidst a dairy backlash, kefir maker Lifeway Foods is preparing a new internal restructuring project that brings a mix of tried and true strategies and new unventured grounds for the 33 year old brand.
The rise of plant-based dairy alternatives has hit the milk industry hard; market research group Mintel forecasts U.S. milk sales to fall 11 percent between 2015 and 2020. Over the past year, Lifeway has felt the pain of this shift in consumer trends first hand, with the publicly traded company reporting a 15 percent revenue decline and an operating loss of about $599,000 in its Q3 earnings statement. The lost sales struck a blow to the company’s stock price, but entering the new year CEO Julie Smolyansky has a plan to bounce back.
Dubbing the project “Lifeway 2.0,” Smolyansky told BevNET in a phone call that the company has already begun restructuring by shaking up its executive team, pulling underperforming products, and exploring new channels and categories — including plant-based products — that are designed to attract millennial consumers.
Lifeway first announced it would release a plant-based probiotic line called Plantiful last year at Natural Products Expo West 2018. Plantiful was initially supposed to hit shelves by the end of the year, but production issues pushed the launch back, with a new rollout date set for March.
“[Plantiful is] incredibly important, this is something we’ve been working towards for the last three or four years,” Smolyansky told BevNET.
Plantiful will include an adults line in 24 oz multi-serve and 8 oz single bottles and a kids line in single serve 3.5 oz pouches. Both lines are being produced in-house by Lifeway, which Smolyansky said will produce cost savings.
“We’ve been around the block for a long time and the fact is we have the capacity to meet every retailer’s need,” she said. “I’m very, very optimistic about this.”
Smolyansky is also careful to stress that while the products contain probiotics, they are not kefirs. Lifeway has long been a stalwart fighting to protect the identity of its dairy products, going so far as to file suit in 2016 against Millennium Products (now GT’s Living Foods) claiming its Cocokefir line was misleading consumers, arguing that “genuine kefir cannot be made from the non-dairy ‘milk’ or ‘water’ of plants, whether coconuts or otherwise.”
The Plantiful launch comes after Lifeway discontinued its Elixir soda line last quarter, which was introduced in March 2017. According to Smolyansky, the company “couldn’t quite get it” right with the line, adding Lifeway “isn’t really a soda company” and that a plant-based extension made more sense for a brand associated with dairy. The company has also dropped some of its food products, including Meltaway Dehydrated Kefir Bites.
While Smolyansky readily acknowledged the troubles the dairy industry is facing and the need to embrace new innovations, she was critical of anti-dairy diet trends that have led to the increased popularity of plant-based dairy alternatives. Although Mintel predicts plant-based will reach $3 billion in sales by 2020, Smolyansky is bullish that the tides will soon shift in favor of Lifeway’s core kefir products. With a close to 80 percent market share of the kefir category, she noted that the global kefir market is currently growing at a 6 percent rate, and expected to grow by an additional $1 billion by 2024 to $2.24 billion. To capitalize, the company is also building its foundation internationally, with a focus on Mexico.
“For me there’s always a pendulum around food restriction diets,” Smolyansky told BevNET. “We’ve seen this before with fat-free foods, ‘no yolk,’ or when everyone was eating steaks and butter. We’ve seen these kinds of elimination diets in the past and we know that this is a temporary challenge the dairy industry is going through.”
To boost sales of the flagship kefir products, Lifeway has redesigned its packaging to make the “kefir” label larger and reduced the color gradient for a “cleaner, whiter, fresher look,” Smolyansky said. The company also redesigned the label of its kids line, Probugs.
Embracing smaller pack sizes has also led to a burst in sales from millennial consumers, she added. Sales of the company’s 8 oz. kefir products, which are increasingly available in the convenience channel, have increased more than 33 percent, according to Smolyansky.
“Our hero product has always been the 32 oz [multi-serve product], our bread and butter for the heavy kefir user,” she said. “But millennials want trial, they don’t want to commit to four servings for the first time. Being able to offer those 8 oz [bottles] in expanded distribution is really important and symbolizes the vision that kefir is just starting to hit its stride.”
Lifeway’s changing channel strategy is also part of the plan to reverse its sales slump. Smolyansky noted that one reason for Lifeway’s decline over the past year was a failure to properly launch products — opting to focus on launching new lines in conventional grocery and mass channels instead of incubating them in the natural and specialty channel that had long been the company’s key to success. While Lifeway is continuing to branch out its core kefir products into c-stores and also embracing on-premise with about 40 new college campus accounts and partnerships with restaurant chains, the company is hoping to return to its roots and focus more on its placement in the natural space before launching wide scale.
The company has also returned to producing entirely in-house, with Smolyansky noting that relying on outside manufacturers led to the failure of several past product launches.
“In many cases where some of the newer products that we launched failed, we didn’t make them ourselves,” she said. “Often we made part of the product, but not the whole thing. Now we’ve realized being able to control our own destiny, meaning being able to do our own manufacturing like we’ve done for 30 years, is really important to us and that’s how we operate. Being able to meet minimum runs on new product launches is really hard and really expensive and distracting if we have other things we can potentially do better.”
Moving forward, Lifeway’s management team will look somewhat different. CFO Neha Clark left in November after just over three months with the company, with Chief Accounting Officer Eric Hanson permanently assuming the role. Meanwhile, it has also welcomed back former VP of sales Amy Feldman, who rejoined the company after leaving to take the same position at distributor KeHE.
“Amy helped us get to one of the biggest growth stages that we ever had and she’s now stronger, knows more and is a great leader,” Smolyansky said. “We’re looking forward to working with her in a bigger capacity now. Having her back is amazing, she really knows the natural industry. I think we got away a little bit from our core business, now we’re going back to that core.”
While the company is still coming back from its poor Q3 turning and a stock price decline of nearly 75 percent over the past year, Smolyansky feels that rising consumer awareness of kefir and Lifeway’s reputation as the leading producer of the product will make its 2.0 initiative a success.
“We’re just starting to hit our stride,” she said. “There is an awareness and we have been making sure we have the capacity and can create the demand. We’ll continue to push for more demand, more distribution points, and go through all the channels where kefir isn’t even sold. We haven’t even scratched the surface yet.”