The Morton Grove, IL-based manufacturer has seen great success with its base tart and tangy flavor, which still accounts for the lion’s share of sales. Lifeway, which has now been in business almost 30 years, is the overwhelming leader in the category with 95% of the market, according to information released by the company to analysts.
It’s nothing new that food manufacturers try to cater to consumers’ expectations by introducing season flavors. The new twist is that Smolyansky said the company is planning to rotate seasonal flavors throughout the year on an ongoing basis. This was based on the strong reception the company experienced with the release this year of a watermelon summer flavor. Next up is a pumpkin spice offering, a flavor which of course has a strong seasonal component.
Consumers demanding flavor innovation
Smolyansky said the new rotation plan will tap into what she sees as a growing trend in the food business, that being the quick rise of the popularity of new flavors among certain demographics, perhaps driven by activity on social media.
“We certainly see food innovation really getting creative in all different categories. Restaurant menus are pairing all sorts of flavors in unexpected ways, as is sweet paired with savory. Right now, Millennials are very adventurous in terms of their palates and are demanding innovation in terms of flavors,” Smolyansky said.
One of the aspects of the new flavor plan will be the artificially limited nature of the flavor offerings. In a traditional sense, certain flavors were always limited to a certain time of year. A truly ripe, juicy fresh peach is only available about six weeks of the year, for example. With modern flavor technology, these experiences can be delivered at the push of a button, so the limited-run aspect of the flavor offering is an artificial construct. Would consumers start to feel manipulated by the ‘buy it now before it’s all gone’ aspect of the plan? Smolyansky is of the opposite opinion, and said that the target consumers seem to enjoy the treasure-hunt aspect of products that are not always immediately available.
“I think consumers are really hunting for these small-run, limited-edition flavors. I think they see this as something fun that things are constantly changing and they are looking for something new,” she said.
Limited-run flavors can also be a push to the fence-sitting consumer, she said.
“The limited edition flavor forces someone to make the decision to get it while they can,” she said.
In addition to the flavor plan, Lifeway has also tapped into another trend, the move toward high-protein offerings. The company recently launched a line featuring 20 grams of whey protein per serving.
“We will be targeting some male consumer a little bit more than some of our other mass-market products. We are definitely going to be looking at men's fitness market. But we don't want to exclude and alienate anyone because this is not just for lifters, it's really for everybody and in response to a general increased desire for more protein in our diets,” Smolyansky said in an earnings call with analysts.
Production capacity increase
To supply this increasing demand, Lifeway recently began kefir production at a Waukesha, WI plant it acquired in 2013. The new plant more than quintuples the company’s production capabilities.
“We acquired the Golden Guernsey plant because we urgently needed more production capacity,” Smolyansky said. “Renovating the building to meet our specific manufacturing and packaging needs has been a top priority, and the start of kefir production in Waukesha is an important milestone.”
Lifeway’s sales continued to grow, with the company reporting $130 million in consolidated gross sales during the twelve-month period ended December 31, 2014 from $109 million during the same twelve-month period in 2013. The company struggled with profits, however, recording 17 cents per share earnings in 2014 compared to 34 cents in 2013. The drop was attributed primarily to costlier raw materials, with the price of regular and organic milk having risen more than 30% in the target time frame. While not good news for dairy farmers, that pressure has eased Lifeway; milk prices that exceeded $24 per 100 lbs. — roughly 9 gallons — at times in 2014 have now dropped into the $15 range, according to the Associated Press.