CPG Week: Dairy Drama Hits Lifeway Foods And Ben & Jerry’s

[00:00:05] Monica Watrous: Welcome to the CPG Week podcast by BevNET and Nosh, your source for the latest food and beverage industry news. I'm Monica Watrous, Managing Editor of Nosh, here with my co-hosts, Brad Avery and Lukas Southard. If you're enjoying the show, please subscribe on your listening platform of choice. On the podcast today, we are discussing the fermenting family feud at Lifeway Foods. The kefir thickens. But first, Pizza Hut is launching a limited edition tomato wine that offers an aromatic blend of fresh herbs and spices with notes of sun-ripened tomatoes and a subtle hint of toasted oak that evokes a baked pizza crust. Sip or spit, Brad?

[00:00:49] Brad Avery: Well, I hate to buck the question, but Lucas is really the wine guy here. I'm not much of a wine person. Now, I know that tomato wine is a thing, so I'm not immediately horrified by this. However, is it going to taste like marinara sauce is the big problem for me.

[00:01:08] Monica Watrous: Lucas, what do you think? You are our resident oenophile.

[00:01:11] Lukas Southard: As someone who has been trained as a sommelier yet hasn't really worked as a sommelier, I will say I will probably spit on this one, but I can't say that I'm not intrigued. I mean, I don't think I would. consciously want to buy a whole bottle of it, but I would want to try it.

[00:01:29] Brad Avery: I'm going to swirl it around, let it breathe, get that Pizza Hut flavor.

[00:01:35] Lukas Southard: Yes, I want it with a better pizza than a Pizza Hut. No offense, Pizza Hut, but I'd prefer something a little bit- No offense.

[00:01:41] Brad Avery: That was all offense there. That's just true.

[00:01:44] Lukas Southard: Okay, I take it back. All offense to Pizza Hut. I want it with a better pizza, but yes, I guess I'd give it a sip. I don't know if I'd give it a whole glass.

[00:01:54] Monica Watrous: Hmm. Okay.

[00:01:55] Lukas Southard: What about yourself?

[00:01:56] Monica Watrous: I think for me, it would be nostalgic. I actually grew up with Pizza Hut buffets. I don't know if you had a Pizza Hut with a buffet in your childhood homes. In my house, yeah.

[00:02:11] Lukas Southard: All the bacon bits you can eat, buddy.

[00:02:15] Monica Watrous: In your childhood hometowns. We had like pizza at buffets and it became a tradition for me and my sister to go eat, to stuff our faces with stuffed cheese crusts.

[00:02:26] Lukas Southard: But that doesn't beg the question of like, does that make you want to have a tomato wine with it?

[00:02:31] Monica Watrous: I mean, I'm just saying, I'll try anything once. But it has that nostalgic element of Sunday Pizza Hut buffets in my youth.

[00:02:42] Brad Avery: I want the proper Pizza Hut menu, like food pairing list with the wine is what I'm looking for. Which menu items are recommended most to pair with the wine?

[00:02:53] Lukas Southard: Well, OK, here's a good question. What is your ideal, your go-to pizza, your default pizza, like toppings of choice?

[00:03:01] Brad Avery: You know what's really good is, people are going to hate me, banana peppers and pineapple. Combine those two.

[00:03:08] Monica Watrous: You just painted a giant target on your back, Brad.

[00:03:11] Brad Avery: I did. Come at me.

[00:03:12] Lukas Southard: Would it be my first choice? But I would definitely eat that, Brad. So, you know, we can enjoy that. Maybe we can find a pizza hut out in LA and Marina Del Rey in a couple of weeks.

[00:03:23] Monica Watrous: Moving on to the latest updates with Lifeway Foods, as it has received multiple bids for takeover by Danone and continued family drama. Lucas, can you tell us more about what's going on there?

[00:03:37] Lukas Southard: Yes, it appears that Danone North America is not finished trying to acquire the Kefir brand, Lifeway Foods. So for a little background, Danone North America, the subsidiary of the French dairy company, proposed a $283 million acquisition on September 23rd. Lifeway went on to reject the offer on November 5th saying that Danone had substantially undervalued Lifeway. press release, Lifeway's board went on to announce that it was adopting a limited duration shareholder rights plan that would protect its outstanding shares from being acquired by Danone in an effort to reduce the likelihood that Danone would take over ownership without Lifeway's board having a say in it.

[00:04:31] Brad Avery: Some would call that a poison pill.

[00:04:34] Lukas Southard: Yes, that's true. For the record, Danone already owns about 23% of Lifeway's common stock. As of last week, Danone revised their proposal from $25 per outstanding share to $27 per share, which raises the offer to about $307 million. So not only does this raise the stakes, but it also raises the payment for Lifeway shareholders. Most importantly, the company's first family, who are primary shareholders, the Smolianskis. Now, Brad, you know a little bit more about the family feud that's been brewing among this family. Can you bring us up to date on that?

[00:05:16] Brad Avery: Even though it's a publicly traded company, Lifeway Foods still largely a family-run business. It was founded in 1986 by Michael Smoliansky, a Ukrainian immigrant, and following his death in the early 2000s, his daughter Julie Smoliansky took over as CEO and she's held that position ever since. Now, Lyudmila Smoliansky, Julie's mother, and her brother Edward, Julie's brother Edward, have been involved in the company for most of this time as well, up until a couple years ago when some tensions that we don't know how long they've been there, but began boiling over into the public eye as Edward and Lumilla really felt that Julie was misleading the company and tried to force her out. This is around 2022 and this attempt to oust Julie failed. Since that time, the company has turned around. It may make sense that if you'll remember just a few years ago, Lifeway was struggling. It had seen sales declines for a while, but over the past two years has been consistent and even record growth for the business. However, with Edward and Lumilla now out, although still shareholders in the business, they've been continuing to feud, and they've been very vocal that they support Danone's offer to buy the company. Earlier this year, even, Edward announced that he's launching a new competing Kefir brand called Pure Culture Organics, and that led to a lawsuit, and there's allegations that it was just a practical joke, and Edward denied that, and that he says they're still going to be going forward with launching this new company. It's troubling for the business because it does end up coming into every conversation about it and I believe we've even talked about this on the show before. So it's understandable that an acquisition by Danone could help put an end to this family feud once and for all. We'll have to wait and see what happens.

[00:07:12] Lukas Southard: Yeah, Brad, it's important to note that Danone's interest in Lifeway Foods not surprising. The brand has been doing really well and not just in the last two years, it's actually been the last four years. So putting aside the internal strife, Lifeway Foods posted 20 consecutive quarters of net sales growth in its Q3 earnings that it reported at the end of September. Net sales were 46.1 million, which was 12.7% growth over the same period in 2023. Its gross margin was 26.2% and its net sales, its year to date net sales were up 18.5% year over year. So it's really been doing well. So it's both not surprising that Danone wants to put it into the portfolio, but it's also not surprising that Julie wants to hold on because it doesn't seem like the brand really has a ceiling, at least in the last four years.

[00:08:10] Brad Avery: Yeah, that's a good point. Actually, back in 2019, we wrote about the LifeWay 2.0 plan, which was the revitalization efforts that have been paying dividends now. And last time I spoke with Julie, I believe she even said they're now officially in LifeWay 3.0. They're rolling out new innovation. They're continuing to embrace a lot of the new trends. They're returning their focus to dairy products after sort of taking a detour and trying some plant-based offerings. It's definitely a business that is on a hot streak. So it's also understandable why Danone now wants to strike. Danone, remember, has been a longtime minority shareholder in this business. They have a stake already. They want all of it now.

[00:08:52] Monica Watrous: And as of this recording, Lifeway Foods is still considering that offer from Danone. We'll, of course, report on what happens next. In other dairy drama this week, Ben & Jerry's is suing its parent company, Unilever, claiming it has repeatedly blocked the brand's attempts to take a public stance on the war in Gaza. So back when Unilever acquired Ben and Jerry's in 2000, terms of that deal granted the rights for Ben and Jerry's to maintain and operate an independent board solely responsible for maintaining its mission. As you know, Ben and Jerry's has long been a vocal and political advocate of a number of issues. And now Ben and Jerry's is claiming that over the past year, Unilever has attempted to dismantle the independent board and intimidate individual members with threats of illegal action if they spoke up on certain issues. Ben and Jerry's is also claiming Unilever has blocked its attempts to donate money to humanitarian organizations involved in the conflict. Unilever said in a statement that it rejects these claims. And this dispute is coming as Unilever is preparing to spin off its ice cream business into a standalone publicly traded entity. So it remains to be seen how this transition would impact the leadership and oversight of Ben and Jerry's mission moving forward.

[00:10:10] Brad Avery: You know, it's hard. Ben and Jerry's has always had a very progressive political stance. And in particular, the war in Gaza is very fraught. I don't know that they've necessarily stepped in and taken as tough a stance on an issue that is as divisive as it is here. Now, it's worth remembering that both Ben Cohen and Jerry Greenfield, the founders, are Jewish. And so when stepping into this particular conflict and trying to take a stance on it, it is a tense situation. I don't know exactly what's going on behind the scenes. You know, only the people involved really know what's happening there with those discussions. But it does position the company in a sort of existential moment of, is the mission or the business more important? That might be simplifying it too much, but it is an interesting issue to see play out publicly like this with now a lawsuit coming from a subsidiary against his parents.

[00:11:18] Monica Watrous: Here are some other notable bits of news from the week. Strive makes strides in margin improvement and closes $2.9 million equity raise. Joan Soda seeks new leadership after disappointing Q3. And Lolly and Pops acquires Hammond's Candies. For these stories and more, become an insider at BevNET and Nosh. That wraps up this edition of CPG Week by BevNET and Nosh. Thank you to our audio engineer, Joshua Pratt, our director is Mike Schneider, and our designer is Aaron Willette. If you enjoyed the podcast, please subscribe on your listening platform of choice, and we will see you next time.