Economy Ministry demands importers explain high prices

Good Pharm  photo: Rotem Grossman
Good Pharm photo: Rotem Grossman

Unilever, Schestowitz, and Diplomat have until mid-May to explain the big gaps between Israeli and overseas toiletries prices.

Minister of Economy and Industry Eli Cohen has summoned representatives of the major toiletries and cleaning materials importers to explain the excessive prices being charged in Israel.

Sources inform "Globes" that Unilever, Schestowitz, and Diplomat have been given until mid-May to provide Cohen with an explanation of the differences between the prices paid by consumers in Israel and those paid by consumers in Europe and the US.

These differences, which were discovered in a survey by the Ministry of Economy and Industry, amount to two and three-digit percentages for toiletry, cleaning, and personal care products, including razor blades, toothpaste, deodorants, etc. Using the explanations provided to the minister, the Ministry of Economy and Industry will try to discover whether disproportionate profit margins in the supply chain are responsible for the differences.

The findings of the report proving the differences in prices were sent to the companies. These differences are nothing new, but are nevertheless outrageous. "Globes" has also been pointing out unreasonable price differences for leading brands for years, such as those for shaving and cleaning products. It is no wonder that consumers are already using substitutes, such as online ordering of such products from international websites, while parallel imports of products classed as leaders in a category are flourishing.

In addition to various efforts by the official importers to halt and disrupt parallel imports, another pattern is surfacing. It is no secret that the supermarket chains prefer working with the official importers (for reasons of regular supply, control of quantity, etc.), and in some cases, the importers and distributers are matching the parallel importer's prices in order to remain dominant in the local market.

The result is that some of the supermarket chains have therefore managed to force the official importers to lower their prices, while others are still paying the usual price. One example, in the food industry, is the founding of the Cofix Group Ltd. (TASE:CFX), which has proved that it is possible to buy products from the official importer (e.g. Coca Cola) and sell them for NIS 5 (now raised to NIS 6) - a price that was half of the prevailing market price when the chain was founded. Cofix derived its profits from this price.

Another example is Good Pharm, which sells toiletries, including the leading brands, for NIS 10, using both parallel imports and agreements with the official importers, who want to keep the Israeli market for themselves, and are lowering the prices in order to do that.

Who is making the profits? Is it the importers, or is it the stores? Both are accusing the other, especially since the Food Law forbids the importers to publish a recommended consumer price.

In an announcement published today, the Ministry of Economy and Industry said, "Our ministry has worked in recent years towards reducing the cost of living in Israel using a variety of tools and actions. In this framework, our ministry conducted a survey in recent months comparing prices of selected toiletries in Israel with various countries. The survey was aimed at assessing prices of toiletries and cleaning products in Israel, the price differences, and the explanation for them."

The prices on which the survey was based included the average price listed in a 2016 Nielsen report according to categories, brands, and specific products in 12 countries other than Israel. In order to generate a database making it possible to compare countries, adjustments were made, including the exclusion of VAT and standardization of the price in Israel, so that it would include the pharmacy data and calculation of the price in comparison with per capita GDP in each country.

"The picture obtained from the findings showed substantial price differences in various brands in comparison with the countries covered in the survey. In view of the findings, and before publishing them, the ministry invited the official importers to comment on these differences. These comments will constitute a platform for a verbal hearing that will take place in the office of the Ministry of Economy and Industry director general within a month," the Ministry of Economy and Industry said in its announcement. Cohen stated, "Concerning importers who are exploiting their exclusivity in representing international brands to charge high prices, we will identify the market failures and change them. The Israeli consumer will no longer be a sucker; I won't let others make a profit at his expense."

Published by Globes [online], Israel Business News - www.globes-online.com - on April 25, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

Good Pharm  photo: Rotem Grossman
Good Pharm photo: Rotem Grossman
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