Sales of fast-moving consumer goods (FMCG) have risen by NIS 338 million to NIS 24.1 billion so far this year, a 1.4% increase, compared with the corresponding period last year, according to figures from StoreNext obtained by "Globes."
An analysis of the data shows that prices have risen again over the past year, after years of stability since the 2011 social protests. According to StoreNext's price index, which measures the change in prices net of the change in the composition, the index rose by 0.4 points, compared with the corresponding period last year.
Food led the growth in sales; food sales rose 1.9% rise since the beginning of the year, while the price index in this category was up only 0.6%.
For example, sales of milk have risen 2.5% this year, following an increase in the market share of private brands late last year. This share reached a peak of 6.5% early this year, then dipped slightly over the past three months, stabilizing at 5.8%.
Another category with significant growth in comparison to last year is ice cream and popsicles. In July, the peak month for ice cream sales, sales jumped 8.9%, compared with July 2016. Sales of self-care products, on the other hand, dipped 0.7%.
"The customer weeps and buys"
Tamir Ben Shahar from the Czamanski Ben Shahar consultant firm explains that this process began before 2017, but has only now reached StoreNext and the barcode market. "StoreNext is detecting it now at the cash register, but the process has been going on for several years already." A senior retail sector figure added, "Quietly, without people noticing, food prices have been on an upward trend for some time already. What is going up now is not the prices of toiletries, which the Ministry of the Economy and Industry is combating, but food prices."
Where are the rising prices coming from? Ben Shahar says, "The supermarkets have a turnover of NIS 67 billion a year. Up until now, the growth in the sector was purely a result of the increase in households, while prices held steady. The gross profit of the supermarket chains is around 20%, in contrast to the more expensive stores, where it is around 30%. Operating profit is 2-3%, and when competition becomes intense, it drops to around 2%, which creates a very fragile situation. After the collapse of ClubMarket, followed by Mega, the supermarket chains have a tacit understanding - there is no interest in lowering prices."
He adds, "Since the social protest, the consumer has been quiescent. Six years have passed, and he has not raised his voice. He weeps and buys. The regulator has not read the situation correctly, and has created a situation in which there is no real competition. The result is that we're paying higher prices."
In addition, during the decade preceding the protest, food and vegetable prices rose 40%. Competition between the chains and the entry of Rami Levy Chain Stores Hashikma Marketing 2006 Ltd. (TASE:RMLI) into the market generated competition, but it ground to a halt. A year has passed since Yeinot Bittan acquired Mega, and Nahum Bittan, who had to invest resources in improving efficiency, has not been free to change the brand name and pay attention to the Mega branches, which have continued charging the same high prices within cities (like My Shufersal), and the chain's format has remained unchanged."
In practice, it can be said that the market is identical, but with one less player that kept the sector expensive. In addition, the consumer has changed his consumption habits. Purchases have become more frequent, and the shopping basket has become smaller. Another process taking place that is affecting the chains is the fact that we are throwing less food away than in the past. According to Czamanski Ben Shahar, the proportion of food purchased that is thrown away is 14%, compared with a 10% average in the OECD.
"The supermarket chains are under pressure. They fear that the market is shrinking, which puts them on the defensive. They are doing everything to preserve their turnover and increase their operating profit margin," Ben Shahar says.
Sources in the sector cite the price comparison apps as another factor in the price rises. The apps which were founded in the framework of the Food Transparency Law that took effect in January 2015, are ironically being used by the retailers as a means of coordinating prices.
"This law enabled the food chains to what at what prices their competitors are selling," the senior sources adds. "In the past, it was necessary to send people to conduct a survey7 to test the prices. Today, everyone's prices are available to every retailer."
Ben Shahar says, "The Food Law resulted in online transparency, and they didn't realize that it was going to do the exact opposite. The regulator didn't really start competition, and a situation has been created in which many concerns are keeping their importers and suppliers, and we're paying a very expensive premium."
Victory Supermarket Chain Ltd./ (TASE: VCTR) controlling shareholder and CEO Eyal Ravid believes that the rise is a result of consumer preferences. "There's no connection to transparency. People are living a life of luxury. There is growth in premium products and a decline in the basic commodities. It's like everyone has a minus at the bank, and is still taking one loan after another in order to fly to overseas vacations." Ben Shahar says that while there might still be some kind of competition between the supermarket chains, the level of competition among the suppliers is even lower.
"The suppliers' operating profit margin is 10-15%, but no one is reining in the manufacturers, and the market has not been opened to competition. It's first of all the suppliers who are raising the prices, because among the supermarket chains, the level of competition is being maintained."
Published by Globes [online], Israel Business News - www.globes-online.com - on August 13, 2017
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