More than 12,000 people have already given a "like" to the official Facebook page calling for a boycott of Strauss Group Ltd. (TASE:STRS), amid the media storm over high prices for its chocolate bars. The boycott organizers are calling for a boycott of the food company beginning March 1.
A second group calling itself "Strauss is not for me" has also opened a protest site. It asserts, "Strauss has a system - it takes a basic product and turns it into a luxury item so that the CEO and other executives can take home multimillion shekel salaries and so that the company can each year distribute fat bonuses and dividends. We've become captive consumers."
Adi Ezra, CEO of food importer and distributer Neto Group, supports the protest against Strauss, and launched his own assault against it and Osem Investments Ltd. (TASE: OSEM). He says that their profits are "piggish", and due to the lack of competition.
"Israel has three food giants - Tnuva Food Industries Ltd., Strauss, and Osem. Their gross profit margins in 2011 were 33%, 38%, and 43%, respectively. The gross margin is important, as it is the 'plus' in cost-plus. It's the premium. It's the precise difference between what we bought and how much we paid."
On his Facebook page, Ezra says, "The gross profit is not an indication of piggishness - it is piggishness. It is possible only because of the lack of competition. Things could be different. Alongside the big three, or, to be precise, slightly behind them, are scores of small, mid-sized and large food companies that operate in competitive markets and are satisfied with much more modest gross profit margins of 20% or less, which leave a fair and reasonable net profit margin of 4-5%."
Ezra says that Tnuva and Strauss's huge profits in the dairy business have enabled them to take over more and more companies. "The roots of Israel's two biggest food companies are deep in the dairy industry. This is neither reasonable, nor a coincidence, just as it is no coincidence that the Cottage Cheese protest began with cheeses and with any other basic food product. The dairy industry is not competitive; it is protected and subsidized through quotas, which naturally began with good intentions, to protect dairy farmers and the farm sector. But the huge profits were kept by the dairy companies. Economics is as economics does, with one thing leading to another, and the excess profits in one sector made it possible to take over and create a cartel in another sector. That is how Israel's two biggest food companies grew. This is precisely how the capital that Michael Strauss used to acquire Elite was created."
Ezra does not defend the small and mid-sized companies, saying that their conduct is derived from competition. "There is no need to pity the shareholders in these companies. Although they are forced to work a bit harder, to struggle, streamline, and save on advertising budgets and other luxuries, they must compete and they actually create quite a few jobs in the periphery. Jobs for people who can only fantasize that will never materialize about the job conditions of high-techies."
Ezra adds, "The managers of these companies are no more moral than [Strauss chairwoman] Ofra Strauss or more socially sensitive than [former Tnuva chairwoman] Zehavit Cohen; it's competition that forces us to play honestly. Because in the competitive parts of the food industry - and they exist - a company that prices piggishly will lose market share, lose money, and be out of the game."
Published by Globes [online], Israel business news - www.globes-online.com - on February 21, 2012
© Copyright of Globes Publisher Itonut (1983) Ltd. 2012