There are suggestions that IDB Holding Corp. Ltd. (TASE:IDBH) unit Shufersal Ltd. (TASE:SAE), Israel's largest supermarket chain, is promoting the interests of Neto ME Holdings Ltd. (TASE;NTO), which has joined the Nochi Dankner-Alexander Granovsky consortium for control of IDB. Evidence seen by "Globes" implies that since Neto Group teamed with Dankner and Granovsky, Shufersal has been increasing the shelf space of products distributed by Neto Group.
A letter sent by Itamar Shamir, the products manager at Shufersal chain Yesh, which targets the poor and haredim (ultra-orthodox), asks store managers to give Neto's canned tuna 50% of canned fish shelf space. So far as is known, the letter was sent after Neto Group joined the Dankner-Granovsky consortium.
Earlier this week, Neto Malinda Trading Ltd. (TASE: NTML), a subsidiary of Neto Group, controlled by the Ezra family, notified the TASE that it was joining the Dankner-Granovsky consortium to acquire control of IDB, and that it would invest NIS 134 million in the venture. Under the proposed structure, Neto would own 15% of IDB and appoint one director to its board.
According to Neto Malinda's financial reports, sales to Shufersal totaled NIS 500 million in 2012, a quarter of the company's revenue. Neto is one of Shufersal's largest suppliers, and, so far as is known, Shufersal is not responsible for a quarter of any other supplier's revenue.
Neto Group, though not classified as a monopoly, controls more than half of the markets in which it operates, in financial terms. It controls 53% of the ground beef market, 60% of the smoked salmon market, 40% of fresh fish, 30% of frozen fish, 35% of frozen meat, and 32% of canned fish. These are categories with large sales, and Neto has strong potential sales growth in each category.
Given that Neto has a 32% share of the canned fish market, it is anomalous for it to be given 50% shelf space. In addition, it is unclear whether implementing the instruction will affect other large suppliers, or small suppliers, which could find themselves with no shelf space at Yesh supermarkets.
Former Antitrust Authority director general Dror Strum said, "There is a structural problem because Shufersal's weight is liable to cause distortions of this kind. At the level of Shufersal, it is very problematic for a large supplier to become an indirect owner. This is unusual, because normally, for years there has not been a situation in which large food suppliers had contact or control in a retail chain, especially in a national chain like Shufersal. Suppliers avoided becoming part of the control of large retailers because of the conflict of interests."
Neto Group is not the first supplier that has hooked up with IDB: in February 2012, G. Willi-Food Investments Ltd. (TASE:WLFD) invested NIS 2.5 million in what was called an "offering to friends" of Dankner. Willi-Food's financial reports state that sales to Shufersal totaled NIS 46.5 million in January-September 2013. This is an annualized rate of NIS 62 million, or 33% more than in 2012. For the sake of comparison, Willi-Food's sales to Shufersal in 2011 were less than 1% higher than in 2010, and sales in 2012 rose by 6.4% over 2012.
Willi-Food denies any connection between the rise in sales to Shufersal and the company's participation in the "offering to friends."
Shufersal said in response, "The claim of a connection between the events is groundless. Shufersal operates solely on the basis of professional considerations."
Neto Group said in response, "These are baseless claims. In fact, the shelf space of Neto Group's products has recently declined slightly because of the entry of new products by competitors in the meat and baked goods categories. The Williger brand recently added a glatt kosher tuna product, which it did not previously carry, and its price is less than that of the competitors. Yesh, which targets the haredi community, allocated shelf space to the new glatt kosher product on the basis of commercial considerations."
Published by Globes [online], Israel business news - www.globes-online.com - on November 14, 2013
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