Food and consumer products prices set to rise

Israeli distributors and retailers are pressing for higher prices and shoppers will pick up the tab.

Less than a year after the start of the cottage cheese boycott, some food and consumer products companies are readying new price hikes. Starkist tuna importers, Diplomat Distributors (1968) Ltd. (importers of Heinz, Kraft, Quaker and other products) and Schestowitz Ltd. (Colgate, Palmolive, Kelloggs, Barilla and other products) have already notified supermarkets that they are demanding price rises and Procter & Gamble Israel Ltd. wants to begin raising prices for its products next week.

An investigation by "Globes" has found that the differences in prices between Israel and Western countries remains very high, even for products that distributors for which want to raise prices, and, as usual, retailers are abetting them.

"We wanted to raise prices for our products," a food company executive told "Globes". "I waited for the moment when the retailers were under pressure, ahead of their financial reports, when I contacted a larger retailer and offered NIS 3 million in aid. 'You'll get part of the money as a bonus, just let me raise prices,' I said, and it agreed. That is how I was able to raises prices throughout the market."

In February 2012, the Israeli franchisees of Starkist tuna, Diplomat Distributors and Michael Mittleman, cancelled a planned price hike, presumably due to fear of a consumer boycott. Now that the last consumer protest - the Pesek Zman boycott - has died down, the companies are again raising prices.

"If they dont raise the price, they'll stop delivering the product. It doesnt depend on us," a senior retail executive told "Globes".

"Price hikes help retailers improve their profit margins. On one hand, retailers have an interest not to get caught in the trap of social justice, while raising prices as much as possible without falling foul of the press on the other hand. There is a feeling that it's possible to loosen up a bit after the holidays, so they let go," said a former retail executive.

"Obviously, pressure on the CEO of publicly traded retailers, especially salaried CEOs, has a strong effect. A salaried CEO must show results to the owners. He mist show short-term results, and they sacrifice the long term. When the CEO is the owner, there is less pressure to look at the short term," said a former retail executive.

A large supplier said, "Bottom line, retailers approve price hikes, because the CEOs are under pressure to show results, because that is how they are measured. They dont look at the consumer."

A comparison of food and consumer product prices between Israel and the West still shows wide differences in prices. It is therefore hard to accept the companies' frequent argument that higher input costs justify price hikes. Senior industry sources say that multinationals consider Israel as a market in which they can charge high prices, and the moment they get used to them, they are not prepared to act otherwise.

"It's a fact. We once sold food more cheaply than elsewhere in the world, but prices began to insanely skyrocket in 2008, and we even surpassed Europe. That wasnt the case before. Former Antitrust Authority director general David Strum allowed large distributors to acquire small distributors, which was a terrible shame. Approval of subsequent mergers relied on the precedents from Strum's day," said a former retail executive.

An industry executive said that because Israel lacks a strong private label segment, and consumers have a strong preference for brands, plays against the consumers and supports rising prices.

Israel's largest supermarket chain Shufersal Ltd. (TASE:SAE) said in response, "Shufersal is acting to maintain current prices. Postponing price hikes services the company's policy to lower consumer costs. Shuferal expects its suppliers to adjust prices for their products to the spirit of the socioeconomic era."

Rami Levy Chain Stores Hashikma Marketing 2006 Ltd. (TASE:RMLI) chairman Rami Levy said, "The moment one retailer approves a price hike, I buy products from the supplier for two or three months at the old price, and sell it at the same price to consumer. To the extent that it depends on me, I do not approve price hikes, but the moment that the big chains approve the price, I have no choice because they say, 'If you dont want it, dont buy it.'"

Independent supermarket chain Hazi Hinam Ltd. declined to comment. No response was available from Alon Holdings Blue Square - Israel Ltd's (NYSE: BSI; TASE: BSI) Mega chain, Israel's second largest supermarket chain, by web-posting.

Published by Globes [online], Israel business news - - on April 24, 2012

Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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