In its first quarter 2021 financial report, Strauss Group Ltd. (TASE:STRS) announced it would consider updating prices due to higher costs of raw materials (coffee, sugar and raw milk). Then came Diplomat Holdings Ltd., which markets and distributes major toiletry and food brands including Gillette, Starkist, Heinz, Kellogg’s, and Jacobs Coffee, which noted in its quarterly report that it, too, “will examine updating selling prices” following the sharp rise in shipping costs over the last year.
When giants like Strauss and Diplomat make announcements like these, others will likely jump on the price hike bandwagon which has begun rolling and will gain momentum in the coming weeks.
Enter the supermarket chains, who are calling on consumers to launch a “shelf products boycott” and not purchase products that rise in price. They have notified manufacturers and distributors who have hikes prices that they expect price cuts as soon as global conditions reverse the surge in raw materials and shipping costs.
During its quarterly report call, Strauss noted it recently raised its prices in Brazil, and was currently in the process of raising prices for its coffee products in Europe. Strauss emphasized, “In Israel, we haven’t touched prices in ten years,” adding that, “At this stage, no decision has been made regarding price increases in Israel.”
No decision yet but…
Hagai Shalom, controlling shareholder of the Tiv Ta’am (TASE: TTAM) supermarket chain, told Globes, “We’ve already received inquiries from all the major manufacturers about a change in prices. Strauss, Central Bottling, Osem, and all the major companies.” The Central Bottling Company and Osem deny these conversations took place.
According to Shalom, price hikes are inevitable. “Our goal is to postpone and restrain price rises. That’s the dialogue currently taking place with the manufacturers. I believe that towards July, price hikes will filter down into all areas.”
“Every day that passes without prices rising is good for us,” Shalom adds. “Rising prices mean a loss of sales, and we’re very aware of that – when things are expensive, people buy less. All the chains are working to stave this off as much as possible and control the expected damage. We’re fighting with suppliers over the rationale and extent of the increase.”
Supermarket chain Yochananof & Sons Ltd. (TASE: YHNF) is taking a more aggressive approach. “I’m not interested and don’t want prices to increase, and we will fight it,” says CEO Eitan Yochananof. “We will act against manipulation and machinations to increase profitability at the consumer’s expense… We won’t reach the point where our shelves will be empty, and will act, in spite of challenges and difficulties, to stay firm and not raise prices. “
But if the manufacturers decide to raise prices won’t retailers fall in line?
“There is no entity in Israel, not even the government, which can subsidize the public to offset price increases. We intend, should this happen, to set things right, with transparency and in proportion to the rise in input prices. We work with manufacturers and tell them, if you’re raising prices because the cost of shipping has skyrocketed, for example, then when the price of shipping goes down, I want to know if they will lower the price accordingly. We’re aware of the price of commodities and track them on global exchanges. We understand that where goods are scarce then prices rise, and that if we don’t buy at that moment, we won’t have any stock, but we also know that when the shortages end, prices must go down. That’s what we’re saying, that’s our style, and that’s what we’ve put on the table before the manufacturers.
“We’re doing a deep dive, to understand where and why there’s no way to avoid raising prices for certain products. We also know that each country is impacted differently, because raw materials aren’t the only things that determine prices, there are also tax considerations, local regulations, and so on. The fact that Israel has had no clear government policy will also eventually roll over to the consumer – enlarging the deficit, extending unpaid leave – in the end someone has to pay.”
Yochananof believes the discourse over anticipated price hikes is a “self-fulfilling prophecy.” “The media and general obsession is laying the groundwork for a price hike. Obsessing over it primes consumers to accept a situation where prices ‘have no choice’ but to rise, and sets the stage for the manufacturers. As a retail chain, we’re on the same side as the consumer, with a common interest.”
The next social protest?
Rami Levy Chain Stores Hashikma Marketing 2006 Ltd. (TASE:RMLI) controlling shareholder Rami Levy takes this approach one step further, and calls on consumers to rebel. “They’re putting the cart before the horse. We haven’t received new price lists, not even from Strauss, which mainly referred to coffee prices in its report. But, if there are price rises, the consumer is the one with influence. I call on consumers to go out on a new protest, a ‘shelf products boycott’… it could be the next social protest.”
Levy said, “Unlike in 2011 [the year of Israel’s social protests], today’s product ranges are significantly larger in terms of supply and diversity, and consumers can forgo an expensive product and focus on alternatives. If the price of a brand-name coffee goes up, then they will buy store-brand coffee. I decided not to sell cherries at our stores; I won’t sell at sky-high prices, so we don’t have them. People may complain, but we won’t create a demand that exceeds supply. If we would buy at any price, that would keep prices high. If we don’t buy, in the end, they’ll have no choice but to lower prices. That’s how consumers have to behave, by reducing demand.”
If a large manufacturer raises prices, we can assume that smaller ones will follow suit, and then there will be no alternatives.
“We’re talking about something that doesn’t exist,” Levy says. “We haven’t received price lists that show price hikes. I actually see a situation where a competing manufacturer will respond to a price rise of a certain manufacturer with discounts. Today, there are more than 10 products in each category, and that diversity works in the consumer’s favor.”
You were recently notified by Kimberly-Clark about a price hike in diapers, toilet paper and the like and you put up prices.
“It’s different from food because paper products have gone up a lot, and the gross profit has eroded. We realized that whoever did not align with that increase would be in trouble. But food products are different from paper products. Each food product has to be assessed according to its ingredients, to see what’s become pricier and what hasn’t. And in the end, the choice is in the consumer’s hands. Are fruits expensive today? So, folks won’t buy. Because if you buy at any price, you’re sending a message to the manufacturer that the price is legitimate.”
Shufersal Ltd. (TASE:SAE) CEO Itzik Abercohen refused to be interviewed for this article, possibly due to the powerful influence a reaction from this chain – Israel’s largest food retailer – could have. Presumably, Abercohen is not sitting idly by these days, and is also in talks aimed at curbing prices. Abercohen must also react to manufacturers’ actions as representative of the chain’s private label; the Shufersal brand dominates thousands of products and represented 27.5% of the chain’s sales in the first quarter of 2021. Abercohen estimates that the private label’s share will reach 30% of sales.
Shufersal closed the quarter with NIS 3.7 billion revenue. An increase in the price of private label products could bring a dramatic increase in revenue, but should Abercohen leave private label prices unchanged, there is an opportunity to widen the price differential with the leading brands.
Published by Globes, Israel business news – en.globes.co.il – on June 2, 2021
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