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The consumer protests that rocked Israel last year decimated Tnuva's profits, the food conglomerate's CEO told employees on Wednesday in a letter that seemed calculated to soften their wage demands. Meanwhile, as the presumably unmoved workers stepped up sanctions retailers warned of severe shortages of the company's popular dairy products.

Profit tumbled by hundreds of percent in 2011, from NIS 495 million in 2010, CEO Arik Schor wrote in the letter to workers. Tnuva will publish its financial statement next week.

The startling admission came as the union representing Tnuva Food Industries employees demanded an annual raise of 5% as part of a new collective bargaining agreement. The workers' wage contract expired nine months ago. Management is prepared to raise salaries by 3% a year, which Schor said was fair in light of market conditions and the deterioration of the company's financial results.

As competition grows Tnuva must become more efficient, Schor wrote, adding that this does not necessarily translate into dismissals: Efficiency can be achieved by streamlining work practices. But he also said the company seeks an agreement with the union about terminating underperforming workers.

Management also wants to install temperature control systems in the company's refrigerated trucks in order to help guarantee product quality, Schor wrote.

That touches on a sore point. Workers this week initiated sanctions to back up their wage demands, starting with refusing to distribute cottage cheese to retail outlets. On Wednesday, the measure was extended to include chocolate milk. The two products are Israeli household staples, and supermarkets soon reported running low, or out, of the Tnuva versions of both.

Some of our stores have run out of Tnuva chocolate milk, for instance in Ramat Gan," Rami Levi, owner of the Rami Levi Shivuk Hashikma deep-discount supermarket chain told TheMarker Wednesday morning. He predicted that all stores will run short within days, even though Strauss Group's chocolate milk is the category leader. Cottage cheese, where Tnuva is the clear market leader, is also in scant supply or missing entirely in some of his stores.

Super-Sol Deal also reported shortages of Tnuva chocolate milk, but it had the competing products from Strauss and Tara. The Super-Sol Deal branch in Glilot, north of Tel Aviv, had only Tara chocolate milk on Wednesday.

Cottage cheese and chocolate milk are favorites, but Tnuva is in fact Israel's biggest food company and the next stage of labor sanctions could hit much harder. Workers said that if no deal is reached before then they will cease all distribution of Tnuva products on Sunday. If that happens, supermarket dairy cases will be quite bare within a day.

"There will be no milk, no cheese, no cottage cheese and no other products," said a source in the dairy industry. "Neither Tara nor Strauss could produce enough to compensate. Tnuva accounts for 70% of the dairy market," he said.

Even if they had the capacity, which they don't, Strauss and Tara wouldn't produce significantly larger amounts than usual because of the short shelf-life of dairy products, he added. They can't know when the sanctions will end and wouldn't take the risk.

"At most maybe they'll make 10% more, but certainly not double or triple their usual amounts," Levi said.