Israeli Supermarket Suppliers: Price Hikes on Consumer Goods Just a Matter of Time

Food prices are expected to rise, as 'The cost of energy, raw materials and taxes continues to go up, and the companies are feeling the effects dramatically.'

Food manufacturers and the makers of basic consumer products are warning that price increases are on the way this summer as companies grapple with increased costs. Price promotions, meanwhile, are likely to become more rare.

"There's no alternative to price increases," said Gilad Zilberberg, an owner of the Meir Beigel food firm and the chairman of the Manufacturers Association committee representing small and mid-sized firms. "Input costs keep going up and companies have no way of absorbing them. The cost of energy, raw materials and taxes continues to go up, and the companies are feeling the effects dramatically."

Looking for a bargain.Dan Keinan

Wholesalers have been warning the major supermarket chains about higher wholesale costs. For example, Diplomat, the distribution company for a range of consumer products, announced that next month the price of StarKist tuna will go up by 5% to 15%, Heinz mayonnaise by 10%, and Quaker oatmeal by about 5%.

Another distributor, Neto, which sells Williger and Poseidon brand tuna to retailers, announced a 10% increase for tuna several months ago, but gave the supermarket chains the chance to stock up on the product at the old price. So shoppers are expected to notice the difference when current stocks are depleted.

Starting next month

StarKist and Neto had planned to raise prices several months ago, but held off due to last year's protests over food prices. The consumer products distributor S. Shestovitch announced price increases on several Palmolive products, to take effect at the beginning of next month. This includes four-packs of Palmolive bars of soap, on which the company will be raising prices by about 8%, and Palmolive dishwashing liquid, which is going up by about 5%.

Procter & Gamble has raised the price of Patene and Head & Shoulders shampoos, Fairy dishwashing liquid and Wella hair care products by 4% to 6%, but it has lowered the price of Gillette shaving products by about 10%.

The price hikes raise the question of whether high-profile companies like Tnuva, Strauss Elite, Osem and Unilever will follow suit, causing a broader wave of price increases.

The price increases already announced have been by lower-profile companies - companies that are less likely to be targets of consumer boycotts like the ones against the price of cottage cheese and Pesek Zman candy bars.

Cautious companies

One senior source in the food industry warned that many other products will have to become dearer.

"Due to the higher costs of electricity, fuel and water, we already should have increased prices," he said. "But because of the social protests, all the companies have been cautious and absorbed the cost increases to avoid being at the center of the protests. But that won't continue in the long term."

He said price increases will happen this summer. "All the consumer product companies want to see if the protests come back in a big way. The big firms like Osem, Tnuva and Strauss will have to raise prices, because otherwise no one will buy shares in their companies and the owners will suffer."

Until the manufactures take the plunge and raise prices, they are going easy on promotional sales - a move that doesn't create the negative media coverage that price increases do.

"We're reducing the number and extent of price promotions and cutting advertising, but that can't continue in the long term," said a source at a major food manufacturer. He said that this summer "everyone will be raising prices."

He acknowledged that manufacturers are under pressure from retail chains not to hike prices. Rather than being the first companies to lift prices, the major manufacturers are looking to gauge how the public reacts to price rises by smaller manufacturers, he said.

The early price hikes will come from manufacturers that hold market shares of around 40% to 50% - near monopoly status, the source said. "Loyalty to their products is high, so consumers will buy the product even if it costs a few shekels more," he said.