Israel's Osem to hike prices 4.8% in November
Bamba manufacturer says higher commodities prices compel it to pass along costs
Osem Investments, maker of Bamba snacks and a wide range of food products, said yesterday it would raise prices 4.8% on average for many of its goods effective November 1.
CEO Itzik Tzaig, who took over last spring, told TheMarker yesterday the company had done its best to hold off from raising prices, but that the increased costs of commodities like wheat and coffee beans had left him no choice.
"We delayed raising prices for almost two years, but the time has come when it is impossible to absorb the increased costs without hurting the company," Tzaig said.
"Both manufacturers and retailers understand that there is no escaping price hikes because of the dramatic increase in the price of basic raw materials and other inputs," he said.
Osem became the second major food company to announce a price rise after Unilever Israel said in August it planned to raise prices 3% to 6% after the High Holy Days.
Osem said the increases would range from as little as 2.3% for pickled products to 6.1% for coffee. Other categories on the list include salted snacks (5.8% ), Tsabar brand sales (4.1% ), cakes and other baked goods (5.6% ), and Tivol vegetarian cutlets (4% ). The price of Materna infant formula will not be raised, Osem said.
Tzaig said the company was announcing its increases more than a month in advance to give retailers time to prepare. "The retailers have accepted the announcement with understanding," he said.
Super-Sol, the country's biggest supermarket chain, declined to say what it would do.
One executive at another chain complained that Osem was rasing coffee prices even though global prices were falling, and that Osem was already charging excessive prices for products like Bamba. "Osem's competitors sell [their versions of] Bamba at half the price," he said.
Prices for corn and soybeans, for instance, have rallied to records since mid-June as damage from the hot, dry U.S. summer has cut into harvests. The U.S. Department of Agriculture has cut its estimates three months in a row and now predicts that 10.7 billion bushels of corn will be produced this season, the smallest in six years.
In Israel, water, energy and electricity prices have all risen in recent months, adding to manufacturing costs.
Despite the increased costs, Osem increased its second-quarter operating profit 4.2% from a year ago to NIS 199 million, while sales climbed 0.7% to NIS 983 million, thanks mainly to strong overseas business. Net profit jumped 10.2% to NIS 86.6 million.
The company attributed the increased operating profit to cost-cutting in manufacturing, management and marketing.
Asked why Osem could not absorb the increased costs, Tzaig said his company was already less profitable than its multinational competitors. Its operating profit was equal to 12.7% of sales in 2011, versus 15% for Nestle, its parent company, and 19% at Unilever and 20% at Coca-Cola.
"Thanks to wide-ranging efficiency measures, Osem Group managed to absorb a large part of its rising costs and delay price hikes," he said. "Even the increases now will only partly compensate for the rise in production and operating costs."
Osem raised prices on average by 3.5% in December 2010. Just before the social protests exploded across the country in the spring of 2011, the company announced another series of price rises of 4% to 10%, but like other food makers it retreated as public criticism mounted.
Last October, the company unveiled price cuts for 35 basic items between 5% and 10% - and offered NIS 5 coupons for Materna buyers - in response to the protests.
The movement Yisrael Yekara Lanu (Israel is Dear to Us ), has called on consumers to boycott Osem. It cited a 30% decline in global sugar prices in the past year and a 50% drop in coffee prices since April 2011. It blamed the government for failing to act to stop price increases.
"The only way for the Israeli public to respond to this attack is a shoppers' strike," the movement said in a statement.
"While the government and manufacturers want to profit 6% more, the public as a group must respond by buying 6% less. Only by reducing purchases can we teach those putting their hands into our pockets about the ordinary Israeli," the organization said.