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Israeli supermarket chains are beginning to feel the economic slowdown. Their sales in May 2008 were only 1.6% higher than they were in May 2007, according to a report prepared by Nielsen for TheMarker.

In comparison, sales in January of this year were 9.1% higher than in January 2007, and the figure for February was 13.8%.

Nielsen's analysis of supermarket sales of barcoded items shows that the drop is even sharper in terms of quantities sold, and that only higher prices kept total revenues up.

The figures for March and April were not used, since the dates of the Passover holiday were different in 2007 and 2008, and made comparisons for those months unreliable.

According to the CEO of Unilever Israel, Moti Keren, the growth in food sales in May and June was only 1-2% in annual terms, compared to 5-6% in the first months of this year.

In addition, non-food seem to be down by 6% from last May. Further, the normal post-Passover drop in such sales is in the 15% range, but this year it was closer to 40%, said one industry source.

One supermarket chain said they have more customers, but each is making smaller purchases; while other chains reported revenue drops.

"Because prices rose, people are first sacrificing whatever is not food. In Europe we also see that the discount chains, other supermarket chains and manufacturers have all been losing recently. In such periods consumers will buy more non-name brands, which are cheaper, and will therefore shop at Super-Sol Deal and discount chains," said one supermarket chain source.

It seems the double digit growth in supermarket sales ended with Independence Day in May. The halt is attributed to a number of factors which came together at the same time: higher prices; the U.S. credit crisis, which caused sharp losses on Israeli markets; and pessimistic headlines in the media of recession and unemployment.

In addition, supermarket executives said there is no end in sight for the inflation in food prices, as raw material prices are continuing to rise. At the same time, consumers' purchasing power is not growing, they have not received higher wages and the minimum wage went up only slightly.

As to what customers think, Nielsen conducted surveys in 44 countries, including Israel. At home, 43% of the public thinks we are now in a recession.

As to what their greatest worry was over the past six months, 47% responded "the economy," well ahead of other answers such as health or employment security. Some 35% said they would switch to buying cheaper products at the supermarket in order to maintain their budgets, and 19% said they would use more coupons and sales.