BDI Report: Israelis Could Spend NIS 5 Billion Less a Year on Food

According to study, Israeli government makes 1.5% more than EU average, retailers have a gross profit rate between 1-2% higher, and Israeli importers and manufacturers have gross profits 2-3% higher than their European counterparts.

Israelis could pay NIS 5 billion less annually for food if government, importer, producer and retail profits conformed to the European average,says a recent study. Business Data Israel compared food price and profit data in Israel and Europe and determined that the food sector is more profitable in Israel.

Researchers compared gross profit figures as well as customs duties in a number of countries.

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Israels government earns an estimated 1.5% more than the European average from customs duties on food, BDI chief executive Eyal Yanai said Monday.

BDIs survey of European supermarket chains found an average gross profit rate of 22%-28%, compared to 23%-30% at Israels leading supermarkets. In addition, the gross profits of Israeli importers and manufacturers are 2% to 3% higher than their European counterparts.

These may sound like small percentages, but in a market worth NIS 100 billion each percentage point is worth NIS 1 billion, Yanai said. Total private spending on food in Israel was NIS 88.3 billion in 2010.

This shows that the gross profits of supermarkets, importers and manufacturers could be reduced by a total of 5%, which is worth NIS 4.5 billion, cutting consumer prices. If the state also forgoes 1.5% consumers will save even more, Yanai said. The gap was created over time, and could be reduced slowly as well, he said. Given whats going on in the economy, it will come in the wake of consumer pressure and more intelligent consumer choices. If the pressure is strong enough, consumers will find they can save up to NIS 5 billion.

The cuts will retailers and producers to become more efficient, Yanai said.

When gross profit is too high, businesses have a tendency to be less efficient, Yanai said.

For supermarket chains this can be seen in the opening of more stores, in the size of the outlets, the salaries and the bonuses. For the producers its an issue of wages, bonuses and manufacturing processes, Yanai said.

Food prices in Israel have increased 31% since 2005, compared to 20% in European Union member states. That 11% comes at consumers expense, said Yanai. The state, consumer and manufacturer profits are primarily from price increases that are unrelated to the cost of raw materials, he said.