Supermarket chains are selling healthier processed food products at significant markups even though the manufacturers often charge no more than the less healthy alternative product, a review by TheMarker found.
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Manufacturers are under fire from Israel’s government to reduce sugar, salt and fat in processed foods, and to sell healthier foods at accessible prices. The government is working to advance healthy eating in other ways as well, and has defined obesity as a epidemic.
Yet the supermarkets are making a handsome profit on these products, selling them for as much as 250% more than the less healthy alternative. In most cases that TheMarker checked, the manufacturer identically priced both the regular product and the version with reduced salt, sugar and/or fat. In cases where the manufacturer charged retailers more for the healthier version, the retail markup was greater.
The price gaps push consumers to prefer the less healthy products, while those likely to be hurt the most are the poorest Israelis.
For instance, in May Osem launched a ketchup with 50% less sugar and 25% less salt than its regular ketchup. The wholesale price of both are the same, but the new formulation bottle contains 710 grams, versus the 750-gram original, a 5% difference. The wholesale price was 11.34 shekels before VAT and discounts. Yet TheMarker found that some supermarket chains charged more for the reduced sugar-salt version — Supersol Deal and Supersol Sheli charged 19% more, Yenot Bitan charged 19% to 21% more and Rami Levy Shivuk Hashikma charged 5% more.
Likewise, the Central Bottling Company charges the same for 1.5-liter bottles of Cola Zero and regular Coca-Cola — 5.60 shekels before VAT — but grocery chains mark it up more. Yenot Bitan Shook Mehadrin charges 17% more for Cola Zero, Mega Ba’ir (now part of the Yenot Bitan group) charges 12% more and Supersol Deal, Supersol Sheli, Rami Levy Shivuk Hashikma, Victory and Yohananoff all charge between 8% and 12% more.
Alpro soy milk, manufactured by Tnuva, suffers from similar markups. The 1-liter carton without added sugar and salt is sold for 50% more at Victory, 16% more at Rami Levy and 7% more at Yohananoff, even though Tnuva charges no more than it does for the version with added sugar and salt.
The supermarket figures come from price comparison site Prices, while the manufacturer prices were taken from the manufacturers’ price lists.
The supermarket chains tried to blame manufacturers for the price differences, but admit that they also play a role, and that sometimes they make an educated decision to sell “healthier” products for more.
Eitan Yohananoff, owner of the Yohananoff chain, said that manufacturers don’t give discounts on the products with reduced sugar, salt and fat, and that he’s not so interested in fighting for these discounts either, as these products don’t sell as well as the originals.
Regarding Cola Zero, which sells well, Yohananoff said the chain loses money on its bottles of regular Coca-Cola and doesn’t want to lose on Cola Zero too.
An executive at another major chain noted that they have low profit margins on ketchup and Coca-Cola, and said since the chain earns very little on the full-sugar versions, it doesn’t want to lose out on the low-sugar versions, too.
The manufacturers for their part are furious about the retailers’ pricing policy. While they cannot speak on the matter on the record, due to the law forbidding manufacturers from intervening in consumer prices, manufacturing sources say that often their efforts to get more healthy products onto the market at reasonable prices are quashed by the supermarkets.
“It’s happened more than once that we make an effort and release a healthier product at a reasonable price —which isn’t simple, since the cost of development can be millions of shekels - and ultimately we see that the supermarkets raise the price without passing the benefit on to the consumers, and instead pocket it,” said an industry source.
Supersol stated in response that its prices are competitive and fair, and argued that reduced-sugar products often cost more at wholesale and sell in lower volumes, which creates logistical challenges. The regular versions are often sold at losses, it added.
Yenot Bitan responded that it seeks to offer attractive prices in general, and that it has various sales running at any point in time.
Victory stated in response that it always prices products in keeping with wholesale prices, and that it doesn’t receive the same discounts from manufacturers on low-sugar products.
Rami Levy Shivuk Hashikma declined to respond.