Israeli Grocers Pass on Price Hikes - and Then Some

Check by TheMarker found increases far higher than the 5% average made by food makers.

Although many major food manufacturers announced that they would be hiking the prices they charge the supermarkets by 4% to 6%, a price check at a number of supermarkets found that the retail chains not only passed along the price increases to the public, but actually raised prices on many items even further. In some instances, the increases were several times the manufacturer's price rise.

Food price increases have been a hot topic in recent months. In August, the multinational food product maker Unilever was the first out of the box. The company, which makes such popular items as Knorr soup mixes, Telma mayonnaise and Lipton tea, announced in August that it would be increasing the prices it charges the supermarkets by 4% to 6%. That was followed by similar news from a number of local food producers. November turned out to be the month when the consumers really began to feel the increases in their pocketbooks.

For its part, Unilever cited its own rising production costs over the past year as the main cause of the price hikes. Fuel had increased by 15%, natural gas by 14%, water by 27% and electricity by 33%. In addition, a world food crisis brought about in part by drought in the United States, China and parts of Europe had cut crop yields, which in turn had caused major increases in the company's raw material costs. Corn, for example, had gone up in price by 60% over the past year, wheat by 50% and soybeans by 20%. Also affecting operations in Israel was the rise in the value of the U.S. dollar against the shekel over the year.

In August, the president and CEO of Unilever Israel, Angelo Tracchia, said his firm had absorbed rising costs for an extended period without passing them along, but it could no longer refrain from hiking its prices. In deference to the consumer, Tracchia said, his company decided to give advance notice in August of price increases that would not take effect until November.

Uniliver may indeed have had the best interests of the consumer at heart, but in practice, the advance notice paved the way for other food manufacturers to gear up to announce their own increases. And they were not long in coming.

Next out of the box was Osem, followed by a host of other firms, including the Central Bottling Company, otherwise known as Coca-Cola Israel; Procter and Gamble; Soglowek, the packaged meat producer; Tempo Beverages; and the Tnuva and Strauss dairies.

For their part, however, initially the supermarket chains failed to intervene formally. Some of the retailers advised the media that they would attempt to fight the wholesale increases by the manufacturers, so the consumer wouldn't pay more. They soon acknowledged, however, that if wholesale prices increased, they would pass the price hikes along to their customers, especially if the other supermarket chains did the same.

And so, just as Unilever's announcement paved the way for other manufacturers to increase their wholesale prices, the same thing happened on the retail level. On October 31, Super-Sol, the country's largest food retailer, announced that it would be raising its prices as of the November 1 by 4% on average. Other supermarket chains said they would follow suit, first by raising dairy prices and then over the course of the month with increases on other products.

Although the price hikes engendered some consumer protest, the issue was quickly pushed to the back burner by the Israel Defense Forces' Operation Pillar of Defense against Hamas and its allies in the Gaza Strip. Now, a month after the price increases began to take effect, TheMarker set out to see what has happened to prices on the supermarket shelf.

Our first price check was carried out on October 31, as a baseline, a day before the wholesale price increases were to be imposed. A second price survey was carried out on Sunday of this week, December 9. Both surveys were conducted in the Poleg area of Netanya and included price checks at Super-Sol Deal, Rami Levy and Mega Bool at the nearby Ir Yamim mall. The survey compared prices on grocery items from 13 leading manufacturers that had announced that increases in what they charge the supermarket retailers.

Paying more than ever

The survey revealed that on average, the three chains surveyed raised their prices by about 5%. But a closer look at the cost of specific grocery items revealed that on some products the consumer was paying much more than before. [See chart on this page].

The price hikes were particularly prominent at Rami Levy on certain products, but the chain also lowered prices on other items. On 22 of 32 products surveyed, Rami Levy was the cheapest of the three chains. It was only the most expensive of the supermarkets on the price of one item.

In contrast, Mega Bool was found to have carried out the most modest price increases overall among the three retailers, but it was also the most expensive on 20 of 32 items and only the least expensive on five. Super-Sol was the most expensive on 14 items and the cheapest on seven.

In response, the Rami Levy chain said the wholesale price increases reflected in the food manufacturers' price lists as of November 1 are not entirely relevant because the manufacturers generally give the major retailers discounts off the list price, and they can vary, from 20% to 50%. "In October there were more promotions and this month fewer," the chain said, "but we always pass along the promotions and the discounts to the consumer, thereby offering the lowest prices on the products."

Super-Sol responded: "The price increases on average are 4%. It is not appropriate to look at a small number of products whose prices were increased more. In the same manner, it would be possible to choose many other items on which the increase was less than 4%."

Mega said: "The chain has been careful to revise the price of items based on what food suppliers report to us and not beyond that."

Dan Keinan