Israeli Importer Worked With Colgate-Palmolive to Keep Monopoly, Investigation Alleges

Schestowitz and the U.S. personal care behemoth allegedly attempted to limit parallel imports, stifling competition and keeping prices high

Adi Dovrat-Meseritz
Shuki Sadeh
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Deodorants for sale in an Israeli chain pharmacy, tel Aviv, February 25, 2014
Deodorants for sale in an Israeli chain pharmacy, tel Aviv, February 25, 2014Credit: Daniel Bar-On

Israel’s second-largest toiletries importer is being investigated for allegedly attempting to block parallel imports of Colgate-Palmolive products, at the request of the U.S. toiletries giant. 

The Israel Competition Authority discovered more than 2,000 emails between S. Schestowitz and Colgate-Palmolive detailing sales in Israel of the multinational’s products that were brought in by companies other than Schestowitz, who is the official importer.

Colgate seeks to block parallel imports because its official importers sell its products for different prices in different countries, in keeping with the market strength of the brands in each market and the local competition.

Parallel imports can increase competition and thus push down prices.

The antitrust agency is conducting in camera proceedings against Schestowitz in the Antitrust Court. but following a request by TheMarker to make proceedings public, it was permitted to review the allegations. Certain claims, which Schestowitz argued contained corporate secrets, were redacted from the documents.

The documents relate to 2015-18 and shed light on the relationship between Schestowitz and Colgate-Palmolive, which manufactures brands including Ajax, Speed Stick and Tom’s of Maine.

Schestowitz, owned by Yoni Schestowitz, is Israel’s second-largest toiletries importer, with annual sales of over 900 million shekels ($260 million).

Industry sources estimate that Schestowitz has a gross profit of 40%-45% and operating profit of 13%-14%, which works out to profit of 120 million shekels a year.

Schestowitz, a closely-held privately owned company, refused to comment on the profit figures.

The high profit margins are due to the fact that Schestowitz is the exclusive importer of popular food brands including Barilla pasta, Tuna Rio and Alpro soymilk; personal-care brands such as Johnson & Johnson, Palmolive, Speed Stick and Neutrogena; fragrances including Calvin Klein, Hugo Boss, Dolce & Gabbana, Guerlain; and Revlon cosmetics.

The lion’s share of Schestowitz’s profit comes from Colgate-Palmolive. Schestowitz controls some 60% of Israel’s toothpaste market, primarily via the Colgate brand, and 20% of Israel’s deodorant market, via the brand Speed Stick.

In early 2015, Colgate-Palmolive sent Schestowitz a presentation that included its goal of preventing parallel imports, to the extent that it’s legal in a given country. It details the negative impact of parallel importing on business, and explicitly states that it should be prevented to the extent it is legal to do so.

Colgate-Palmolive generally sells its products outside the United States by choosing one exclusive importer in each location. Larger countries are divided into regions, with one exclusive importer per region.

In Israel, Schestowitz is responsible for marketing, distribution and sales of Colgate-Palmolive products. Their prices are set by the two companies, which seek to block parallel imports and competition.

The trustbuster’s allegations against Schestowitz state, “Colgate handed down to Schestowitz a reporting practice stating that importers and Colgate’s units in various countries (including countries where parallel imports are discovered, and those where products sold as parallel imports originate) are told to work to limit parallel imports.”

Colgate’s representatives in various countries are being told to report back on parallel import Colgate products for sale, the allegations state. Colgate distributed a form for reporting such products, it adds.

The presentation sent to Schestowitz as well as other Colgate importers 

The legal proceedings also include Schestowitz documents indicating that the company sent Colgate regular reports on parallel imports.

Among others, the reports included products’ serial numbers, prices, and photos with identifying characteristics such as date of manufacture and retailer.

The antitrust commissioner states that the correspondence indicates that Colgate’s modus operandi is to track down parallel imports and block them in their countries of origin.

Schestowitz told the court that its conversation with Colgate on parallel imports is crucial for its business operations.

Toiletry products in Israel are often sold for much more than in other countries. In August 2018, Nielson found disparities of up to 127% in the price of basic toiletries sold in Israel versus other countries. Nielson checked products including Colgate toothpaste, Tampax tampons and Gilette deodorant.

Schestowitz stated in response that it has not tried to block parallel imports and has not been accused of doing so. It said it maintains ongoing, legitimate dialogue with its suppliers that includes updates on local competition. “The essence of our dialogue is pro-consumer,” the company stated.