A year ago Avi Ben Assayag, the CEO of Osem, the maker of iconic brands such as Bamba and Tivall vegetarian cutlets, announced that the company would be raising prices for about a third of its products. Other makers of consumer products like Coca-Cola Israel, Wissotzky Tea and Sugat had raised prices without causing an outcry and the hike was expected go through without protests.
For Osem, however, that was not to be. Coming as it did as price hikes were announced for water and electricity, the timing was poor. An Israeli group taking its cue from France’s Yellow Vests called for a boycott of the company. Finance Minister Moshe Kahlon called Ben Assayag to an emergency meeting after which the CEO said the increase had been suspended.
“Osem is the people’s brand, found in every home, and in such a situation it has to show extra responsibility,” Ben Assayag told TheMarker in an interview this week. His remarks are relevant again because Unilever Israel and a handful of other companies have recently announced price increases and Osem may follow.
A year ago you said Osem had to raise prices because costs had risen too much. What’s Osem’s situation today after prices were frozen?
“We absorbed them, we took efficiency measures, automated and combined production lines, improved procurement, found new local suppliers and merged the Tivall and Sabar [prepared salads] factories, discontinued unprofitable lines, and announced we were selling our Tribe hummus and salads unit in the United States. We’re now selling Beit Hashita and others.”
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The bottom line is that your profits fell?
“I’m still in my job – that’s a fact. If profitability had fallen, I probably would have been sent home.”
So from the start you could have cut costs instead of raising prices. You don’t think that companies have a tendency to raise prices as their first strategy by simply exploiting a vulnerable public?
“I said we absorbed the higher costs and streamlined our operations, and it seems the decision to absorb the costs hasn’t made the shareholders send me home. I had long discussions with them on the matter and said that I thought it would be wrong to raise prices and that we had no choice, even if it cut into profitability. They agreed.”
The shareholders, actually shareholder, that Ben Assayag is referring to is the European food giant Nestle, which acquired full control of Osem in 2016. “It’s not always easy,” he said. “All over the world when the price of your raw materials rises, you raise prices. I had to explain to them that here it’s wrong to do that.”
One of the big challenges facing Israeli food and beverage makers right now is the new law requiring that unhealthy food – based on levels of sugar, saturated fat and sodium – be tagged with a red label.
Ben Assayag said that after a two-year, 30-million-shekel ($8.6 million) investment drive, today about 75% of Osem’s products will not have to be marked red. For around 800 products, the ingredients and packaging are being altered – 30% of them have been put on shelves and the rest will be done by the first quarter of 2020.
“We've been in a years-long process of improving our products, but there’s no question that [Deputy Health Minister Yaakov] Litzman’s initiative was a major multiplier and catalyst for accelerating it, especially in cutting back the ingredients that were determined harmful under the regulations.
“Of course, Litzman’s undertaking doesn’t deal at all with enriching products, like making ordinary bread whole wheat, adding protein, vegetization, sustainability and other things we’re doing. Our goal as part of the Nestle group talks about the responsibility and obligation to improve quality of life and work toward a better future. That means we have to come out with products that are good for the consumer.”
You continue to sell ketchup with less sugar and sodium but also an unhealthy version, as well as unhealthy pasta alongside a version made with whole wheat and dietary fiber. The healthier versions cost more money to produce. So how does that fit with the responsibility you talk about?
“We struggle with the question about what’s the right thing to do for our customers, but one thing is clear: As food products, as healthy as they might be, if they aren’t tasty, the consumer won’t buy them. All the time we’re gradually reducing unhealthy ingredients in our leading brands while launching better products. If I took off the shelves our regular products [with unhealthy ingredients], people would buy our competitors’ products instead.”
Lots of data show that consumers aren’t flocking to healthier products. For instance, your reduced ketchup accounts for just 10% of sales and your Pasta Plus only 4% of the category. But sales of snacks and sweets are rising quickly.
“The public differentiates. People need to be healthy and do things for their health, like eating healthy main courses, engaging in sports and drinking diet products. Against that, when people decide to treat themselves, they do it in a big way. I can run and ride a bicycle, but in the evening when I’m reading emails I can easily down a package of Bamba. I feel terrible afterwards, but I’ve eaten it. In the end, we’re only human.”
Health vs. price
What’s more important today for the Israeli consumer, health or price?
“It’s hard to measure it on a single scale, but for most, price is more sensitive, and it’s very sensitive. Still, I believe that the segment of people sensitive to the their meals' nutritional components is a growing segment. The labeling undertaking will boost the number of consumers aware about they eat.”
But for years you made and sold products that weren’t as good for one’s health.
“True, we sold products that were less good. You can’t argue with the numbers. In 2020, Osem will sell 487 tons less of sugar, 164 tons less of salt, 1,134 tons less of fat and 542 tons less of saturated fat than we did in 2015. It’s not as if someone sat down a decade ago and wondered, ‘How can I make a less healthy product for the consumer?’
“But our era demands that we think differently than we did in the past and not just take into account taste but also quality. Today, 75% of our products won’t have to be labeled; if we were entering the [labeling] reform in the condition we were in four years ago, it would be the opposite – 75% would require labels.”
Ben Assayag talks about another change that has been forced on the food industry. Until recently labeling on packages was designed to confuse consumers about the healthiness of products.
“More than a decade ago, when I was in another job [rival Strauss Group], we would argue about whether it’s our job to educate consumers about how much chocolate to consume. We would launch campaigns of five chocolate bars for 10 shekels. We didn’t think about responsibility.
“Today, the world has changed. Today we recognize that if you don’t educate the consumer how to read the label and how much of our products you can consume, we’ll simply lose everything – consumers will leave us and we’ll be left with nothing. The industry has matured and undergone radical changes; it’s another industry.”