Israel's Dominant Dairy Producer in a Funk Amid Heightened Competition

Tnuva’s sales dropped in the first quarter as rivals grew more aggressive, managers quit.

Tnuva cottage cheese on display in a minimarket fridge.
Tali Mayer

Tnuva, Israel’s biggest food maker and long the dominant player in the key dairy segment, is seeing its sales fall amid government efforts to introduce more competition to the industry.

Sales data from the market research firm Storenext show that Tnuva’s sales in the dairy category fell 4.8% in the first quarter, with many categories suffering double-digit declines. Sales of milk were down 10%, yellow cheese by 4%, white cheese by 12.4%, with downturns in smaller categories like butter as well, according to Storenext.

“For a company like Tnuva it’s nothing less than a crack-up. It’s a loss of tens of millions of shekels in sales on one quarter,” said a senior executive in the industry, who asked not to be identified.

With annual sales of about 7.5 billion shekels ($2 billion) a year, dairy products are the biggest segment of the Israeli food market and Tnuva has long controled it. But with sales down so sharply in the first quarter, Storenext estimates that Tnuva’s market share slipped to 52.5% in the first quarter, from 56% the same time in 2015.

Sources in the food industry say that most of Tnuva’s problems have been beyond its control. The government, which is under pressure to bring down Israel’s high cost of living, ordered controlled prices for milk lowered during the first quarter and it opened the domestic market to imported yellow cheese and butter.

Super-Sol, Israel’s biggest supermarket chain, launched a private-label milk brand last year, which hit Tnuva’s product hard. Meanwhile, the dairy maker’s two big domestic rivals in the dairy segment – Strauss group and Tara – launched aggressive sales and specials. Tara, in particular, has been pushing its products to drive the revenue growth it needs to justify its new 1 billion-shekel dairy. Strauss, meanwhile, saw its milk sales grow 3% in the quarter while Tnuva’s dropped 10%.

“Without a doubt Strauss and Tara detected Tnuva’s weakness and undertook steps to take market share,” said a manager at one rival company. “Tnuva was treading water and this market doesn’t wait for anyone.”

Despite all the external blows Tnuva has suffered, industry sources also attributed the company’s sales decline to its lack of experience in dealing with competition in a market where it traditionally has enjoyed well over a 50% share.

Tnuva’s problems have been exacerbated by management upheaval since the company was acquired by China’s Bright Food a year ago.

The new owners were already unhappy with declining sales at the company when they finally took control of Tnuva after a prolonged approval process. In 2014, sales dropped to 608 billion shekels from 7.2 billion the year before as net profit skidded to 407 million and 518 million. Estimates are that sales continued to decline in 2015 and that operating profit dropped as much as 20%.

At the beginning of this year, CEO Aryeh Shor was forced out over differences of opinion with Bright Food and was replaced by Eyal Milas. At the same time, Eyal Arad quit as CEO for sales and a month later Eyal Fuld stepped down as head of the company’s biggest dairy operation.

More recently, Tnuva announced spending cuts that will lead to about a quarter of its top managers leaving, merging of units and hundreds of firings are lower-level workers.

“Tnuva saw what was happening too late in the game and even then they didn’t know how to react. As I see it, Tnuva hasn’t been aggressive enough,” an industry source said.

The result, said industry sources, is that Tnuva has been focused more on maintaining profitability that shoring up sales or market share.

“We’ve seen over the last few months that Tnuva has become more inwardly focused with a policy of profits before everything. In that context, they reduced ad spending and had fewer big product launches of innovative products,” said one industry source.

Ifat, which tracks advertising spending, estimated Tnuva cut ad spending to 44 million shekels in the first quarter from 52 million a year earlier.

Tnuva says that its troubles are simply due to its transitional period and that it would return to a growth trajectory soon.

“It’s been a challenging period for many companies in the sector, including Tnuva,” a spokesman said. “We are in the midst of developing an efficiency program, adjusting the company to a changing reality and developing growth engines for markets in Israel and overseas.”