Tnuva is forcing its retail customers to absorb price cuts on dairy products that have been placed under state price controls, according to retail sources. Price controls on a number of items were announced last week by the finance and agriculture ministries.
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Tnuva has informed the supermarket chains that it intends reducing discounts on both price-controlled dairy products and products for which it charges an identical price. Up to now, Tnuva has given discounts of between 2% and 12%, depending on the size of the chain, according to sources at the supermarket chains.
Restaurant and cafe chains receive even higher discounts, of between 10% and 15%, according to industry sources.
“The chains don’t make any profit on items subject to price controls, because the gross profit after the discount is 15% and the chain’s operating costs are 17% [of the product price],” said a senior executive at a major supermarket chain. If the discount is reduced, the chains will lose money. The only one who will profit is Tnuva, which has gross profit that is higher than operating costs.”
Tnuva explained the elimination of discounts as a consequence of the decision by government regulators that discounts recognized for the purpose of calculating the price of items under government price controls would be substantially reduced, because savings were not passed on to consumers. Consequently, Tnuva said in a statement, it would reduce the size of the discounts it provided to retailers on price-controlled items, but that the discounts it provided on dairy products not subject to price controls would remain unchanged.
“Tnuva contacted us and sought to cancel the discounts on products subject to price controls and products that aren’t,” said a senior executive of a medium-sized supermarket chain. “We refused.”
He added that the chains expected Tnuva to absorb the drop in prices, because its operating profit margin was much higher than that of its retailers, which averaged close to 3%. “This is improper behavior by a monopoly,” he added.
The ministries’ decided on an an average of 1.1% reduction in the prices paid by consumers for 12 milk and dairy products, including sour milk, butter and yellow cheese. In addition, 5% white cheese and 38% sweet cream were added to the list of items subject to price controls and their prices slashed by 20%.
The decision was expected to lower Tnuva’s EBITDA by between 70 million and 80 million shekels, if absorbed by the food manufacturer. Between 40% and 55% of its products were affected by the government decision, industry sources said.