Israel's Treasury: Profits in Personal Care Products Soar for Lack of Competition

Study finds top four companies’ profitability grew to 14% from 8.5% in two years.

A customer selects a packet of Dove soap, produced by Unilever, from the display at a supermarket. (illustrative)
Bloomberg

Profit rates at the four biggest companies in personal care products and toiletries jumped to 14% from 8.5% in just two years because the business is so heavily concentrated, the Finance Ministry said in a report released on Sunday.

It said that the four companies – none of which it named but which are assumed to include Sano, Unilever Israel and Diplomat – boosted their combined profit to 295 million shekels ($78.2 million) in 2015 from 175 million shekels two years before, generating their highest levels of profitability in 20 years.

“Partial data for 2014 point to record high profitability for the biggest companies in the industry. There is evidence to strengthen the argument that parallel imports should be imposed on the industry,” it said, referring to the policy, which Israel has begun enforcing in other industries, barring companies from gaining exclusive rights to import and sell a particular foreign brand in Israel.

The profits were pre-tax profits after returning the salaries of owner-managers, which the economists preparing the report said are tantamount to profits. They were based on confidential filings to the Income Tax Authority.

The treasury report said the personal care and toiletries market amounted to 8.6 billion shekels annually on a wholesale basis and that the four companies included in the survey accounted for 25% of it. The top 10 companies comprised two thirds of the market, which is dominated by imports it said.

The longer history of profits in the industry showed rises and falls. In 1996-97, profitability declined but then jumped from 6% to 12% in the next four years and remained high in 2003-08 when the shekel strengthened against foreign currencies.

That should have caused prices and profits to fall in a competitive market. “During that period there was a big increase in profits and profitability at the companies, a fact that testifies that these companies didn’t pass along lower prices in shekel terms on their imported products to the consumer,” it said.

The report found that the 2011 social-justice protests and a brief period when parallel imports of one key category of personal care product was permitted brought a brief decline in profits at the four companies, but profits began rising against in 2013.

High profits in the industry haven’t translated into high salaries for the people working in it, the report found. It said wages were on average quite low, not only relative to the average wage nationwide but to the average in the wholesale sector.

The study attributed low pay to the preponderance of women employees in the sector — who comprise two thirds of the total – but noted that pay in the industry was 15% lower than for Israeli women in general. Over the last 20 years, pay in the industry declined 9.6% while real pay after inflation nationwide rose 14.8%.