Study: Strauss Exploits Monopoly to Overcharge on Chocolate

Consumer advocacy organizations say they intend to submit their findings to the Antitrust Authority so that it can examine Israel's chocolate market and take steps to encourage competition.

The Srauss Group takes advantage of its monopoly on Israel's chocolate candy market to overcharge, according to a recent study carried out by the Emun Hatzibur (Public Trust ) and the Israel Yekara Lanu consumer advocacy organizations, together with the Pensioners' Union.

Researchers compared prices of Strauss's Elite Cow Chocolate in Israel with competing brands abroad - leading chocolate brands Cadbury, Milka and Hershey. The findings seem to point to substantial differences between the price of milk chocolate in Israel relative to Britain, Australia, Germany and the United States.

For example, a 100-gram bar of Cow Chocolate cost 33% more than Britain's same-sized Cadbury bar and 37% more than the 100-gram German Milka chocolate bar. The study found Cow Chocolate to be much pricier in Israeli discount supermarket chains than equivalent chocolate brands in U.S. discount chains, costing 155% more than a Hershey's chocolate bar and 85% more than the Cadbury brand.

Only Cow Chocolate sold at a bulk discount, in packs of six or eight bars, were competitively priced, according to the report, and even then only compared to the prices of bars sold individually abroad.

For the prices in Israel the researchers used checkout data from chain supermarkets, minimarkets and groceries collected by the A.C. Neilsen (Israel ) market research firm. Prices abroad were taken from the websites of local chains and adjusted for currency purchasing power. Emun Hatzibur said that since adjustments weren't made for per-capita income differences it could be assumed that the real gaps were even greater.

The study found no significant effect of cocoa bean prices on retail chocolate prices in Israel in the past three years. Retail chocolate prices rose steadily throughout nearly the entire period, while the price of cocoa has fluctuated wildly. That means manufacturer claims blaming higher raw material prices for their price hikes are unjustified.

With a 63% market share, Strauss is a recognized monopoly in Israel's chocolate market. In 2006 the company paid a NIS 5 million fine after the Antitrust Authority investigated Strauss on suspicion of abusing its monopoly position by imposing restrictions on retailers in order to stymie Cadbury's entry into the Israeli market.

"The price differentials found raise concern over failures in competition, enabling the company to charge uncompetitive prices without fearing any significant loss in market share," the study's organizers wrote in a letter to Strauss Israel CEO Zion Balas.

"This concern is particularly worrisome considering the company is a declared monopoly in the category and its ability to exercise market power to prevent competition. According to the study's findings, it seems the fastest and simplest way to achieve a reasonable price level consistent with internationally accepted prices is the initiation of price reductions by the company."

The organizations said they intend to submit their findings to the Antitrust Authority so that it can examine Israel's chocolate market and take steps to encourage competition.

Strauss said in a response: "We received the report and are studying its content. A preliminary review indicates many inaccuracies, and its findings seem to be based on incomplete data that doesn't reflect the entire picture. The company will pass along its impressions of the findings in the next few days."