Social Protest, High Coffee Costs Depress Strauss Profit

The decline in results didn't stop the talent from taking home NIS 27 million. Todd Morgan of Strauss Coffee grossed the most

Despite the "cost of living" protests that rocked Israel last year, the Strauss Group food company reported a near-13% rise in revenues for the year 2011, to NIS 7.6 billion. But climbing coffee costs on one hand and product price cuts in the second half of the year on the other, in response to consumer pressure, pushed down operating profit 14% from 2010, to NIS 463 million, Strauss reported yesterday.

Gross profit rose 3%, to NIS 2.7 billion. But heavy spending on building Strauss Water operations in China and England and a new manufacturing facility in the United States for dips and spreads put the squeeze on operating profit.

Ofra Strauss.Credit: Moti Milrod

Net income fell 23% from 2010, to NIS 161 million for 2011, mainly due to increased spending and reduced prices in the second half.

The decline in results didn't stop the talent from taking home NIS 27 million. The wage cost of chairwoman Ofra Strauss was NIS 2.8 million, for an 80% part-time position. CEO and President Gadi Lesin's came to NIS 8 million, but the Strauss Group's most expensive employee was Todd Morgan, CEO of Strauss Coffee, whose wage cost was NIS 9.5 million last year. Morgan joined the group in November 2010.

Strauss has four main fields of operations. Coffee accounts for at least half of all income, with Israeli food sales in Israel contributing 35% of revenues. Dips, salads and bottled water accounted for most of the rest.

Food sales in Israel totaled NIS 2.8 billion last year, up 5.8% from 2010. But the rise in the cost of raw materials, again coupled with price cuts in the second half of the year, depressed operating profit 1%, to NIS 302 million.

Coffee sales for 2001 were NIS 3.9 billion for the year, up 15% from 2010, mainly due to increased sales in Russia and Brazil. Operating profit on the coffee business rose 1.5%, to NIS 260 million.

Chairwoman Ofra Strauss commented that the consumer protests obligate the company to improve and become more efficient while increasing the added value it gives consumers. The company continues to invest in innovation and in strengthening the fundamentals for international growth, she said.

With the publication of the company's results, the "four mothers" - representatives of the social-justice protests - called on Strauss to lower prices. "Ofra Strauss continues to disappoint the protest movement," they stated. "Instead of lowering prices, yet again all we get are words, words and more words. This is the time to remind the people of Israel that as long as Strauss doesn't lower prices across the board, the consumer boycott against Strauss continues."

Meanwhile, for all the consumer angst, Strauss sales of certain dairy products have been spiking this week because of labor troubles at Tnuva. Workers there have been refusing to distribute cottage cheese, chocolate milk and, as of Monday, Yoplait yogurt as well, to protest management's refusal to give them a 5% annual raise. Tnuva management has agreed to a 3% yearly increase.

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