Israeli Dairy Giant Tnuva Cuts Prices in Effort to Stop Slump

Tnuva makes unprecedented move after market share threatens to slip below 50%.

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

Israeli food giant Tnuva is the latest manufacturer to be hit by the country’s decrease in food sales this year, and has countered with what industry analysts called unprecedented sales on dairy products.

The prices of basic dairy products have been cut by 40% to 50%. These products include cottage cheese, now selling for 3.90 to 4 shekels ($1 to $1.03). Cottage cheese is known for its symbolic value, after high prices sparked the so-called “cottage-cheese” protests in 2011, which spiraled into nationwide cost of living protests.

Two-liter cartons of milk are selling for 8 shekels; four Yolo puddings are selling for 10 shekels; 250-gram cups of white cheese are selling for 4 shekels; and milk-based drinks, including chocolate milk and iced coffee, are selling for 8.90 shekels. Eight packs of Yoplait yogurt are selling for 12.90 shekels, or two for the price of one.

Tnuva is Israel’s largest milk dairy. Until now, it had failed to respond with more significant discounts, despite steadily dropping sales. Grocery store sources said that, for the first time, Tnuva has agreed to discount products in categories where it is the clear market leader, including milk and yellow cheeses.

The largest discounts are going to private grocery store chains such as Hetzi Hiram, Osher Ad and Yohananof, to private mini markets, and to small- and medium-sized grocery chains. Tnuva is apparently giving these stores preference over Shufersal, Israel’s largest grocery store chain, which is now considered a competitor after unveiling a store brand that competes with Tnuva.

Losing market share
Haaretz

Sector sources said Tnuva came to its senses after sales dropped 5.4% in the first half of the year, compared to the same period last year.

“Since the days of the cottage cheese protest, I can’t recall sales like this at Tnuva. I think Tnuva is doing everything it can to avoid dropping below 50% of market share, and they’re almost at that point,” said the source.

Seven weeks ago, Tnuva had a mere 50.3% share of the market, the source added. The 50% line is important due to its psychological significance, the source explained.

Tnuva is probably not profiting from the deep sales, noted the source. Instead, they’re intended to increase market share, with the hope of maintaining it after the discounts are over.

Tnuva has also launched major marketing campaigns recently, added the source.

“They’re shooting in every direction,” he added. “The most blatant proof that Tnuva is under pressure is the fact that it’s taken a premium brand like Yolo – which it spent tens of millions of shekels to release to market – and is selling it at rock-bottom prices. It hurts the brand’s image and the prices that it can demand for these products in the future.”

An executive at a medium-sized supermarket chain noted that a new sales vice president started at the company two weeks ago.

Competing dairy Tara offers sales on milk and cheeses all the time, and Israel’s third major dairy, Strauss, has also lowered prices, noted the executive.

“Now Tnuva is starting to wake up, because it’s been on a steady decline and can’t keep going down,” said the source. Every lost percentage point of market share is tens of millions of shekels in sales, given that the market as a whole is worth more than 7 billion shekels a year, he added.

According to data from StoreNext, which pulls sales data from most stores in Israel, Tnuva’s sales of dairy products are down 5.4% for the year. Tara’s sales grew 6.2%, while Strauss is up 4.6%.

Tnuva’s portion of the dairy product market is down from 55.7%, for the first half of 2015, to 52.2% on average for the first half of this year. That works out to 60 million shekels in lost sales.

Tnuva’s sales of white cheeses were down 13% for the first half; sales of puddings were down 15.3%; sales of packaged yellow cheeses were down 4.2%; and sales of yellow cheeses at the deli counter were down 15.9%.

Even sales of Tnuva’s flagship product, cottage cheese, were off 0.1%, while competitors Strauss and Tara each increased sales by more than 3%. The most significant drop was in sales of milk, down 11.3% for the first half; most of that went to Tara, whose sales grew 9%.

Tnuva’s sales as a whole dropped 5.7% for the first half of the year, and Tnuva’s percentage of Israel’s total food market dropped to 13.4% – down from 14.2% in the first half of last year.

Tnuva’s lost sales were significantly larger than those for the sector as a whole; food sales contracted by 0.6% for the first half of 2016.

Sources told TheMarker that the lower prices are yet to bear fruit; Tnuva’s total market share was 51.3% last week, after the sales went into effect, versus 51.1% the previous week and 51% three weeks ago.

Sources around Tnuva said that while the company isn’t pleased by the sales data, decision makers are comforted that sales have now risen two weeks in a row, even if only by small margins, after weeks of continuous declines.

Five years ago, Tnuva controlled 57% of the dairy market.

Since the beginning of the year, Shufersal has started selling dairy products under a store brand; duty-free import quotas for cheeses have been raised; the prices of dairy products under price control have decreased; and Tara has launched significant sales after unveiling a new production facility that doubled its capacity. Tnuva has struggled to respond to these changes, industry sources believe.