Israeli Dairy Giant's Market Share Is in Free Fall

Summer sale campaigns only briefly reversed Tnuva's fortunes as competitors continue to keep the pressure on.

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

With the threat of expanding fresh meat imports hanging over its head, Tnuva’s sales continued to decline. September ended with additional declines in its market share, a trend that has lasted for over a year. Data from Storenext, based on supermarket and greengrocer receipts, indicate that Tnuva’s share of Israel’s retail dairy market was 50.3%, down from 51.2% in August and 52.8% in September 2015.

Tnuva finished 2015 with a 54% market share and 2014 with a 54.6% share. Because dairy products comprise the largest market in Israel, worth 7.5 billion shekels ($1.97 billion) annually, the change represents tens of millions of lost shekels in revenue for the company. Other companies in the Tnuva group also Maadanot and Sunfrost also lost market share in September, down to 15.3% from 15.9% in August in their categories.

Tnuva launched aggressive campaigns in July with discounts of 40% to 50% on many dairy products, including ones not previously discounted because Tnuva didn’t fear competition, like its Emek cheese. The company sold cottage cheese in some chains for 4 shekels and two-liter bottles of milk for 8 shekels, Yolo dessert four-packs for 10 shekels and 250 gram containers of soft white cheese for 4 shekels.

The sales nudged Tnuva’s market share up to 51.6 in July, but supermarket chain officials say that with the end of the discounts in September, the trend was reversed.

“The sales didn’t help them much. The entry of the chains’ house brands into the market and imports, mainly hard cheese, are really hurting Tnuva, said a supermarket executive. “They built a fancy factory in Tel Yosef producing hard cheese in the shapes of elephants and trains, all operated almost entirely without human contact, but none of this will help them until they respond to the fact that a kilogram of price-controlled Tnuva hard (“yellow”) cheese costs 40 shekels and a kilogram of imported hard cheese costs 29 shekels.”

Another supermarket executive asserted: “If once, everyone stood at attention when Tnuva had a sale, it’s no longer the case. People have alternatives they love, are used to and consume. [Tnuva] is no longer winning on the price front and is weaker on the brand front.”

Figures close to Tnuva said the company made an informed decision to deal with lower production around the holidays and the consequent possible shortages. “Nine production days are lost in October because of the holidays, not including Saturdays, almost a third of a month,” said one source. “Tnuva, as a company with a sizeable market share in basic goods, which also supplies many price-controlled products, was forced to halt sales campaigns to avoid increasing sales that would lead to shortages in its basic products.”

Competitors keep the pressure on

Tnuva’s competitors, Strauss and Tara, did not roll back their sales campaigns despite also losing nine production days in October. Strauss maintained its market share at 24.7% while Tara’s grew from 12.9% in July to 13.3% in August and 13.4% in September.

If Tnuva’s sale campaigns were indeed stopped only because of the limited number of production days during the holiday season, industry observers do not expect the company to offer any significant discounts until mid-November, after the holidays of the Jewish month of Tishri are over and it returns to full manufacturing capacity, boosting inventory. Even then, Tnuva is not expected to recover the market share it held in previous years, but it is likely to halt the declines.

After the holidays, Tnuva management is expected to sit at the table with the company’s union in order to begin laying off hundreds of employees as part of a restructuring plan announced in March. The plan includes reducing management by one-quarter and merging divisions.

Changes in the food industry that Tnuva has struggled to address are behind most of the decline in Tnuva’s sales and market share over the past year. The changes include the launching of Supersol’s house brand of dairy products, the lifting of import quotas for duty-free hard cheeses, the reduction of dairy product prices subject to price control and Tara’s sales campaign resulting from a billion-shekel investment in opening its Noam dairy, which doubled its production power, such that the company is ready to reduce its profitability in order to increase sales.

Internal factors also influenced company performance, such as a breakdown in producing its premium dessert product Yolo. Likewise, there were numerous changes in management, such as the group’s CEO, Arik Shor, who stepped down at the beginning of the year over disagreements with the company’s controlling owners since March 2015, Bright Foods of China. Eyal Malis, who had been deputy CEO of Tnuva and head of the Dairy Group, replaced Shor. Sales Vice President Eyal Arad and other executives left at the same time.