Private Label Goods Still Fighting for Slice of Israeli Market

Low cost goods sold by supermarket chains under their own name were once the great hope for lowering prices, but growth in the category has slowed and smaller chains don’t carry them at all

Low prices aren't enough to attract consumers to private label goods of Israeli supermarket chains such as Super-Sol.
Dan Keinan

In recent years, private label goods – the ones sold by supermarket chains under their own name at low prices – were the king of the Israeli shopping cart. The 2011 social justice protests had brought a new price consciousness to the Israeli consumer and the many of the big food retailers recognized that private label goods could be good for sales.

At Super-Sol, Israel’s biggest supermarket chain, private label products currently account for about a fifth of sales and the retailer hasn’t hesitated to take on market leaders like Coca Cola Israel, Tnuva and Osem. And Rami Levy’s brand now accounts for 16% of the supermarket’s sales – less than 18 months after it was launched.

But those figures are misleading. Overall, private label brands make up less than 6.5% of all supermarkets sales in Israel, according to figures from the retail research firm Storenext that were compiled for TheMarker. Far from growing, the share of private label sales is stagnant or even falling.

In comparison, in the United States private label products accounted for 18.4% of all supermarket sales by value and 22.3% by quantity in 2017. In Europe the figure is closer to 45% of all products and in some countries like Spain and Switzerland, it exceeds 50%.

A big reason why private labels are still such small players is that Israel’s medium-sized and small chains carry few, if any, private label products.

Privatization
Private labels as a percentage of chains' total sales

“We want to be the best retailers, not good manufacturers,” said Erez Eisenberg, vice president for marketing at the Yeinot Bitan chain. “Our view is that the country is too small for all these private label brands. In Israel people love brands and private label simply comes at the expense of smaller makers.”

When Yeinot Bitan bought the failing Mega supermarket chain in 2016, it pulled its private label brand. In Eisenberg’s view, carrying private label products successfully means investing heavily in advertising and marketing, which he’s not prepared to do.

Eyal Ravid, whose Victory chain carries a private label line called Hamutag that is shared with several small chains, said private label products are no longer being sought after by Israeli shoppers. Hamutag accounts for a mere 2% of Victory’s turnover.

“The Israeli consumer is moving in the direction of ‘premiumization,’ so there’s no reason to keep up private label,” he said, referring to a growing preference for higher-priced and branded goods.

“We’re clearly seeing crazy growth in the tens of percent in sales of imported Parmesan, Brie and Camembert cheeses at the expense of classic kinds like Bulgarian and Tzfat cheese. Sales of St. Dalfour fruit spread is coming at the expense of 778 [an Israeli brand],” Ravid said.

He ascribes this to a new “live for today” attitude among consumers, especially those who have despaired of buying a home in face of soaring prices and the government’s failure to contain them.

At Super-Sol, Itzik Abercohen, the company’s CEO, begs to differ. He said the smaller chains decline to offer private label not because they don’t believe in them but because they don’t have the level of sales to justify it. Yeinot Bitan is big enough but is still working at integrating Mega into its business.

Abercohen conceded that private label sales aren’t growing as fast as they once did, but he attributed that to the fact that as Super-Sol’s line expands it is entering new and more challenging categories. One example is baby formula, which was launched in 2016 but doesn’t account for more than 10% or 11% of sales in the category. He is counting on a launch of the product into the ultra-Orthodox community to lift the figure to as much as 20%.

Rami Levy, who heads the eponymous supermarket chain, is also confident about the future of private label and predicts that in another 18 months it will account for up to a quarter of his sales.

He said smaller chains simply couldn’t negotiate favorable terms with the manufacturers in Israel and abroad who make the goods for them. Lower-priced private label goods enabled him to cut the average price for what he sells by 5.5%, he said.