Rosenhaus Spells It Out

Super-Sol isn't in the business for its health

The time has come to spell it out: Super-Sol (TASE: SAE) is not a non-profit organization. It's in business to make profit and it does so aggressively but fairly, says its CEO Effie Rosenhaus, putting the record straight once and for all..

"The anomaly in the market cries to the skies," Rosenhaus said in an interview with TheMarker.

Every year Israel's supermarket chains and suppliers renegotiate their terms of trade, and this year, after it bought Clubmarket and passed a 40% share of the retail market, Super-Sol says it wants a sweeter deal.

But just as happened two years ago when Super-Sol went head to head with Strauss-Elite (TASE: STEL), during which spat the supermarket chain yanked the dairy company's products from its shelves - the discourse has turned acrimonious. This time the suppliers in Super-Sol's sights are Unilever and Leiman-Schlussel. It has already banned some of their products, though not the most popular ones.

As said, Super-Sol is in a much more powerful position this year, with 40.5% of the market, and the suppliers think the trustbuster should get involved. Yesterday antitrust commissioner Ronit Kan clarified that no, she should not; the Antitrust Authority has found no evidence of anticompetitive behavior, though if it does, it will act, she promised.

Biased coverage of fair conduct

Meanwhile, Rosenhaus feels the media coverage is biased. "Things should be said in full from A to Z once and for all," he told TheMarker. "I understand that a supplier required to pay more doesn't like it. But our conduct is fair, yet they immediately call up the Food Manufacturers Association and the antitrust commissioner.

"I handle negotiations behind closed doors. I don't put a gun to anybody's head. A supplier meeting with me understands which way the wind is blowing. He understands that I have to make money too," Rosenhaus added.

The thrust of his argument is that in Israel, the margins the retailers make is not only much lower than the suppliers - they are very low by international standards.

"In the third quarter of 2005, Sano's gross margin was 36%, Osem's was 44%, Strauss-Elite made 40% and Super-Sol's was 26.2%," he amplifies to drive home his point.

"Sano's operating profit was 9% of its turnover, Osem's was 8%, Strauss-Elite's was 11% and Super-Sol's was 2.2%," he goes on: "Of every shekel they sell me, I get only 15% to 40% and they get 60% to 85%."

Look who's talking

Even abroad, suppliers' margins are typically higher than that of retailers, but the proportions are different here and not in Israel's favor, he argues. Suppliers have been known to rebut that statement by claiming Super-Sol to be inefficient: "We have streamlined in the last two years," Rosenhaus counters.

He also bats back claims of over-concentration. "In France, five big suppliers control 11% of the market. In England the five biggest suppliers control 12%, in Germany 13%, in Italy 9.7%, and in Israel the five biggest suppliers control 55% of the market," he says, referring to Tnuva, Strauss-Elite, Osem, Unilever, and the Central Bottling company, also known as Coca Cola Israel.

In the interview, Rosenhaus did not discuss the problems of little suppliers, which lack the clout to fight back over terms.

We are the brake

If there is one thing he absolutely won't stand for, it's claims that the sweeter terms Super-Sol demands will translate into higher prices for consumers. "Who was the brake on pricing in Israel during 2005?" he demands.

"Super-Sol was the brake stopping prices from rising, especially by virtue of Super-Sol Deal" - the discount arm ? "but also at the other stores. That is because Super-Sol has the biggest, most successful discount arm, which kept price stable over time.

"Did somebody create a formula by which if suppliers reach an agreement with Super-Sol they'll have to raise prices? Who said their profit levels have to be maintained?" he scowls. "This is a business that wants to profit and I am not going to apologize for it, just as Mozi Wertheim of the Central Bottling Company, Strauss-Elite and Tnuva don't apologize. Meanwhile their profitability is higher and their operations in Israel are the platform on which they built operations abroad too.

"I am trying to generate profits that are not excessive, not sick, in balance with the market," Rosenhaus goes on. "I work by categories, not by suppliers. I don't have to ask the suppliers for anything. I can say that instead of having seven products in each category, I'll settle for five. Then the suppliers would start sweating. They'd offer to pay in order to get their products into the chain."

The suppliers would love to sell via Super-Sol while not allowing the supermarket chain to make a dime: they'd love a win-lose situation and are squawking because Super-Sol decided to tweak the balance. Suddenly it's the bad guy,  he says, but people forget it's the one that brought cheaper prices to consumers in the first place.

Get into Super-Sol and you get nationwide deployment in 200 branch stores, from Katzerin in the north to Eilat in the south: each shekel invested in advertising pays off and the supplier can also have utter confidence that bills will be paid and long-term planning will pay off, Rosenhaus continues.

Given all that, he is utterly confident that the breakdown in relations with Unilever will end, and that its products will be on Super-Sol shelves for many years to come. "All crises come to an end. That is their nature," he says.