The Blame Game

Food manufacturers taking fire for the rising product prices blame the retailers, who return the favor with a cherry on top. The manufacturers claim they have to jack up prices as a preventative measure because the big chains constantly twist their arms for discounts. "We price our products higher in advance because of the unreasonable agreements with the chains," a small food supplier told TheMarker yesterday. Two chains control the food market: Super-Sol and Blue Square (Mega), he said: "The decrees they hand down cause us to raise prices."

They demand a four-month 15% discount on new products, says the supplier. "No supplier would launch a product and lose 15% on it, so in advance we price our products 15% higher." And that's only one of many examples.

A bigger supplier complains that the chains have to subsidize branches that lose money, but not out of their pocket: The ones to foot the bill are consumers and suppliers, he said.

Super-Sol has a 21% share of Israel's food market and Mega has 12%, according to consultancy Czamanski Ben Shahar. When confined to products with bar codes, Super-Sol has a 37% market share and Blue Square 20%.

On the other hand, manufacturing is also highly concentrated: 15 companies supply more than 60% of the market. The five biggest have a 45% market share, says market research company StoreNext.

A retailer rebutted that the manufacturers net 9% to 14% of turnover, while the big retailers net around 4%: "Two thirds of the profit in food goes to suppliers and a third to sellers," he said. "Nothing would happen to the suppliers if their profit shrank a bit." If anything, the operating profit of the retail chains has been contracting, he said. Super-Sol refused to comment for this report. Blue Square's response had not arrived as of press time.