The Israeli Great Dairy Price War Is Over After a Year of Battle Between Tnuva and Tara

'These are all price-controlled products and the sales brought them market shares at the expense of rivals,' a retail executive says

FILE PHOTO: A supermarket in central Israel.
Ilan Assayag

The great dairy price war is over.

The battle, mainly between market leader Tnuva and the upstart Tara, raged throughout 2017 as the smaller company sought to gain market share. But the two sides called a truce this year that market source said is likely to remain in place.

“It’s obvious to everyone that Tnuva has budgeted less for special, Tara has stopped, for instance, all its sales of white cheese and milk,” a retail executive told TheMarker on condition of anonymity. “These are all price-controlled products and the sales brought them market shares at the expense of rivals.”

Retailers said the only price was now were in the ultra-Orthodox sector where Tara recently got kashrut approval from the Badatz, the most widely recognized Haredi kashrut supervisors. They said sales for premium products are continuing but on the balance, the days when shoppers could expect super-low prices on basic dairy items are over.

One reason the price wars have come to an end is because the target price for raw milk – the government-controlled price dairies pay for their supplies of cow’s milk – have been on the rise. But the government hasn’t allowed the dairies to raise prices on products that are price controlled.

Raw milk prices
Target price per liter of cow's milk, NIS

That has left Tnuva and Tara with suffering losses on the products. Higher raw milk prices are cutting profits for Tnuva, whose 50.6% market share makes it Israel’s dominant player, by 100 million shekels ($28.4 million) annually while Tara, with a 12.5% share, has seen its profits diminish by 30 million on an annualized basis.

Strauss Group, the No. 2 dairy with a 20.9% share, has been little affected by recent developments. Its focus on premium products means it stayed aloof of 2017’s price-cutting and it has fewer price controlled products.

Anat Gross Shon, CEO of the Tnuva’s dairy division, which accounts for 80% of the company’s sales, confirmed the trend. She said the company’s budget for discounting had been cut 10% for 2018, equal to tens of millions of shekels.

“In 2017 were adopted the tactic of a lot of sales because it was clear to use we needed to put the company back on a growth trajectory. That was a transition period until our long-term strategy could be put into place,” she said.

That strategy is to mimic Strauss’ focus on premium products, like yogurt and gourmet cheeses, where profit margins are higher and away from basic dairy products like milk, cottage cheese and white cheeses.

With end of the price wars, Israel’s dairies are moving to a new battlefront of stepped-up advertising spending.

Ifat, which tracks advertising spending, estimated that Israel’s dairies boosted its ad spending in the first quarter of 2018 by 63% from a year earlier. Tnuva alone doubled its spending to 26 million shekels, while Strauss increased its budget 55% to 21.3 million. Tara and the smaller Gad Dairy, increases theirs by 32% and 36%, respectively.

“Our ad budget will come to 25% more this year than in 2017 while are discounting falls,” said Gross Shon. “It’s not as if advertising and marketing eliminates the need for discounting, but when you want to build a brand over time you need to do it through advertising. Sales only have a short-term impact.”

The dairies also stepped up the launching of new products in the first quarter. Tnuva introduced no fewer than 43 of them, nearly double the number in first-quarter 0217. Strauss unveiled 45 new products, up from 31 a year earlier. Tara introduced 13 versus five a year ago.

Tnuva said the breakneck pace of new product introductions will continue all through the year and include a new line of yogurt with fruit and granola, whipped yogurt and tofu products.

Most of these will be in the category of premium products, said Gross Shon, who said the company’s target was to reach a ratio of 65% basic products and 35% premium products for its sales, in the next 4-5 years versus a 70-30 mix today. That difference adds up to sales of 50 million shekels annual, she added.