Tnuva Cuts Its Prices, but Supermarkets Don’t Pass on the Savings

When wholesale dairy prices fell, Super-Sol and many other food retailers kept their shelf prices unchanged and in some cases even raised them.

Making cheese on a Tnuva production line.A woman attends to a machine that packs pre-sliced cheese as a man seems to be checking a computer monitor or an operating panel.
Gil Eliahu

Several Israeli supermarket chains, especially Super-Sol, the biggest player, have been sluggish at best in passing on to customers recent reductions in the prices they pay for some of their most popular dairy products. That, according to an examination carried out by TheMarker.

Super-Sol acknowledged a delay in revising the prices in it stores but said that as of Monday, March 1, the problem had been corrected.

Supersol attributed its failure to pass on reductions to shoppers to an accident. “The moment we discovered the problem that we weren’t uploading new prices in a timely way, we investigated it and discovered that instructions by management to lower prices hadn’t reached the professional staff,” Tzvika Zvi Baida, head of customer and corporate affairs, told TheMarker after the problem was first revealed by the newspaper this week. He said Supersol would refund the 123,000 shekels ($31,600) that customers had unnecessarily spent over the last three weeks.

A directive from the finance and agriculture ministries ordering a reduction of dairy products under government price controls by an average of 3% took effect at the beginning of February. This followed a 4.35% reduction in the price that the dairies pay farmers for raw milk after the farmers’ production costs dropped. As a result, Tnuva, the country’s largest dairy, voluntarily cut the wholesale prices paid by retailers for a number of items that are not subject to price controls, including cottage cheese, Emek packaged hard cheese, ultra-pasteurized whipping cream, enriched milk and low-lactose milk. The dairies can’t dictate the price at which retailers sell their products, but Tnuva lowered what it charges the supermarket chains by between 1.5% and 14.2%.

Super-Sol raises prices

Nevertheless, TheMarker has found that some of the retailers didn’t pass along that savings. Some passed along only partial savings, while Super-Sol actually raised the price of one product. TheMarker used the Hebrew-language supermarket price comparison website and app mysupermarket.co.il to compare the prices on 11 popular Tnuva products at seven different supermarket chains on February 1, prior to Tnuva’s price cuts, and on February 28.

The seven chains surveyed were Victory, Yohananoff, Yeinot Bitan, Rami Levy, Mega Ba’ir and two Super-Sol chains, Super-Sol Deal and Super-Sol Sheli.

The comparison showed that in February, Super-Sol did not pass on to customers its savings on any of the 11 items in the survey.

Tnuva reduced by 14.2% the wholesale price of cartons of enriched milk. Super-Sol left the price unchanged, while the other five retailers all lowered their prices by about the same amount as Tnuva had dropped its price.

Super-Sol actually raised its prices for Emek sliced cheese in 200- and 400-gram packages, even though it was paying Tnuva 1.5% less for the products. On Sunday, February 28, the 200-gram package cost 2.7% more at Super-Sol deal than it did on February 1 (and 0.6% more at Super-Sol Sheli stores).

As of February 28, Super-Sol had not reduced the price of its Tnuva 3%- and 5%-fat cottage cheese, an Israeli staple, despite the 2% drop in the wholesale price. The same was true for soft white cheese with fried onion (4.3% wholesale price drop), reduced-lactose 2% milk (4.5% cheaper wholesale) and ultra-pasteurized Hashef Halavan heavy cream (5.1% drop in the wholesale price).

Super-Sol said in response that dairy prices were revised on Thursday, to take effect on Tuesday, March 1 “as is customary with regard to all of the chain’s price changes.” The delay in updating the prices was an effort to sell merchandise that had been purchased by Super-Sol at the older, higher prices, the retailer explained. “The prices at the chain changed on the night between February 29 and March 1.”

This week, Super-Sol reported improved financial results for the fourth quarter of 2015. Gross profit jumped 17% from the parallel quarter in 2014, to 746 million shekels. The gross profit rate was 25.5%, compared to 22.8% a year earlier. Super-Sol attributed the increased margins to an improvement in commercial terms, a change in its franchise mix, increased private label market share and efficiency measures.

Super-Sol CEO Itzik Abercohen told TheMarker the improved profitability was not the result of increased prices or a refusal to pass along savings to the consumer, but he admitted that the chain’s average product price increased last year. He said, however, that the increase was less than 1% and was the result of factors beyond the chain’s control, such as an increase in the price of vegetables.

Super-Sol’s 2015 financial reports show that gross profitability of its dairy product sales increased from 23% in 2014 to 24% last year. The company attributes the increase to sales from its new private label dairy brand. When it comes to the delay in passing along savings last month from Tnuva, one cannot exclude the possibility that it chose not to lower the price of certain Tnuva products because they compete with its own private label, but the chain also chose not to reduce Tnuva products that had no equivalent in its private label line.

Among a large number of items surveyed, Super-Sol’s prices were either the highest of the chains or on the upper end of the spectrum compared to competing retailers. For example, the price of a 400-gram package of Tnuva Emek 28%-fat yellow cheese was 28.40 shekels, compared to 27.50 shekels at Yahananoff; 28.10 shekels at Victory, 28.30 shekels at Mega Ba’ir and 26.90 shekels at Rami Levy.

Tnuva’s 250-gram white cheese with onion cost 5.50 shekels at Super-Sol Deal, 5.20 shekels at Rami Levy and 5.30 shekels at Yohananoff. Cottage cheese (5%) was 5.60 shekels at Super-Sol Deal, compared to 5.20 shekels at Rami Levy, 5.30 shekels at Yeinot Bitan and 5.50 at both Victory and Yohananoff.

Keeping the difference

Liter cartons of Tnuva’s enriched milk were the most expensive at Super-Sol Sheli, at 9.30 shekels, compared to 7.70 shekels at Rami Levy; 7.90 shekels at both Yohananoff and Yeinot Bitan and 8.00 shekels at Victory.

Super-Sol was not alone in pocketing its price cuts from Tnuva. Yeinot Bitan also kept the difference on most of the products checked, cutting the price of just one item, enriched milk in a carton, among the 11 examined. Nevertheless, on some of the items checked, Yeinot Bitan had among the lowest prices of all of the chains surveyed, such as 5.30 shekels for cottage cheese and 5.30 shekels for white cheese with onion. But at 5.20 shekels for both cottage cheese and white cheese with onion, Rami Levy was the cheapest for these items. Yeinot Bitan’s prices for low-lactose milk and ultra-pasteurized heavy cream were in the middle of the pack of the surveyed chains.

Victory, Rami Levy and Yohananoff were better at passing on savings to customers. Victory passed along the entire price drop on most products that were checked, including cartons of enriched milk, low-lactose milk and cottage cheese. But it did not cut the shelf price for white cheese with onion, despite a wholesale price decline of 4.3%, and only part of the savings on heavy cream was passed on. Yohananoff passed on most of its savings to consumers in their entiret.

For Rami Levy, the picture was mixed. On some products a portion of the wholesale price reduction was passed onto the consumer, in some cases the full reduction was passed along and on some products the price drop even exceeded Tnuva’s reduction. For most products, Rami Levy was the cheapest of all the chains for the products surveyed.

Yeinot Bitan said in response: “On average, Yeinot Bitan customers get the lowest prices on dairy products over the entire year, and that will continue.”

The owner of Victory, Eyal Ravid, replied: “Apparently there was a mistake [at the store]. All of the consumer prices went down in accordance with price reductions, and if an item was found on the margins for which that didn’t happen for some reason, its price will be corrected immediately.”

Eitan Yohananoff, the owner of the food retailer that bears his name, responded as follows: “The bottom line is that we are giving the consumer the best prices on the items checked and we also come out inexpensive in a check of a broad basket of products. Nevertheless, for some of the products that the manufacturers lowered the price on, we are trying to improve our position with the manufacturers, because in the end we are not managing to return more than a 2% profit. We do our math, and if in the past we offered prices that were too low, then when we receive a major discount from the manufacturers, we try to give part of it to the consumer and also provide a little for our profitability, because there are a lot of products that we price at a loss due to the great competition.”