Tnuva's Days of Awe

New year, new sales?

The Rosh Hashanah holiday was a good one for the Israeli consumer. The grocery store chains and suppliers know that the past few months have made them increasingly suspicious and price sensitive, and courted them with aggressive sales.

Leading the discounts department was Tnuva Food Industries, which offered a wealth of sales in order to encourage consumers to buy its products, despite the boycott. Tnuva hoped that the sales would enable it to get through the holiday in relative tranquillity, with minimum lost sales. After the holidays, hoped the food company, the public would be less militant and it could halt its sales.

tnuva - Moti Milrod - October 2 2011
Moti Milrod

But reality shaped up differently. The Trajtenberg Committee published its recommendations the week the holiday began, and if/when they are implemented, Tnuva will be forced to publish its financial reports starting in the first quarter of 2012 - even though it's a privately held company.

In addition, two days before the report was published, it emerged that the Antitrust Authority was investigating suspicions that Tnuva allegedly was hiding documents that would have revealed it was using its monopoly status in order to raise prices. Even if this investigation does not find evidence of criminal wrongdoing, Tnuva will not find the quiet it hoped the post-holiday period would bring.

Tnuva knows that its controlling shareholder, Apax Partners, very much does not like investigations or interference in its affairs. A year ago, Apax Israel CEO Zehavit Cohen fired then-Psagot CEO Roy Vermus after he was investigated on suspicion of criminal wrongdoing. "Apax doesn't compromise on these kinds of things," she said at the time.

Meanwhile, the committee examining economic concentration raised questions regarding Cohen's status as chairwoman of both Psagot and Tnuva. If that committee's recommendations are adopted, Apax will not have to sell off its holdings in one company or the other, but Cohen will not be allowed to be chairwoman of both a financial and a nonfinancial company at the same time. Tnuva and Apax need to rethink their affairs. Will Tnuva keep up its aggressive sales? Will it revert to its full prices and face the possibility that sales may drop sharply? Or will it decide to reduce prices before it's forced to reveal its financial reports and its profit margins?

The last time Tnuva faced a serious image crisis - in 1995, when silicon was found in its milk products - it sent milk cartons into space and had Russian cosmonauts photographed drinking from them while floating. So far, every step Tnuva has taken since the current crisis began has been tardy. The discounts didn't help Tnuva improve its image, and the damage only became greater. Over the next few weeks, will Tnuva come off as responding to its limitations, or will it strike a new path?