Waiting for Super-Sol: Will Food Producers Continue Raising Prices?

Tnuva, Wissotzky and Salt of the Earth raised their prices this week, and like other producers put the social protests behind them

Tara's diary items in Israel.
Tomer Appelbaum

Seven years after the social protest movement hit Israel, known colloquially as the “cottage cheese protest,” turning Tnuva into an object of consumer rage in everything regarding the increased cost-of-living, the dairy giant announced this week it was raising the price of unregulated milk by an average of 2.2%.

A day later, Wissotzky announced it was raising the price of its Magic Garden and masala chai teas by 10%, and Salt of the Earth announced that the price of its unregulated products would go up 6.9% after the High Holy Days.

Then, on Wednesday, Tara followed Tnuva’s lead by announcing it would raise prices on its unregulated products by 1.5% to 3.4%. Prices for cream cheese, fruit yogurts, puddings and yellow cheese and will rise 1.55%, 2.2%, 2.4% and 3.4%, respectively. The dairy firm stated it was raising prices because the cost of raw milk has increased 10% since January 2017.

The four companies are not alone. Two months ago Sugat, the leading retailer of rice, raised its rice prices up to 30%. Outside the realm of food, Kimberly Clark announced two months ago that it was increasing the price of its paper products, among them Lily toilet paper, Molett toilet paper, Nikol paper towels and Kleenex, by rates ranging from 7% to 10%.

Other companies have yet to make similar announcements, including Strauss, which competes with Tnuva and Tara. One food industry executive, speaking before Tara’s announcement, said this week: “If Strauss and Tara decide not to raise prices following Tnuva, they will have a significant advantage. There are almost no price gaps between the milk-producing companies. Consumers go only according to price and sales, so if Strauss and Tara don’t raise prices, they will make Tnuva the most expensive company in the market.”

Apparently, Tara wasn’t interested in seeing how consumers react to Tnuva’s price hikes.

Tnuva deflecting fire to the treasury

It was significant that the four companies raising prices this week bothered to explain their moves to the public. Before the social protests, in contrast, products would become more expensive without prior warning or explanation. Thus did cottage cheese prices soar 48% within three years to a level of eight shekels ($2.17). The prices came down with the protests and have stayed there, proving that the memory of the boycott remains fresh even though seven years have passed.

Tnuva, which remembers well the damage to its image and sales it suffered during and after the protest, did all it could to announce the latest move cautiously. First, it made it clear the price hikes did not include the symbol of the protest – cottage cheese – despite it being an unregulated product. Second, the company was quick to convey the message to consumers that the price hike is being accompanied by cuts in the company itself, such as 5-10% in executive salaries, including that of the CEO, albeit for only five months. Morever, Tnuva tried to deflect any possible ire. It explained that the steps come against the background of rising raw milk costs and the failure of Finance Minister Moshe Kahlon to increase the price of regulated milk by 3.4%, as the governmental price board has recommended.

Finance Ministry officials rejected the claim. “The truth is that Tnuva was waiting for Kahlon and for a rise in regulated product prices, so it could use his approval to raise prices on the rest of its (unregulated) products,” an official told TheMarker. “Kahlon spared the public price hikes of regulated products, as they are the basic products that should be in every home (like yellow cheese, white cheese, leben and butter). There is competition among a number of producers as well as imported products for all the other products, so all of them can decide what they want to buy from among the choices.”

‘No justification’

Wissotzky and Salt of the Earth also tried to deflect indignation, putting the blame on rising raw materials, energy, labor, transportation and packaging costs. However, Ilanit Scharf, manager of Psagot’s research department, said, “If you look at food prices in Israel, there really is no justification for a sweeping price hike.”

Tara stressed, “It is important to note that raw milk constitutes a significant part of the production costs of dairy products.” Yet Scharf, who examined the claim regarding more expensive raw materials, asserted: “At the start of the year there was indeed a global price rise in agricultural goods that lasted through May. However, most of the rise was more or less erased, so you can’t blame this for raising food product prices in Israel, as they tried to do at the beginning of the year.”

Scharf added there were some decreases in raw material costs that didn’t get passed on to consumers. “When you look seven years back, you discover that many goods are actually cheaper,” she said. “Goods like rice, wheat and soy, which are prevalent in the foods we eat, decreased in price. Did anyone pass those onto the consumers? No.”

Still, some costs did go up, like electricity rates, minimum wage and rent (which is relevant for stores). However, these changes don’t require raising prices, as a food industry official explained. “We became more efficient to absorb extra costs, and we launched diverse products to increase sales. We have operated for seven years with an agenda not to raise prices and avoided doing so at any cost,” the official said. “We have no intention to do so now.”

The major food companies have done fairly well financially in recent years, and they don’t seem to be in a dire situation requiring price hikes, despite increased costs.

‘Super-Sol can become Robin Hood’

A central player whose moves could signal whether producers will give a green light to raising prices is Super-Sol, the largest supermarket chain and fifth largest food retailer. If Super-Sol approves the price hikes, the others will fall in line. “We received a request to raise prices and are examining the subject,” Super-Sol commented.

A senior food industry executive said: “If Super-Sol is clever, it can turn itself into Robin Hood by not approving the price hikes. It will be perceived as protecting consumers – right at a critical juncture for its image.”

Yet even without price hikes, Israeli food prices are high. “Certain products are far more expensive than in Europe,” said Scharf. “They used to compare prices to Berlin and discovered enormous price differences for the same products. I gather that the amount of time that has passed since the cottage cheese protest, and the fact that food prices haven’t risen dramatically, are liable to lead to some companies trying to raise prices.”