Leaner, Meaner and Raring to Go

Osem CEO Dan Propper's office reflects both his personality and the modest manner in which he has managed the company for more than 20 years. The pictures in his office are not expensive works of art but rather photos of the company's processing and packaging plants. Propper's office is large, but lacks any symbols of wealth. One photo shows the company's new logistics center under construction near Shoham, off the Trans-Israel Highway. Some $100 million is being invested in the plant, due to be completed in 2007.

"This building will lead us forward into the next 20 years," says Propper proudly.

During the past two years, Osem has focused on increasing efficiency rather than on launching new products. The company's financial reports for the first quarter of 2005 show an increase in both operating and net profits. Still, total sales - NIS 617 million - do not show significant growth.

"Osem is continuing its growth strategy," says Propper, who is highly esteemed in the Israeli business arena and not one for making grandiose statements. "We are focusing on strengthening our veteran product categories and introducing new ones, establishing Nestle's products and improving its product lines. We are also continuing to increase exports, mainly of Tivall." Tivall produces meat substitutes based on soybeans and other vegetable substances.

Osem's streamlining efforts over the past several years have proved themselves.

"Even during the worst years of the recession Osem managed to grow," says Propper, mentioning the factories that have been merged or moved in the past two years, improving company profits. "We closed the ice cream plant in Petah Tikva and opened a new plant in Kiryat Malachi. The plant in Bnei Brak has been moved to Sderot and the Assis factory in Netanya has been moved to Beit Hashita."

"Osem is growing, innovating and constantly streamlining," continues Propper. "Osem is also planning to expand its fresh food operations. A big new Tzabar Salads plant is currently under construction in Kiryat Gat."

New kosher products

The many projected sources for growth in the next few years include Nestle products that will be adapted for the Israeli market, Tivall's expanding exports, and mergers and acquisitions. Cooperation between Osem and Nestle began with the introduction of Nestle's coffee line.

"We control 37 percent of the instant coffee market," says Propper, "and are hoping to match or even surpass Nestle's market share around the world - 51 percent."

While Osem can take pride in Nestle's slow but steady conquest of the coffee shelves, Nestle chocolates have met with less success. Nestle's confections account for just a few percent of the chocolates sold in Israel, and Propper admits that entering this category is complicated.

"When we brought in Kit Kat," he says, "we did not realize that it was perceived as an imitation of [Elite's] KifKef, and not as an original product. Another problem is the chocolate bars, which are quality Swiss chocolate. The [Israeli] public is used to the taste of Elite "cow" chocolate, so we need different things to draw people away from it."

Propper says that Osem is planning to relaunch Nestle's chocolates, but only when the company has enough products to market in Israel to make such a move worthwhile. At present, Osem representatives are checking which Nestle factories overseas can produce kosher chocolate, as Propper wants to import the fullest possible range of products before entering a face-off against Elite.

Propper is also proud of Tivall's performance abroad, where sales account for 55 percent of the company's production. Tzabar salads are also doing well, with a 43 percent market share that Propper has every intention of enlarging. Tzabar's hummus sales already account for 50 percent of the market.

Osem has also recently entered the pet-food market, with success. Osem acquired Dogli from Telma last year, and combined with Purina, a subsidiary of Nestle, now controls 30 percent of the market.

Osem's success in the breakfast cereal category has been less remarkable. Propper prefers to break the market down into small segments when comparing Osem's performance to that of market leader Unilever, which owns Telma.

"The breakfast cereal market is composed of cornflakes - 30 percent - creme-filled cereals - 30 percent - and other - 40 percent. Nestle competes in the `other' category, as there is no point in entering the cornflakes arena, which is a pitched battle between Telma and Kellogg, focusing mainly on price. According to AC Neilsen, in the first quarter of 2005, Osem had a 16 percent share of the breakfast cereal market. Sixteen percent out of 40 percent is not insubstantial, and we are constantly advancing," he says.