Buffeted by a decline in the global coffee market and impacted by declining footfall in the wake of the terrorist attacks, the only way is up for Israel’s Elite Industries – but when will the turnaround happen? just-food.com’s Aaron Priel takes a look at the leading food manufacturer and the problems it is facing.
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Elite Industries, one of Israel’s two leading food manufacturers, lost NIS20m (US$4.3m) in the fourth quarter of 2001, compared with slight profits during the same period in 2000. The company’s financial reports, released this week, attribute the losses to the poor performance of the company’s subsidiary, Elite International, which focuses on the international market.
Fourth-quarter sales of Elite Industries in Israel and on overseas markets in 2001 amounted to NIS509m, a decline of 6.5% compared with the same period the year before. “The company’s reports reflected the national mood – neighbourhood kiosks were not a preferred point of sale spot, while the public shied away from entertainment venues such as restaurants and cafes,” according to a report in Haaretz. The decline in sales in the international coffee market stemmed from a sharp drop in the price of green coffee, the raw material used for manufacturing roasted and ground coffee.
Security situation
Elite cited two factors which contributed to the company’s fourth-quarter results: a 5% drop in sales of impulse products, such as chocolate and salty snack foods, and a 9.6% drop in the sale of ‘away-from-home’ products. Together, these two segments generate 12% of Elite’s Israel sales volume, and they were particularly affected by the decline in 
pedestrian traffic and entertainment centre visits. The report notes that in recent years these segments, along with baked goods and cookies, represented the company’s growth areas, “which are all the most vulnerable to the worsening security situation” and the sharp decline in incoming tourism to Israel.
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By GlobalDataElite’s gross fourth-quarter profits, totalling NIS211m were influenced by a greater proportion of supermarket chain sales compared with overall sales, from 48%-50%, “while the percentage of private market sales, including the kiosk sector, fell accordingly,” the report notes.
Moving forward
Moving forward, Elite hopes to increase profits in the less profitable areas by reducing the costs associated with sales and marketing. The company has also changed the organisational structure of its sales and distribution divisions, lowered costs to 2000 levels, sold its chain of stores and reduced costs of export activities by merging them with the candy company.
The company’s activities in the international coffee market also contributed to its operating loss: Elite International recorded an operating loss of NIS35m in 2001, due partly to the depreciation of NIS3.3m in assets in Croatia, the sale of land in Berlin and a NIS3m depreciation of the company’s remaining land there.
The report says that Elite International’s 2001 sales totalled NIS817m; a decline of 7% from the previous year “despite a 9.1% increase in quantity of good sold”. Elite International’s 2001 gross profits were NIS247m, a 22% increase over 2000, representing 30% of turnover, compared with 32% during the previous year. It adds that the company recorded an operating loss of NIS35m in 2001, compared with NIS7.5m in 2000.
“The poor results were due to heavy investments in reorganising activities in Brazil, the loss of company’s prestige after the acquisition of Tres Coracoes in Brazil which was encouraged by the securities authority, the establishment of marketing systems in Ukraine, Bulgaria and Turkey, and the increase in marketing expenses in Romania.”
Things not looking up?
Tom Christie, CEO of Elite International, told Haaretz that he predicts: “Things are not likely to get better soon.” Christie added that the company is focusing on markets with high coffee consumption habits and relatively rapid growth “in order to become one of the top two market leaders within three years”.
He also revealed that the company plans to vary its product line and target the institutional market in order to reduce its exposure to fluctuations in the price of green coffee. He maintains that the company’s dominating share of the Romanian market “and the rapid inroads in Bulgaria and Ukraine prove the company’s strategy is working”.
By Aaron Priel, just-food.com correspondent
