They always said life wasn’t fair…. The unprecedented steps taken last week by Israel’s Antitrust Authority against Elite, one of Israel’s leading food companies, unfolds just a fraction of the allegedly underhand and illegal marketing policies practiced by food manufacturers, suppliers, distributors and retailers, reports Aaron Priel.
Antitrust Authority investigators raided Elite’s main offices and confiscated documents related to what they claimed were unfair practices conducted by Elite and aimed at suppressing Cadbury’s penetration on the local market.
Even before the raid, the Antitrust Authority announced it would publish “very soon” a new code to regulate trade relationships in the food sector in Israel. Two years ago, antitrust commissioner Dror Strum initiated an investigation of the supermarkets’ arrangements with suppliers.
Given the fact that the Elite/Cadbury battle tainted even further the irregular food trade practices in Israel, which it is hoped might come to an end following the issuance of the commissioner’s new code, the Elite/Cadbury affair has “added value” implications concerning the current and future involvement of multinational food companies on the local food market in Israel.
Foreign influx in past decade
Since the early 1990s, several international food conglomerates have entered local market in Israel, either by establishing strategic alliances with local manufacturers, such as Nestlé and Osem, Danone and Strauss, Yoplait and Tnuva; or by establishing their own marketing and distribution infrastructure.
The Elite/Cadbury affair sent a clear message to existing and potential foreign investor companies regarding what was termed by trade sources as “non-acceptable practices by local manufacturers that conduct unfair and perhaps illegal steps to block the entry of competitive imported products. Taking into account that Israel’s economy is eagerly seeking foreign investment, the Elite/Cadbury affair might frustrate plans on the part of multinational food companies hoping to get involved in Israel.”
Trade sources noted, however, that the new code, when published, “is the right move to put an end to the unfair competition in the country’s food sector.”
Cadbury launched in Israeli late last year
Cadbury launched its operations in Israel in late 2002, following a two-year study. Carmit, a local candy manufacturer, markets Cadbury products in Israel. According to Business Data Israel (BDI), Cadbury allocated US$4.5m to penetrate the Israeli market, with the aim of gaining a 25% share by 2005.
BDI estimated that Israel’s chocolate sales in 2002 amounted to NIS960m ($200m), predicting a 10% increase in 2003. BDI notes that in each of the past two years Elite held 70% of the local chocolate market, followed by Vered Hagalil with a 15% market share.
A report in Maariv Daily, entitled “Don’t Call Her Sweetie,” says that the probe against Elite launched by the Antitrust Authority “unveils the dark aspects of the competition on the food market, providing an unusual opportunity to have a glimpse behind the scenes about a fight between a local giant and a small importer. The question on hand is how the recent moves will have a bearing on Cadbury’s chances of capturing a niche in the chocolate market in Israel.”
The report notes that outwardly Elite appeared to remain apathetic when Cadbury started its campaign. However, to challenge the newcomer, Elite changed pricing strategies, lowered retail prices of several leading products, introduced new products and packaging and invested heavily in advertising.
All this, the report says, “is legal, but at the same time Elite is suspected of exerting pressure on distributors and shops to push away Cadbury’s products, which, if so happened, is illegal.” The report quotes shop owners and distributors who said they were threatened by Elite that if they marketed Cadbury’s products, “Elite would stop any discounts and would cut supply volume as well as worsening trade relations.” However, other traders said they did not confront any such moves by Elite’s representatives.
Did Elite blackmail retailers not to list Cadbury products?
The report added that Elite is suspected of paying shops and distributors for marketing its products “and for not marketing competitors’ products.” As Elite enjoys a monopoly in chocolate bars and coffee, this puts the company in a most sensitive position regarding any move it takes allegedly aimed at suppressing a competitor. “Elite finds itself in a frustrating position as the company is unable to react, explain and defend its stand.”
This is the second time that Cadbury has tried to gain a share of the local chocolate market. The first attempt failed, as with Nestlé, when it started several years ago with little success to market its chocolate in Israel, gaining just a marginal market share of just 4%.
According to Nielsen rating for January 2003, Cadbury had 4.3% share of chocolate bars and 3.8% of snacks, in value terms, “far away from the target set by Carmit.” The report adds that the real question is whether Nielsen’s low ratings reflect Elite moves, “which is uncertain, or perhaps it’s the taste of Cadbury’s chocolate, or is it just a change in consumers’ preferences. The important aspect that has to be investigated is whether Cadbury was given a genuine and fair chance to compete on the local market.”
