Cadbury chocolates arrived in Israel late last year but have failed to make an impact. Foul play is suspected of the dominant food manufacturer Elite. The Antitrust Commission has been turning up the heat to ensure a level playing field, but is it a case of “too little, too late?” Aaron Priel reports from Israel.
Israel’s Antitrust Commission has completed its investigation into suspicions that Elite, one of the country’s major food, confectionery and chocolate manufacturers, abused its monopolistic status to restrict the sale of UK giant Cadbury’s chocolates. The Antitrust authority stated that its investigation “found substantial prima facie evidence of violations by Elite.
Elite’s executives are scheduled to meet with antitrust commissioner Dror Strum for a hearing, after which the commissioner is expected to decide whether to indict Elite and its executives, including CEO Giora Bar-Dea,” as noted in Globes.
The press in Israel has widely covered the entry of Cadbury’s chocolates on the local market. Cadbury chocolates appeared on the Israeli market in December 2002 through Carmit, a local manufacturer of candy. Carmit subsequently accused Elite of violating the Restrictive Trade Practices Law, claiming that the local chocolate company threatened to withdraw the discounts for Elite’s products for any sales outlets that introduced Cadbury’s products on their shelves. The investigation into Elite’s arrangements with retailers, which included promises of discounts and benefits in return for excluding Cadbury, was opened a few months after Cadbury’s products launched on the local market.
Evidence of collusion
The Commission’s investigation has unearthed evidence of collusive action that Elite took to banish the British newcomer Cadbury, a unit of UK confectionery and soft drinks giant Cadbury Schweppes, from the local chocolate bar market. Elite controls 70% of the chocolate market, estimated at US$1 billion a year.
The Commission’s investigative department maintains, following the completion of a comprehensive probe, that Elite has abused its position as a monopoly, and its position vis-à-vis retailers of chocolate bars – supermarkets and grocery stores – “offering discounts and benefits for selling Elite’s chocolate brands, and removing the rival chocolate from the shelves,” as reviewed in Haaretz.
As Elite Food Company was officially declared a monopoly in the chocolate and cocoa sector in 1988, “it was forbidden (as is applicable to other monopolies), to abuse its market power by harming the competition.” Once Elite’s status had been declared as a monopoly, it was also forbidden to enter any exclusive arrangements with its clients – the retailers – that would involve shutting out minority competitors.
Osem-Nestlé chocolates melted away
In December 2002 Carmit began marketing products of the British chocolate giant Cadbury, and since then Carmit changed its name to Cadbury Israel. “The British firm’s entry on the local market was accompanied with great fanfare, with an advertising budget of US$2.5m, and a similar amount for marketing,” according to Rael Goodman, Carmit CEO, who added that “the damage caused by Elite is a fait accompli. “Osem-Nestlé, which two years ago confronted difficulties when it launched Nestlé chocolates on the local market, gave up after a while. At least we paved the way for the next competitor.”
Cadbury Israel’s aims were not moderate: it planned to capture 12% of the market, during the first phase, and aimed for 25% share of the market in the future.
The British chocolate brand hit the television screens, the papers, the billboards and the supermarket shelves. It began to worry the local monopoly, and within a few weeks of Cadbury entering the fray, Elite called a press conference announcing it was cutting prices by 4% to 15% of those of its products which directly compete with Cadbury.
Jostling for shelf space
But the problem was not price or image. It was shelf space and the elbow power to get it. Carmit is a small firm, and had trouble getting Cadbury’s chocolate bars onto the shelves. Two months after a lavish advertising campaign, Carmit could still not convince the chains to make more than 35% of their shelf space available for the UK arrival. “In many cases, the store would not let Cadbury be displayed next to Elite products, and Carmit had to set up their own display-stand units, and these were the types of obstacles which the Antitrust Commission’s investigation unearthed.
In the popular small neighbourhood grocery stores, the situation was even more difficult: Cadbury bars were even less evident, tucked away, or not seen at all. As a result, Cadbury lost sales in its first winter in Israel. To compound its problems, the company failed to win kosher certification for its products before the Passover holiday, a bumper sales period. Six months after launching its Cadbury Dairy Milk against Elite’s traditional red cow bar, Cadbury had captured only 3% of the market.
The current involvement of the Antitrust Commission in the chocolate controversy is termed by trade sources as the Second Act of the Bitter-Sweet Battle.