Many people have been asking themselves what global drinks firm Pepsico Inc. (NYSE: PEP) saw when it decided to become a partner in the Strauss Group Ltd. (TASE:STEL) salad subsidiary Sabra Salads Food Industries Ltd. So what actually did it see? A multi-billion dollar market.
Try to recall, for a moment, a scene from "Seinfeld" where George walks over to the table during a wake, takes a snack and dips it in one of the salad dips on the table. He takes a bite and dips again.
This momentary scene is all one needs to get an idea of both the culture and the potential. While we are ardent fans of hummus (chickpea paste) and its fellow products, the Americans are hooked on salad dips. What's the difference? None. It could be hummus or tehina (sesame paste) just as it could be a dairy dip. The difference is the way the product is consumed and perceived, or if you prefer, sales and marketing strategies.
But this is not the main difference. While Nielsen ratings indicate that the Israeli salad market has an annual turnover of NIS 500 million, with the barcode market totaling NIS 451 million, the fresh and tinned salads market in the US has an annual turnover of more than $1.5 billion. If we add to this sum the market for sauces, such as the ubiquitous salsa, the total will amount to several billion dollars. Is it any wonder, then, that more Israeli players are now setting their sights on the US market?
At any rate, this is the market that Pepsico and Strauss, even if they do not declare it publicly, are aiming for. The two giants believe, so it would appear, that given the growing trend towards healthy eating, it is only a matter of time until the fresh dips market, now worth just $270 million, overtakes the tinned dips market, which currently accounts for most of the total market. And this is clear not just to them but also to the other Israeli companies now looking to gain a foothold there.
Suddenly the Americans are eating hummus
The US has also been targeted by G. Willi-Food Investments Ltd. (TASE:WLFD, and Osem Investments Ltd. (TASE: OSEM). Both groups, which currently export a relatively small quantity of salads, are mulling an entry into the US market.
Sabra Salads Co., an Osem group company, whose name is confusingly similar to Strauss and Pepsico's Sabra Salads Industries, now exports $10 million worth of products to the kosher and general food markets in the UK, while Willi-Food has NIS 6 million a year in exports to kosher food markets only in the US, Russia, the UK, and Canada, through Shamir Salads (2006) Ltd.
"As a strategy, we have focused over the years on the local market and West Europe, because of the proximity to Israel," says Sabra Salads CEO Dudi Manevitch. "Wider activity in more remote markets requires a entirely different organization from the one we have at present. I at least believe that we can bring substantial added value to any market. Anyone who knows the US market well, and has followed it over the last four or five years, knows that the growth in this market is due, to a great extent, to the innovation and the ideas conceived by Tzabar Salads, with a good many manufacturers there simply imitating the Israeli market. We served as a source of inspiration for most of them, through "copy and paste." So we, as the source, as the largest producers and the ones who provided most of the innovation in the field, have a lot to add and contribute to this market. Should we decide to go ahead with the move, I believe we will bring a good deal of added value to the US market as well."
I understand from this that you're considering an entry to the market but have not yet made a decision.
Manevitch: "I am not in the habit of sharing my work plans with the competition. We will not enter the market at any price just because a local competitor of ours was successful there. We'll enter only if we're confident we have an advantage and added value to bring to any market we're interested in joining."
But while Osem is still contemplating the idea, Willi-Food is taking concrete steps ahead of a more significant entry to the US market. The company recently acquired the controlling stake in Shamir Salads, a smaller player in the Israeli market, from Shamir Food Industries Ltd. (TASE:SHAM).
"In May 2008, we will open a factory in the US," says Willi-Food CEO and controlling shareholder Zvi Williger. "We're considering the option of production under a new brand, on the basis of Shamir Salads' know-how and technology. We conducted a test in the US. We marketed products to the kosher Israeli food market for a trial period, and also to several general chains in the US. This is a massive market which is only just beginning to develop. Sabra has done fantastic work. It really has educated the US market to eat Mediterranean style hummus and salad dips."
What are your chances?
Williger: "I'd be very happy to be number two. There's plenty of room for a number two, and also a number three, since this is a massive market which, if it is successful, will be far larger than the State of Israel, and I believe it will do just that. Salads are healthy, convenient products. The great thing that Sabra did is that it went for the 'Main Street Market.' You now see it at retail chains, and Americans are eating hummus - and that's fantastic. I'm sure that Pepsico, with its marketing network, will do a tremendous job for Sabra."
Won't this make it difficult for you to enter the market?
"Is it any easier in Israel? We've been up against competition throughout our life, and we don't have any problem with it. We're still getting to know the players, but the market is so big, there's room for everyone. We have a phenomenal know-how."
According to Williger, the company has a strategic plan to expand to all the countries to which it currently exports Shamir Salads products, and to other countries as well. "The main reason why I entered this business is Shamir's potential on the global market. Ukrainians won't eat hummus but they love eggplant salad," he says.
Another Israeli exporter of salads, also on a small scale, is Miki Food Product Fish & Salads (1992) Ltd. The company exports products to kosher food and general markets in the US, Canada, the UK, France, Belgium, the Netherlands, Germany, Italy, Hungary, Austria, Denmark, and Hong Kong. The company's exports total $2 million. For the sake of comparison, its sales in Israel total NIS 130 million.
"I haven't seen anyone scooping up hummus with a pitta there, but I believe that they will eventually learn how to eat hummus, and what happened in Israel will also happen abroad," says Miki Food joint managing director Moshe Kaufteil. "It is a good, healthy, and cheap product. Generally, people worldwide are developing a taste for salads. The most rudimentary factory in Israel makes better salads than the top factory in Europe. Israel knows how to make salads. You'll see plenty of hummus on the shelves of supermarket chains in the UK, but none come anywhere near in taste."
Manevitch, whose company has been exporting since the 1990s, also feels that the European market can be educated. "In countries like the Netherlands, and Belgium, we simply opened up the general market. Over the years, we spent our time educating and teaching customers what hummus is and its uses. We compiled hundreds of thousands of recipes and added them to products. We collaborated with leading retail chains on articles in newsletters, and set up tasting stands at sales points, all with the aim of exposing consumers to the wide variety of ways one can use our products, especially hummus.
"The potato salad market in Germany and the Netherlands is astronomical, but we're not competing against products like these. Our products are classified as ethnic salads, and that's our niche. There are countries where we are the entire market and others where they have never heard the word hummus. We live in the cultural world we grew up in, but we're talking here about markets where most of the consumers have never been exposed to this kind of food, so this is a long-term process of product exposure. I definitely believe that the market will continue to grow. I believe the market in Western Europe could reach $100-150 million," Manevitch adds.
No change in consumer habits
This, apparently, is the reason for Strauss's phenomenal success with the Sabra brand. Not only has Strauss entered a market through the acquisition of the controlling stake in Sabra, thereby giving it a good platform from which to operate, but it also brought with its know-how and technology from Israel, without any pretensions to change consumer habits. In other words, it entered the US salad dip market with a lot of added value and neither the desire nor the aim of educating Americans to scoop up hummus with pitta bread.
According to figures published by Strauss, in the first nine months of the year Sabra recorded an 82% increase in sales to NIS 81 million. The company says that Sabra is the most popular brand in the refrigerated salad dip market in the US, accounting for 50% of the growth in the entire category last year. Furthermore, figures published by US market research company Information Resources Inc., and circulated by Strauss, show that in the twelve weeks ending July 10, 2007, Sabra beat all its competitors, leading the category with a 27% market share in financial terms.
Considering the competition Sabra is up against in the US market, this is no mean feat. Its largest rival is the Athenos brand, which is owned by US giant Kraft Foods Inc. (NYSE: KFT). Kraft, it should be noted, currently has a market cap of $54 billion, and it recorded a net profit of $3.1 billion on $34.4 billion turnover for 2006.
Athenos has always led the market in the past and remains a key player in it today. According to Strauss's figures, Athenos has a 22.5% market share in financial terms. Its product range includes hummus, a range of Mediterranean products and dairy dips, a category in which Sabra is not yet a player, although this is about to change. A few months ago, Strauss acquired, through Sabra, a dairy in the US, and it is now in the process of converting it for the production of dairy dips.
But there are also two other significant players in the US market - Tribe Mediterranean Foods LLC and Cedars Mediterranean Foods Inc. Tribe says on its website that until 2006 its sold its hummus under the "Tribe of Two Sheiks" brand. According to Strauss, it controls a 16.4% market share in financial terms.
The controlling shareholder in Cedars, who is of Lebanese extraction, was previously a small producer which grew at an impressive rate. According to Strauss, the company controls a 13.2% market share.
It is quite possible that one of the advantages that Athenos has had over Sabra is Kraft's phenomenal distribution network. It is now losing its grip on this advantage with the entry of Pepsico to Sabra, especially given the former's expertise in snack foods with a notable synergy with dips. So how far can this grow? Strauss and Pepsico believe the sky is the limit.
Published by Globes [online], Israel business news - www.globes.co.il - on December 17, 2007
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