"Booming chocolate demand in Israel is attracting international confectionary manufacturers such as Kraft Foods Inc. (NYSE: KFT) and Nestlé SA (SWX:NESN), with the small but growing market giving corporations an extra benefit: a gateway into the Middle East," says "The Wall Street Journal". This could come at the expense of Israeli chocolate makers, such as Strauss Group Ltd. (TASE:STRS).
"The Wall Street Journal" adds, "With demand in the traditionally strong markets such as the US and Europe remaining slack during the economic downturn, chocolate companies are looking for new pockets of consumption.
The paper cites a study by Leatherhead Food Research analyst Jonathan Thomas, who says, that although Israel represents only 1.5% of global demand, its chocolate market is forecast to grow at a rate of 5-10% in value terms this year, having grown by almost 40% over the last five years in the same terms.
Last month, Nestlé bought an additional 4.99% of Osem Investments Ltd. (TASE: OSEM), to reach a 58.76% stake. Meanwhile, Kraft Foods Israel said it extended its product line range during 2011, predominantly through its Milka brand. The company also said its long-term plan is to grow its Israeli business with Milka and other products.
"The Wall Street Journal" quotes Ika Cohen, owner of Ika Chocolate, a boutique in Tel Aviv, as saying, "The growth in Israeli chocolate consumption has been fueled by two main factors - health and indulgence. Both factors have had an extremely positive impact on chocolate sales despite the global economic downturn."
Another factor supporting the success of international confectionary companies in the Israeli market concerns recent allegations that the country's market leader, Strauss has been overcharging for its products. "If more consumers turn away from the market leader Strauss to international confectionary companies, these international entrants will see this as an opportunity to invest and acquire market share," said Thomas.
The paper also quotes Rabobank soft commodities analyst Keith Flury as saying, "There is a strong relationship between growing GDP and the consumption of cocoa-related products, generally first powder, and then butter. Companies see a growing nation like Israel and want to sell them consumer goods such as cereal and ice cream, both of which increase cocoa demand."
Earlier this week, the Bank of Israel raised its 2012 GDP growth forecast to 3.1%, but warned that this depends on stability in Israel's geopolitical situation and continued global economic recovery.
But all is not sweet. "The Wall Street Journal" quotes DS Invest analyst Meir Slater as warning, "Certainly political instability shall deter investors from moving into the chocolate sector. Not only in the chocolate sector, but in any field."
Published by Globes [online], Israel business news - www.globes-online.com - on March 28, 2012
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