Osem-Nestle exploits Unilever's cornflakes woes

Nestle cornflakes Photo: PR
Nestle cornflakes Photo: PR

Nestle is bringing its GoFree brand to Israel, as Unilever Israel struggles to overcome the recent salmonella scandal.

Osem Investments Ltd. (controlled by Nestle SA (SWX:NESN)) is taking advantage of Unilever's problems in the breakfast cereal market: sources inform "Globes" that the group is taking action to urgently import Nestle cornflakes to Israel, similar to Telma's Cornflakes of Champions, one of Unilever's most popular brands. Osem has not yet marketed these products in Israel, probably because it believed it had no chance of successfully marketing them in the local market, due to Unilever's uncontested domination of the market for basic cornflakes and breakfast cereals in general.

Osem's new breakfast cereals, called GoFree, will appear with the caption "roasted cornflakes" on the package next to the Nestle brand name. The group will actually market two products: ordinary cornflakes and cornflakes with honey added, which resembles another Telma-Unilever product.

Osem decided to import the new cereals following the company's success in marketing breakfast cereals since the Unilever salmonella scandal. For years a secondary player in the market with only a 25% market share, Osem has now reached a 50% market share, while Telma-Unilever's market share has plunged.

The new Nestle products have not yet reached Israel, but the plan is to launch them here in the coming weeks.

Talks with supermarket chains indicate that Unilever' breakfast cereals sales have not yet recovered from the salmonella crisis, and its brands' sales are still weak. Osem's Cornflakes of Champions and ordinary cornflakes with an extra-strict kashrut certificate, in which salmonella was found, were bestsellers, and were considered the company's leading seller in quantitative terms.

"Unilever still has a 35% market share," one retailer said today. "They are still buying it, but it's not what it was. They are far from the market shares they had, and it appears that things are going at a snail's pace."

Another retailer told "Globes," "Osem has crossed the 50% sales line."

"Globes": If Osem starts marketing cornflakes, have they got a chance?

"Certainly. A few week ago, it was learned that Telma-Unilever breakfast cereals had been infected by salmonella bacteria coming into contact with the packing production line in the Arad plant. This is a serious production malfunction that Unilever Israel managed to conceal for a month, and only then admitted the contamination and promised that the products would not be marketed to consumers. Later, and only after the Ministry of Health forced the company to publish its product series, it turned out that some of the breakfast cereals had been infected with salmonella, including Cornflakes of Champions, extra-strict kosher cornflakes, and Cocoman, had left the factory, and had been marketed to consumers in Israel.

"The consumer is also expressing confidence in Osem brands such as Honey Nut Cheerios and the other children's brands, and tomorrow, he will agree to try Osem's ordinary cornflakes, especially if the price is fair. It's enough for 15% of the public to adopt the product and like it for Osem to take market share away from Unilever that it would take years to do under ordinary circumstances. In cornflakes, no other brand in Israel has succeeded in taking market share away from Telma, even when there were competitors selling cornflakes at a very low price. Osem has an opportunity here to create innovation in the category, bring about competition, and break Unilever's cornflakes monopoly."

Published by Globes [online], Israel business news - www.globes-online.com - on August 23, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

Nestle cornflakes Photo: PR
Nestle cornflakes Photo: PR
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