Anyone going to the soft drink shelf to stock up for the weekend must have seen something that made him do a double-take. The financial media did report weeks ago that Shufersal Ltd. (TASE:SAE) was likely to enter the soft drinks market, among other things by importing regular cola and sugar-free cola produced in a factory in Turkey owned by Japanese company DyDo.
No one, however, expected to see the following sight: on one side of the shelf, a line of Coca Cola bottles, and right after it, a line of Shufersal cola bottles with a design so similar that it could fool even people with good eyesight. The bottle, designed especially for Shufersal, is almost identical. The colors, red and white, are identical; the cap's color and form are identical, and other than the rather modest title, "Shufersal," the bottles are so similar that the naked eye can certainly make a mistake.
This, of course, is no coincidence. Shufersal began doing its own shelf arranging several years ago, and manages and orders its shelf space by itself, a change that increases its power and reduces its dependence on the large suppliers. This fact enables it to position its private label cola on the shelf between Coca Cola and Diet Cola and Coca Cola Zero, all of which are made by the Central Bottling Company (Coca Cola Israel).
The pricing of the new product is also a declaration of war. The official Shufersal unit price is NIS 4.30; however, buying two four-packs reduces the price to NIS 3.12 a bottle. At Shufersal, Coca Cola costs NIS 6.90 per bottle, meaning that the Shufersal product costs less than half as much - nothing less than a revolutionary price. Shufersal's private brands are usually prices 25-30% below the leading brand in the category, so it appears that in this case, the chain has decided on total war.
The combination of the resemblance and the shelf arrangement are an official declaration of war against the Central Bottling Company. In the near future, Shufersal is expected to also begin selling its private brand of mineral water and a broad range of juices, thereby further strengthening the chain's private brand, which reached a 21% share of sales in the first quarter of 2017.
The beverages are manufactured by DyDo, which engages mainly in the development, production, and sale of beverages, among other things to China, Russia, Malaysia, and Turkey. Shufersal's cola is produced by a subsidiary, Della G?da Sanayi ve Ticaret, founded in 2001. Della Gida's production site in Turkey constitutes a strategic point for deliveries to Europe and Israel.
Sales of non-alcoholic beverages, estimated at NIS 2.7 billion a year, are mostly dominated by three companies: the Central Bottling Company (Coca Cola Israel), Tempo Beer Industries (TASE: TMPO), and Jafora Tabori. The cola market in Israel is estimated at NIS 1.6 billion. The Central Bottling Company's monetary market share in 2017 is 89.6%, i.e. almost total dominance. In brands, competitors Pepsi and RC have only a 10% combined market share.
The dream: A market share of over 10%
Today, following the publishing of the company's second quarter financial statements, Shufersal CEO Yitzchak Abercohen confirmed to "Globes" that the retail chains had raised prices by 1.4%, a price increase reported by StoreNext in July, after years of fairly stable prices following the 2011 social protest.
"Globes": The competition you cited in the reports led to higher prices this year.
Abercohen: "Since early 2016, competition has been in the hands of the fourth chain (the discount chains, S.M.), Mega and YOU's 200,000 square meters of commercial space, and 70,000-80,000 square meters of their organic commercial space. Competition against them has really heated up. Where price hikes are concerned, StoreNext cites price increases of 0.3-0.5% over the past year, and these are facts. Keep in mind that the minimum wage rose steeply over the past two years, which also affects the companies' policy. The price increase is minor. We were used to 4-5% before the social protest; this time, the increase is not major."
Do you think that the rise in prices is a trend that will continue?
"I think the increase in prices won't go back to the way it was before the protest. The numbers will be less than 1% for the foreseeable future, despite the increase in the minimum wage, which will increase the chain's wage costs by NIS 200 million by the end of 2017. We're trying not to raise prices."
Will your private cola brand make it possible to keep prices high elsewhere?
"Wherever you bring a private brand, the working assumption has to be that you’re improving your situation, or at least leaving it the way it was, and it won't be affected by the mass of that category. When you get into baby food, you come and buy it at a better price, so I expect to sell more of my baby food, and then I'll put pressure on the supplier to get a better price on his product.
"The public gets a cheap product on the one hand, and on the other hand, Shufersal improves its gross profit margin. You can use this to strike at Coca Cola and anything else."
Are you going to do to Coca Cola what you did to Tnuva Food Industries Ltd.?
"We're not going to do anything to anybody. First of all, we want the good of our customers and our profit margin. I hope that the customers believed in us in the 21% of our products that they're buying now, and that they continue to believe in this."
What market share are you aiming at in cola?
"We're talking here about one of the most important products in the market, and one of the strongest in the world. I very much hope that we get over 10% at Shufersal, and when we get there, we'll be very happy."
Is the design of the product meant to mislead?
"Most models in Europe have the same color. All of them move from black to red."
Will you also make small bottles and cans?
"We'll see how it goes, and we'll make the decision later."
First attempt in 2011 was unsuccessful
It is predictable that the Central Bottling Company will not respond officially to this measure; it will prefer to let Shufersal's brand die off by itself. This is not the first attempt by Shufersal to penetrate the beverages market with a cola. In 2011, following the social protest, Shufersal launched a private brand under the name "The Blue Line." The cola sold was taken off the shelves, because it failed.
Shufersal's private brand is considered the strongest private brand in Israel, and has detracted from the market shares of the major suppliers in quite a few categories. For example, fresh milk products from the Golan Dairy have achieved a 25% market share at Shufersal, and yellow cheese imported from Europe reached a 27% market share in its delicatessen department, thereby taking market share away from Tnuva. The same is true for the chain's baby food, produced by Perrigo US, in the category, in which there are also strong brands, which achieved a 12% market share, and Shufersal's meat, which reached a 58% market share (none of the market shares include the Yesh branches).
The Israeli consumer is known to have a great affinity for brands, but Shufersal managed to break the dominance of big players in both dairy and meat products, and to do substantial damage to Tnuva, which dominated those markets. Is the Central Bottling company likely to feel Shufersal's power, and to suffer any decline in sales? There are more than a few reasons why Shufersal will have a much tougher time in the beverages category. In the dairy and meat market, the brands are regarded as much weaker, and the taste of a product like fresh milk is not very different than that of the competitors, which helped the chain achieve fine market shares.
Published by Globes [online], Israel Business News - www.globes-online.com - on August 27, 2017
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