Rami Levy to buy private label eggs from Tnuva

Eggs Photo: Einat Levron

Tnuva, Israel's largest food company, is entering the private label sector for the first time.

Tnuva, Israel's largest food company, is entering the private label sector for the first time, sources inform "Globes." The company, managed by CEO Eyal Malis, has signed an agreement to produce private label eggs for Rami Levy Chain Stores Hashikma Marketing 2006 Ltd. (TASE:RMLI). Tnuva has never done this for any of the many types of food it produces.

The supply of eggs from Tnuva to the chain under the Rami Levy brand will begin this June, and will replace 80% of the eggs sold by the chain under the Tnuva name up until now. These annual egg sales amount to tens of millions of shekels annually.

As a matter of policy, like other large food companies, Tnuva has previously not manufactured private brands for the retail chains. These companies do not wish to detract from the power of their own brands. At the same time, in contrast to the many types of food that Tnuva produces itself, including dairy products and meat, Tnuva does not produce the eggs itself; it only markets them.

A month ago, "Globes" reported that in addition to considering the option of selling its egg operations, Tnuva was devising a plan for streamlining its egg marketing activity. The future of Tnuva's activity in this sector, on which it loses money, has been in doubt for a number of years. At the same time, this activity enables Tnuva to retain a broad mix of products, which generates power vis-à-vis the retail chains.

Tnuva's streamlining plan was an attempt to change the picture and avoid growing losses or shutting down its egg activity. Among other things, Tnuva tried to cut costs all along the supply chain, from packaging materials to shipping and transportation costs. On the other hand, like other marketers, it is still unclear to what extent Tnuva will be able to avoid mounting losses from eggs resulting from regulatory changes in the sector, among other factors.

Will the agreement with Rami Levy open the door to production of other private brands by Tnuva for Rami Levy or for other chains, and for production of private brands by other major food producers entering the private brand sector? It is too early to tell. The state sets maximum prices for eggs, with fixed margins, except for bargains offered to chains, and making eggs a private brand does not change the consumer price or the trade terms with the chain. Consumers do not identify eggs specifically with any particular brand. What is clear is that the large food suppliers are watching the strengthening of the private brand with some concern.

Rami Levy asked Tnuva to produce its private brand several months ago, but this was delayed by the possibility of Tnuva selling its egg activity. This may also have been the reason that it was easier for Tnuva to accept the switch to producing a private brand for a chain. Up until now, Rami Levy has marketed a private brand of special eggs, in addition to Tnuva eggs. For consumers, the only change will be in the packaging on the shelf, on which the name Rami Levy will replace Tnuva's name.

Tnuva's annual egg sales are NIS 190 million. In contrast to other food categories, which are strongly identified with dominant brands, consumers have no particular attachment to egg brands.

Israel's consumption of eggs is high. Figures from the Ministry of Agriculture and Rural Development show that Israelis consume an average of 240 eggs annually. Two billion eggs a year are produced in Israel at 2,000 chicken coops, with 65% of total production coming from the Galilee.

How dominant is the Rami Levy private brand? The chain's private brand sales account for 18% of the company's annual turnover, as of the date on which its 2018 financial statements were published. Rami Levy has 2,200 private brand products, including food, cleaning products, toiletries, personal care products, and other non-food items.

Rami Levy acquired a controlling interest in another food chain last year - Super Cofix, which is now also marketing Rami Levy's private brand. Rami Levy is also setting up neighborhood branches under the "Rami Levy in the Neighborhood" brand. The private brand will also be marketed in these chains.

The private brand sector became stronger in 2018, accounting for 6.4% of sales of consumer products. The strongest player in Israel in private brand sales is Shufersal, Israel's largest supermarket chain, which became the fourth largest supplier in terms of retails sales, with over NIS 3 billion in sales of its private brand. Shufersal's private brand sales accounted for 24% of its turnover in 2018, including a private brand of eggs.

Rami Levy confirmed the report. Tnuva did not respond.

Published by Globes, Israel business news - en.globes.co.il - on April 22, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Eggs Photo: Einat Levron
Eggs Photo: Einat Levron
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