For months, there have been media reports that meat prices must rise. And indeed, they have risen. Retailers report to "Globes" that since the beginning of the year the price of frozen meat has gone up steeply.
It isn't that they have started giving the calves gourmet food. Their fodder remains the same, and its global price has not risen. So what happened? Supply fell, and demand remained the same, ensuring that prices would go up.
That is why representatives of Tnuva have been scouring Israel for calves. But they met with a surprise. Every time they approached a grower with whom they did not have an agreement, they found that Neto owner David Ezra had been there before them. The company with the slogan "to grow up in an Israeli home" discovered that when you prefer overseas products to domestic ones, home won't always wait for you.
Tnuva imports the calves it slaughters at its "Adom Adom" brand factory from Australia. The small growers in Israel meanwhile shook hands with Ezra, the undisputed ruler of the Israeli frozen and wet-aged meat markets who is now starting to become a significant player in fresh meat as well, also importing the frozen meat for supermarket chain Shufersal's (TASE:SAE) own brand.
Shufersal's entry into the fresh meat sector made clear that competition can even overshadow a concentrated effort to sell a story of rising prices, and that prices can fall.
Shufersal announced prices lower by 10-15%, and in one case 41%, than the prevailing prices of fresh meat in Israel, and brought everyone don on it. The fact that profits on meat are high was a well-guarded secret. Now the dam has been broken.
Tnuva's messages
Shufersal launched its "Angus" brand a week ago. Shufersal not only chose a successful brand name, but backed it with the quality of the imported meat, which comes from Angus breed calves, known for their especially good meat.
The launch was accompanied by an advertising campaign, and anyone visiting the chain's meat counters would have found that the demand for "Angus" was very high. During observation of one meat counter from the side for about half an hour, no-one was heard asking for the "Adom Adom" brand, which, needless to say, Shufersal was not promoting.
Tnuva saw what was happening. If until this week it had managed to create an impression of business as usual, Tnuva then betrayed the pressure it was under. The word pressure was not spoken, but everything Tnuva did broadcast it in a way that left no room for doubt.
It began with the deliberate leak to the press and media. Tnuva, which sells the "Adom Adom" brand at the highest prices in Israel, stated that not only would it import fresh meat from Poland, but that the price of this meat would be lower than Shufersal's. And if that was not enough, it said that the prices would be similar to prices of wet-aged meat, or only a little higher.
Every Israeli consumer knows that the gap between the price of fresh meat and the price of wet-aged meat is very wide. Tnuva thus conveyed the message that the prices of the fresh meat from Poland would be 30% lower than the prices of Shufersal's fresh meat.
Through this leak, Tnuva sought to convey several messages at once. The first message was to the Israeli consumer, who likes buying cheaply. Tnuva told consumers this week: relax, there's no hurry. Don't rush to stock up at Shufersal, because within a day or two you will have a cheaper alternative for fresh meat.
The fact that the meat that Tnuva will import from Poland won't land here before the Jewish New Year, and even if it does it will be in minimal quantities, makes clear that Tnuva was trying to hit Shufersal below the belt. This is a crude attempt to frustrate Shufersal's move and harm its relations with consumers.
The second message was aimed at Shufersal: what you are doing, which damages our power, won't go easily for you. Think hard before you continue.
Tnuva, we should recall, is the main casualty of the launch of Shufersal's own milk brand. Only Tnuva realizes that the direct damage is only a milestone on the way to something much broader.
If Shufersal can launch its own milk brand, the day is not far off when the other chains will follow suit. True, at present there are capacity problems at the Ramat Hagolan Dairies, which produces the milk for Shufersal's brand, but who says that in a country in which the cost of living is a fixed item on the public agenda, the government will not support the construction of a new dairy tomorrow that could bite into Tnuva's market share? Tnuva is looking years ahead, and sees the risks.
The third message, no less important, is to Ezra, owner of Neto: if you can do it, so can we, and if you bite into our pound of flesh, in every sense, we will take bites out of your aged and frozen meat.
One way of doing so is to import cheap fresh meat to compete with the wet-aged meat. Another is to start selling frozen meat. Sources inform "Globes" that "Adom Adom" will produce frozen meat for Rami Levy Chain Stores Hashikma Marketing 2006 Ltd. (TASE:RMLI), branded "Tnuva". The aim is to expand sales to the entire market.
"They can't say no to me"
According to data presented by Shufersal, before the Angus brand was launched , "Adom Adom" was responsible for 58% of fresh meat sales in Shufersal.
In answer to our question who will be harmed most by the launch of "Angus", Shufersal CEO Itzik Abercohen said, "The launch was very successful and the entire category was up in the launch week. The other players were hurt although not extremely so. Shufersal will prove that it knows how to enter sensitive fields like milk and meat - very successfully."
Was the aim of the leak by Tnuva that it is importing meat from Poland to hurt what you have done?
"I hope that the food market has learned from the past to compete fairly. All measures to block competition in the modern world can no longer be applied and the public won't accept it."
Will you buy the meat that Tnuva imports from Poland?
I don't know because we haven't spoken about it yet. If I want it they might say no."
Go explain to the consumer
Tnuva wants to sell cheaper meat but not hurt its "Adom Adom" brand, which apparently justifies high prices. Such damage might force "Adom Adom" to lower prices. It's not clear if Tnuva understands the size of the mistake they have made.
And the way that Tnuva plans making amends for the mistake by not branding its meat from Poland neither as "Adom Adom" or even Tnuva is naive. One source at Tnuva said, "Everybody who sells it can do what they want, it can even be called private brand." In reality, it can be assumed that every chain that sells the meat will tell customers at the point of sale that it is Tnuva meat.
Tnuva says that the meat coming from Poland is of lower quality that "Adom Adom," which is bought mainly from Australia and a small amount from Europe and even young male calves in Israel. So while Shufersal is declaring that its "Angus" meat is from a select breed of calves, "Adom Adom" has many breeds of calves including Angus.
Now explain to the consumer that there is a difference. Tnuva is drawing a parallel to chicken, which it treats as a commodity, and Israeli consumers flock to buy not seeing any differences. The law of demand is likely to be similar for meat.
When the future damage to "Adom Adom" becomes certain, it will be no surprise to see Tnuva try and take advantage of tax-free imports of meat to hit back at Shufersal.
Companies are allowed to import 5,000 tons annually of fresh meat, subject to regulatory approval, but for many years this quota has not been used. Shufersal (through Neto) is the first to make serious use of it. Tnuva will bring its calves from Poland by boat, which is much cheaper than flying in beef from Argentina.
Published by Globes [online], Israel business news - www.globes-online.com - on August 25, 2015
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