Note the following figure: since the beginning of the year, sales by Unilever Israel have gone up 0.6%, while the rest of the FMCG market experiences an opposite trend - a 0.4% decline. This means that Unilever has consolidated its market share in a period in which the Israeli customer could have been expected to punish it for its salmonella oversight and severe crisis in trust that followed; however, the customer remains loyal to Unilever's strong brands.
The company is particularly strong in the cereal market, which it has singlehandedly controlled for years, via the Telma brands. It also has exclusive control of mayonnaise and margarine sales, is the largest player in the ice cream market and sells the most deodorants, with Dove, Rexona and Axe brands.
Unilever's local market share is significantly larger than its share overseas. According to Storenext, in the first nine months of 2016, Unilever controlled 4.5% of Israel's FMCG market. In the US it controls only 1% of the market and in Canada 1.8%.
According to Victory supermarket chain CEO and controlling shareholder Eyal Ravid, "Unilever's power is also manifested in its ability to maintain high prices. When it comes to sell to a chain, it sells Bagels, as well as ice cream, Dove, Click, Pinuk, deodorants and more. It is also a brand company."
"A retail chain sees through a customer's eyes. It does whatever the customer asks. When customers are ready to pay NIS 15 for cornflakes, even though it costs NIS 10 abroad - the retailer has no bargaining chips with Unilever; moreover, any branded import to Israel, such as the import of Nestle or Kellogg's cereals, has a high reference point in terms of consumer prices."
It seems that other than its ability to charge high prices, Unilever's status allows it to pursue steps that clearly harm the consumers. For example, about two years ago, "Globes" revealed that Unilever reduced the number of units in a package of Krembo Strauss from 40 to 32 units, thereby raising the consumer price by 27%. The new package is remarkably similar to the old package, and we can assume that most consumers have not even noticed the change.
Even earlier, shortly before the cottage cheese boycott, the company had reduced the amount of cereal in a Delipecan package from 450g to 400g - a 11% reduction. The price to the retailer was cut by only 5%, meaning that the price to the retailers by weight was 10% higher.
These two changes did not draw any responses. They did not affect the sale of these brands. This is probably what pushes Unilever to pursue the same trend of shrinking packages and indirectly raising consumer prices.
Unilever controls the Click chocolate brand. In the past, it had been sold in 80g packages. Then, the quantity decreased to 75g and 80g packages vanished. Unilever continued producing other products of this brand, this time with packages of only 70g. And anyone who bought or considered buying one of the new Click products could have noted that it is sold in a 65g package.
Ravid said that even he missed the smaller packages. "It is a shame, I did not notice," he says. "We have not been examining this under a microscope all of the time. When a company controls a market share of 50% in chocolate snacks for children - and it is safe to say that there is no home in Israel without Click snacks - it can do whatever it wants."
A major managerial blunder
In July 2016, Unilever's subsidiary Telma was rocked by a scandal in which salmonella was found in its cereals. This is not only a particularly severe and exceptional contamination in dry food products; it had also been concealed from both consumers and retailers selling the company's brands to the public.
In September 2016, less than two months after the exposure of the first contamination, the company's cereals were contaminated again, at the same plant. This time, it was the Cariot brand and again, Unilever did not bother to explain to the customers why it had encountered such an severe contamination for a second time, in such proximity to the first instance. Either way, the recurring contamination indicates that the source of the first contamination had not been properly handled.
As expected, bitter criticism was levelled at Anat Gabriel, who assumed management as CEO of Unilever's Israeli branch in January 2013, after a long line of positions in the company.
"After such a traumatic incident, Gabriel should have camped out overlooking Telma's plant for a month and check what exactly was going on there," a senior retailer told "Globes".
He added, "In terms of management, there is a huge discrepancy in her capabilities, between the marketing aspect and the professional aspect of managing plants. She should have reached a condition in which such a malfunction does not repeat itself after two months and, instead, her lesson was that 'I will notify the media next time.'"
Is this surprising?
Not at all. I do not think she will stay in this position for long, certainly not two or three more years. I think it will be for no more than a quarter, until the end of the year."
"An international company must constantly generate innovation in its products and this does not happen. Moreover, it has to go into details in work processes. And finally, her media conduct is somewhat smug. She came with an overconfidence that had not been warranted."
Ravid said that in any case, Unilever got 'pummeled' three months ago and still has not fully recovered. He said that the regulator has not yet said the last word regarding the company's fields of activity and that it will not be long before Unilever's Israel operations are curtailed.
Unilever said in response, "We are pleased that the consumers show their trust in the company's products. Unilever will always continue acting for the benefit of its consumers, whether in its high degree of innovation, in improving quality or in the nutritional profile of its products."
Published by Globes [online], Israel business news - www.globes-online.com - on November 1, 2016
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