Israel - A Tough Year for Israel's Leading Retailers08 Sep 2011 • by Natalie Aster
Israel's leading food retailers are having a difficult time amid a wave public protests aimed at high food prices. Across so many countries, high food prices have been a real issue in 2011. With consumer confidence still not what it was pre-2009 in Israel, absorbing higher prices has been a real challenge for consumers. We note, however, that our commodities desk expects food price inflation to moderate over H211.
Tough Year For Israel
Source: Bloomberg, BMI
Israel's largest food retailer Shufersal (Super-Sol), with a store network in excess of 250, has seen its share price fall by about 30% in the year-to-date, which is about 5% below the TA-75 Index and a considerable underperformance against BMI's food retail index as the first chart illustrates. Both Shufersal and one of Israel's largest food and drink companies Strauss have lowered prices as protests led by students about the high prices have increased.
Israel's mass grocery retail (MGR) industry is dominated by two retailers, with Shufersal leading with an estimated market share of 40% compared to Blue Square's 20%. Both retailers have store assets in the four core hypermarket, supermarket, convenience and discount segments. Their strength has effectively kept out investment from leading international MGRs that would otherwise have probably entered the market, particularly given consumer spending power and Western tastes and preferences. However, it is also true that a relative lack of growth opportunities is another reason why foreign retailers have not been too interested in Israel.
Source: Bank of Israel, Central Bureau of Statistics, BMI
Israel's food retail industry, like most of its consumer industry, is quite mature. Growth opportunities are unlikely to be dynamic, with incomes quite high and so much of the population (about 7.5mn) already under the umbrella of organised retail. To 2015, BMI is forecasting headline MGR sales to grow at a compound annual rate of just 2.59%, which reflects how developed the industry has become. With operating margins not quite what they were pre-2009, the health of the consumer remains very important.
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