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Osem Seeks Growth Abroad as Home Market Cooling: Israel Markets

Israeli foodmaker Osem Investments Ltd. (OSEM), whose sales have risen for 21 consecutive years since its Tel Aviv listing, is looking to boost international operations as regulation and rising prices curb growth at home.

A new international division to open in February will focus on expanding sales of meatless items, prepared salads and kosher food in Europe and the U.S., Chairman Dan Propper said in an interview last week at the company’s headquarters near Shoham, Israel. Switzerland’s Nestle SA (NESN) has been a partner since the 1990s, and now has a 63.7 percent stake.

“We are seeing good opportunities for growth in Europe, especially in the Scandinavian countries, and we are contemplating an expansion of our Czech factory, which supplies these markets,” said Propper, 72, who served as Osem chief executive officer for 25 years and president of the Manufacturers Association of Israel for six. “We are fully dedicated to expanding in Europe, the U.K., and the U.S.”

Osem, whose most famous product is the peanut butter-flavored snack Bamba, is casting abroad as the government, under public pressure, looks for ways to lower food costs. Food prices are up 39 percent since 2005, compared with an average 26 percent rise for Organisation for Economic Cooperation and Development countries.

Propper didn’t give a specific goal for changing the local-overseas mix at Israel’s No. 2 foodmaker, which was established in 1942 and now has a market value of 9 billion shekels. Osem currently earns 84 percent of its revenue locally, while its chief rival, No. 1 Strauss Group Ltd. (STRS), earns more than 50 percent overseas.

Tax Burden

Propper said direct and indirect taxes, accounting for 27 percent of the average cost of a product, push up Israeli food prices. Tariff protection for farmers also increases costs of locally made processed food, he said. The government is studying proposed legislation to trim food bills by breaking the dominance of big supermarket chains such as Shufersal Ltd. (SAE) and streamlining food importation.

Osem’s stock gained 32 percent last year and now trades at more than 18 times projected 12-month earnings, compared with a multiple of about 13 for the benchmark TA-25. Strauss added 36 percent as food companies rebounded from drops two years ago over mass protests against the cost of living.

“Osem’s multiples are high, and with the market under pressure in Israel, growth potential needs to come from abroad,” Liat Glazer, an analyst at the brokerage unit of Excellence Nessuah Investment House Ltd., said by telephone. “So far Osem is struggling to deliver on that.” She has an underperform rating on the stock.

Strauss Ahead Overseas

Osem sales in Europe rose 1.4 percent to 357 million shekels ($102 million), or 9 percent of total revenue, in 2012. In the U.S., the company boosted sales by 7 percent to 300 million shekels, or 7 percent of total sales. Strauss has pulled ahead overseas by purchasing a prepared-salad company in the U.S. and becoming one of the world’s biggest buyers of green coffee.

Osem is now jostling to unseat Strauss as the No. 1 seller of the popular Mideast chickpea spread, hummus, in the U.S.

“We are strengthening our position and we are adding all-natural products in that area that are appealing to the American consumer,” said Propper, who also sits in the board of Teva Pharmaceutical Industries Ltd. (TEVA) “I can tell you that wherever we are on the shelf we have a 20 percent market share.”

To contact the reporter on this story: David Wainer in Tel Aviv at dwainer3@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

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