Food Behemoths May Lose on Law to Lower Prices: Israel Markets

Proposed legislation aiming to trim food prices may hurt Israel’s large supermarket chains and food manufacturers and help smaller competitors.

The government is considering breaking the big chains’ dominance in certain neighborhoods and streamlining food importation through a computerized approval system. Stores would also be required to publish prices on the Internet to allow comparison shopping.

“What they are trying to do here is inject more competitors into each area,” said Meir Slater, an analyst at Meitav DS Investment House Ltd. “This could have a negative effect on the large chains. The smaller chains will benefit.”

If the legislation is approved, losers may be Shufersal Ltd. and Alon Blue Square Israel Ltd., which together account for 60 percent of retail food sales. Smaller discounters such as Rami Levi Chain Stores Hashikma Marketing 2006 Ltd. may gain. Expanded food imports may hurt local food producers such as Osem Investments Ltd. and Strauss Group Ltd.

The food sector has outperformed the TA-100 Index this year, with the third-best total return. Blue Square shares have gained 40 percent and Osem, 43 percent, in the past 12 months. The mid-cap gauge fell for a fourth day, declining 1.3 percent at the close in Tel Aviv amid an index rebalancing.

How negative the proposed legislation will be for big suppliers and retailers “depends on what exactly gets passed and how effectively it gets enforced,” Gil Dattner, an analyst at Bank Leumi Le-Israel Ltd., said by phone.

‘Some Skepticism’

“The market is waiting to see what happens and how it gets interpreted into action,” Dattner said. “As with any regulatory system, there is some skepticism.”

Food prices were catapulted onto Israel’s political agenda when grassroots protests against the cost of living drew hundreds of thousands of people into the streets throughout the summer of 2011. Today, food accounts for about 16 percent of Israeli household monthly spending, with prices up 39 percent since 2005, compared with an average rise of 26 percent for Organisation for Economic Cooperation and Development countries.

In the past 12 months, food prices rose 5.4 percent through October, triple the pace of inflation. While price rises have remained below the midpoint of the government’s 1 percent to 3 percent target in the past three months, November annual inflation, due for release Dec. 15, will probably accelerate to 2 percent, according to the median estimate of 11 economists surveyed by Bloomberg.

Breaking Dominion

One piece of draft legislation requires supermarket chains to get regulatory approval to open new branches in areas where they control more than 30 percent of the market.

One provision gives the antitrust court temporary power to force chains to either close or sell branches in areas where they control more than 50 percent of the market and have at least three stores. Large manufacturers would no longer be able to dictate prices or placement of their products on supermarket shelves.

A separate bill would make it easier and quicker to import food through a computerized approval process. That could hurt food manufacturers Osem and Strauss, as well as closely held Tnuva Food Industries Ltd., Slater said.

“We will do whatever it takes to bring down the cost of living,” Finance Minister Yair Lapid said this week at a meeting of the Knesset committees discussing the proposals. “All means are legitimate.”

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