cottage cheese 311 R.
(photo credit: Marc Israel Sellem)
Tnuva Food Industries Ltd. adopted a policy of raising prices to create value
quickly for the company, after it received a report by McKinsey & Company
advising it that it could raise prices for products without harming demand,
people familiar with the matter told Globes.
Current sources at Tnuva, as
well as former employees, said after Tnuva was acquired by Apax Partners, Tnuva
executives were told to present a “100-days plan” to create value. The plan was
nicknamed “quick wins,” they said.
“Apax commissioned McKinsey to examine
Tnuva’s pricing ability,” a source at Tnuva said. “The examination by McKinsey,
with the assistance of Dr. Shula Pesach, found that demand for cottage
cheese, yellow cheese and white cheese was inelastic, which was why Tnuva could
raise prices by at least 15 percent without affecting demand. Even before the
increase in the cost of inputs, such as raw milk, it was clear that Tnuva was
going to raise prices.”
However, Pesach had warned the company that
raising prices was liable to blow up in their faces, the source
Apax’s policy is to buy companies, increase their value and sell
them within six years. Sources at Tnuva said its managers had been ordered to
present a three-year plan for 2009-2011, with the objective of using Tnuva’s
financial report for 2011 as the basis for the sale of the company by
The current cottage cheese crisis is liable to affect Apax’s plans
if the government intervenes and expands price controls on dairy products, which
could affect Tnuva’s valuation.
The price of the type of Emek yellow
cheese that is government controlled was unchanged in the period 2008-11 – which
may reflect changes in the cost of raw materials – because the current rise in
its price offsets price cuts in 2009. By contrast, the price of cottage cheese
and white cheese, which are not controlled, rose even though the price of raw
materials fell. In 2008-11, the price of nonregulated Emek yellow cheese rose
11.5%, the price of cottage cheese rose 11%, and the price of Tnuva white cheese
The prices are taken from retailers nationwide and based on
Tnuva’s price list.
“After Apax acquired Tnuva, it was explicitly said at
meetings that the company’s value would be increased by raising prices,” a
former Tnuva employee said.
A retailer said: “There have never been price
bargains for yellow cheese because Tnuva dominates the category. It was obvious
that Apax did not come to make a slow profit, but a quick one. Apax’s job is to
make a profit every minute of every day. That’s not a crime. It didn’t buy the
company because it cared about the State of Israel. That’s why the companies
that made the big mistake were Strauss Group and Tara Dairies, both of which are
Israeli-owned and both of which raised prices.”