Published to coincide with the UJC General Assembly in Jerusalem, the 'Post' looks at key players in the Israeli economy.
By JJ LEVINEelite cake 88(photo credit: )
While Israelis have received wide acclaim for their achievements in hi-tech arenas such as software and electronics, few would expect to see a major corporation springing from Israel's domestic consumer market. But Strauss Group has done just that, moving in the past few years from a leading Israeli food and beverage producer into a global player in coffee and other areas.
Five and a half years ago, Strauss merged with another household name in Israel, Elite, in the country's largest-ever merger. At that point the company, which was then named Strauss-Elite, made a strategic decision not to settle for dominance in the local food industry, but to focus growth on overseas markets, including developed markets such as the US and Canada, but also emerging markets such as Brazil and Eastern Europe.
"It's not at all obvious," said Erez Vigodman, CEO of Strauss Group. "We're talking about a truly Israeli company, a 'traditional' [non hi-tech] manufacturer, which we have turned into a large multinational corporation."
Indeed, the decision to divert attention from its operations in Israel, where Strauss benefits from strong name recognition and broad market share with flagship brands such as Milky pudding, Achla hummus and Elite Shokolad Para (cow chocolate), to enter an international arena dominated by corporations many times its size, was an audacious one. But it has seemed to have paid off, as Strauss already sees some of its most significant growth from its overseas activities, which now account for nearly 50% of the company's $1 billion revenue (as of 2007).
Vigodman elaborated on the company's winning business plan. "There are three components to our business philosophy," he said. "First is to focus on businesses where we have a competitive advantage. Second, choose the segments of the food industry which are most important to consumers. And finally, choose the right target markets."
That final point is where Strauss has an advantage as a small, expanding company. It has the entire gamut of worldwide markets to choose from, and has aimed primarily at emerging markets, where improving standards of living and the rise of a middle class are feeding strong growth in consumer purchasing.
"Israel was a good training ground," said Vigodman, referring to the cut-throat competition that taught the company how to fight for market share. But to move into global commerce, the company had to refocus itself and shed many of the products that did not lie at the core of its business strategy.
The company decided to focus on three fields: coffee, health and wellness products, and "fun and indulgent" offerings such as the Max Brenner luxury chocolate shops.
The company's growth in the coffee industry has come mainly through mergers and acquisitions, such as the 2005 merger which created Santa Clara Participações, the second largest coffee manufacturer in Brazil.
Similar moves were made in developing countries in Eastern Europe, including Poland, Serbia and Russia.
In 2004 Strauss purchased 50% of Sabra, the American hummus and Mediterranean salads manufacturer. Under the management of Strauss Group, Sabra grew into a major component of the trend towards healthy Mediterranean salads, a trend which Pepsico decided to buy into with its purchase of the other 50% of Sabra earlier this year.
In September 2008 the Group completed the process of forming a partnership in Strauss Coffee with TPG Capital, a leading global private equity investment firm. According to the agreement between the parties, TPG acquired 25.1% of Strauss Coffee immediately against the injection of $293 million into the business.
Vigodman is not worried about Strauss's exposure to volatility in emerging markets such as Brazil and Eastern Europe, saying that while no company will escape the current financial crisis unscathed, the food industry is likely to be less affected, and Strauss has the strong financial and business fundamentals needed to weather the downturn.
"You have to take a longer-term perspective. When you look at the long-term picture, it is clear that emerging markets will continue to play a vital role in the world economy - if only for the fact that 80% of the world's population lives in emerging-market countries," Vigodman said. "But there are long-term trends of improved standards of living and increased consumer spending which can be seen as these markets enter the global community."
Indeed, Vigodman called on other Israeli firms to also make the jump into international commerce. "There is an unfulfilled potential for Israeli firms to turn global. In 1995, only 25 or so of the companies on the Forbes 500 list were from emerging markets; today, there are some 65-70 such companies. So there is no reason why a local Israeli company can't make it on the larger scale."
But Vigodman is well aware of the importance of the human face in a multinational conglomerate. Strauss has received high rankings in such indexes as Ma'ala, which assesses social and ethical performance, as well as high rankings as one of the best companies in the country to work for, according to surveys of both workers and management.
"It's not about one person or another, one ranking or another," he said. "What makes Strauss different are the less tangible things - the leadership, business culture and vision."
Ofra Strauss, speaking at a recent TASE-sponsored conference which crowned Strauss as one of Israel's five model companies, agreed: "The fact that both Strauss and Elite were started as family businesses contributes to a large extent to the way that the company looks today, and we try to conserve the legacy and the values of the founders. The fact that we [the Strauss family] continue to hold such a strong interest in the company commits us to transparency and good governance, and it is that, together with our family values, that has made the company a success."
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