Israel’s Osem food company, a Nestlé subsidiary, has marked an all-time record in its 62-year history. Third-quarter financials indicate record sales, operating profits and net profits, while CEO Dan Propper has plans that will make the company even more competitive. Aaron Priel interviewed him for just-food.
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In an exclusive interview with just-food, Propper describes the development of the company, now one of the two leading food manufacturers in Israel, to emerge also as an international player with regard to several products. Nestlé entered Israel’s food industry in 1995, upon purchasing 10% of Osem’s shares, and over the years Nestlé increased its holding in Osem to 52%, thus controlling it and contributing to its development.
The move also provided Osem with Nestlé’s immense arsenal of knowledge of food technology, management and logistic operations, increasing the variety of products, changing packaging and providing assistance in applying modern methods for developing and manufacturing new products.
Propper commented that Nestlé invests US$600m annually in research and development, in its 20 R&D centres throughout the world. One of these centres is located in Sderot, Osem’s state-of-the-art manufacturing plant located in the northern Negev in Israel. This centre’s main activity is developing and manufacturing snacks.
“As we developed to becoming a global company utilising modern production technologies, Osem is in the forefront in introducing high-quality, and at times unique, food products, thus making us more competitive in regard to other Israeli food manufacturing companies,” Propper noted.
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By GlobalDataMeteoric growth
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Dan Propper, Osem CEO |
Osem’s growth has been meteoric since it joined forces with Nestlé. As the company’s records show, its growth was 3.5 times faster than the growth rate of other Israeli food companies. This is also attributed to the entry into manufacturing and marketing new products, hitherto not attended by Osem, such as ice cream, frozen and chilled foods, as well as importing and marketing Nestlé’s products on the Israeli market, such as coffee, breakfast cereals and pet foods.
Altogether, Osem operates 11 manufacturing plants throughout Israel employing 4,700 workers. In recent years, the company’s growth has been expressed by frequent acquisitions of food companies, aimed at increasing its share of Israel’s food market. One of the plants that has been acquired in recent years by Osem is Tsabar Salads, which in the past held some 20% of the local market share. Now Tsabar Salads registers a 50% market share, “and we intend to increase our share through the new US$20m plant now under construction in Kiryat Gat, in the southern part of Israel. The manufacture of ethnic salads is one of the country’s fastest developing sectors, not to mention the significant increase in export volume of ethnic salads to Europe and the North American markets,” says Propper.
When Nestlé Ice Creams were introduced on the local market in 1996, this brand held just 22% share on the local ice cream market, while in 2004 its share grew to 38%, competing head-to-head with Strauss-Elite. Osem has also entered the fresh and chilled poultry market, by acquiring two leading processors and amalgamating them into one operating entity, which competes with Israel’s food giant Tnuva.
Tivall the jewel in Osem’s crown
Another successful acquisition is Kibbutz Beit Hashita’s pickled vegetables factory, which has emerged as a leading supplier of a large variety of pickled vegetables and fruits. But the jewel in the crown of Osem’s acquisitions is Tivall, a technology-based plant specialising in the manufacture of meat analogues and meat alternatives, and the development of added value products, such as the combination of vegetables in its wide range of products.
Tivall has been active on the European markets for many years, creating and enjoying a reputation of an innovative company that offers end consumers dozens of meat analogue and meat alternative protein-based products. Some 60% of Tivall’s production is now channelled into exports, becoming a leading supplier of its products to Belgium, Germany, Holland, Sweden and the UK. Tivall’s operations in Europe is managed by the company’s headquarters in Amsterdam. Tivall’s export in 2004 is estimated to reach US$ 50m.
Propper revealed that in view of the sharp increase of sales of Tivall’s products, Osem is now “in an advanced stage of negotiations” to purchase a company in Europe that is equipped to utilise Tivall’s patented technology for manufacturing and supplying its chilled products. He added that in addition to marketing Tivall’s products under the company’s brand, “In the UK we produce also under a private label scheme, supplying the chains and other buyers, including institutional buyers, with Tivall products.”
Own brand going from strength to strength in the US
In referring to Osem’s own brand, Propper commented that in 1994 Osem established a subsidiary, Osem USA, which imports, markets and distributes Israeli-made food products on the North American market. This move, in his opinion, “not only competes successfully with American-made kosher food products, but over the years it has established Israeli food products as a special category. In addition to West and Central Europe and the North American markets, Osem exports its products to Argentina, Australia, Brazil, Hong Kong, Mexico, New Zealand, Russia, Thailand and Ukraine.
Move to set up shop in neighbouring country
In view of what Propper termed “discriminatory policy against local food manufacturers,” Osem is considering setting up a manufacturing company in a neighbouring country, in order to benefit from the same benefits that some of the multinational companies enjoy when exporting their processed foods to Israel.
A valid example is ketchup and mayonnaise. According to trade agreements, to which Israel is a signatory, these products made by foreign companies are imported customs-free. But the Israeli government imposes taxes on raw materials made in Israel, to protect local farmers. This discrepancy, says Propper, does not provide Israeli companies with an equal competitive position compared with those importing ketchup or mayonnaise or other processed foods made overseas, and not paying a penny in customs duties. “I know that this policy will push Israeli food manufacturers to establish production facilities in foreign countries. Take Turkey, as an example: there are plenty of tomatoes in Turkey, labour is inexpensive and geographically Turkey is very close to Israel.”
Osem’s sales on the local and overseas markets amount to $550m. In the first nine months of 2004, it reported a 4.5% increase in sales. Nestlé’s subsidiary in Israel is the only subsidiary in the world that is not wholly owned by the multinational company. Propper maintains that Israel’s food sector will gradually become global, and viewed his optimism that once “the geo-political conditions in the region change, there is a great future for the country’s food industry to become a major factor in the New Middle East.”
