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While consumers will remain cautious for some time to come, a gradual recovery does seem to be taking hold in Israel's food and drink sector, with the leading retailers and food and drink producers reporting stronger financials throughout 2010. We have revised our 2010 GDP growth forecast upward, to 3.7%, but highlight our expectation of weak growth in 2011 and 2012. While the economy is expected to resume steady growth rates, consumers will still remain cautious, and the pace of retail sales growth is likely to remain slow. Consumers will remain careful with their every-day food and drink purchases, slowing the trend of premiumisation, and giving private labels a boost. With Israel now more or less on par with developed states, we are not expecting stellar growth rates over our 10-year forecast period. Looking at the food retail sector, the small size of the country and the maturity of the market will act as a drag on growth, as will the security situation. On the consumer front, spending growth will be fairly slow, especially given the expected long-term slowdown in the population growth rate.
Headline Industry Data
- 2010 per capita food consumption = +3.8%; forecast to 2015 = +20.1%
- 2010 alcoholic drink sales = +0.4%; forecast to 2015 = 2.2%
- 2010 soft drink sales = +2.5%; forecast to 2015 = +28.3%
- 2010 mass grocery retail sales = +0.7%; forecast to 2015 = +14.7%
Key Company Trends
Looking Abroad for Growth: Taking into account the maturity of the Israeli food and drink sector, the country's largest firms must have a strong international growth strategy. While an upside continues to be provided by Israel's large diaspora in North America and western Europe, the biggest firms must take their growth strategy beyond the diaspora market. Strauss Group, which is the country's largest food and drink company by annual sales, reported a 15.5% y-o-y increase in Q1 (three months to March 2010) net income to ILS92mn (US$24.14mn), with sales revenue ticking up by an impressive 11.5% y-o-y. Strauss' international business performed strongly in Q110, with Brazil outperforming in particular, as strong sales and earnings momentum laid the groundwork for promising market share growth.
Online Shopping Site Launched: Israel's mass grocery retail (MGR) sector is highly consolidated, with just two retailers dominating sector sales. The country's leading MGR operator is Shufersal (Super-Sol), which controls around 40% of sales, while its main competitor, Blue Square, controls around 20% of the market. Meanwhile, other retailers present in the market are looking for ways to gain an edge over the two dominating players. In November 2010, themarker.com reported that Israeli discount grocery chain Rami Levy Shivuk Hashikma announced that it would launch a brand-new retail website later in the month. The website is designed to offer 92% of the company's products at store price, and the remaining products priced according to the competition in the market, according to the chain's founder, Rami Levy. With security issues a very real concern for Israeli consumers, online shopping is highly popular in the country.
Key Risks to Outlook
External Slowdown - We highlight two downside risks to our growth forecasts: a strongerthan- expected exchange rate and a more pronounced and prolonged slowdown in the eurozone and America. The BoI has intervened in foreign exchange markets to keep the shekel artificially weak, but we believe this practice is unsustainable in the long run. If the BoI allows the shekel to appreciate more than we expect, it will harm export sectors and reduce external demand even further.
Security Risks Remain - The most significant risks relate to political instability, and the threat of potential wars with Hamas, Hizbullah in Lebanon or Syria. We are also concerned about the lack of progress in direct peace negotiations between the Palestinian Authority and Israeli government in recent months. Instability would greatly affect tourism to the country, as happened following the Gaza War of late 2008, and could also slow foreign direct investment flows into the region. About Business Monitor International
Business Monitor International (BMI) offers a comprehensive range of products and services designed to help senior executives, analysts and researchers assess and better manage operating risks, and exploit business opportunities, across 175 markets. BMI offers three main areas of expertise: Country Risk BMI's country risk and macroeconomic forecast portfolio includes weekly financial market reports, monthly regional Monitors, and in-depth quarterly Business Forecast Reports. Industry Analysis BMI covers a total of 17 industry verticals through a portfolio of services, including in-depth quarterly Country Forecast Reports
by S. C.
25 may 2011, World News > Europe