Israel's Competition Authority Maps Food Giants' Market Power

Israel's Competition Authority has released a new study examining the market power of major food suppliers, focusing on how dominance in certain product categories might influence negotiations for other goods. The "must-have" product concept, exemplified by Coca-Cola, is central to the research. The authority defines such products as those whose absence from a supermarket shelf could drive customers to competitors, potentially leading them to do all their shopping elsewhere.

The study highlights The Central Bottling Company (CBC), Israel's largest beverage supplier, which holds approximately 90% of the market share in regular, diet, and zero-sugar cola, as well as iced tea categories. While not accusing CBC of wrongdoing, the authority notes that the "must-have" status of Coca-Cola allows CBC to potentially leverage its strength in other negotiations. The research suggests that large suppliers can "tie" strong products with others, even without explicit contractual clauses, by offering a bundle of goods. CBC's involvement in regulated dairy products through its subsidiary Tara also adds another layer to this dynamic.

The report also analyzes Tnuva, Israel's largest food supplier (excluding beverages), which leads in categories like milk, yellow cheese, cottage cheese, and butter. The authority points out that while price controls on some dairy products limit profitability, this might incentivize Tnuva to seek greater profits in unregulated categories. The study includes data on nine other major suppliers, including Osem, Strauss, Unilever, Diplomat, Sano, and Kimberly-Clark, all of whom demonstrate significant market share across multiple product categories.

However, the Competition Authority acknowledges that market share alone does not definitively prove anti-competitive behavior. The study's methodology uses financial sales data and category definitions from external sources, which may not perfectly align with how the authority would define markets in merger reviews. The research also considers the significant bargaining power of large retail chains, noting that shelf space and the ability to offer product bundles can impact competition and innovation, potentially deterring new market entrants.

Despite these complexities, the authority aims to identify potential imbalances in the market. While acknowledging that large suppliers can bring efficiencies, the study's focus has shifted from mere market share to understanding the inter-category dynamics, the shelf space occupied by dominant players, and the reciprocal power of retailers. The Food Industries Association criticized the study as theoretical, arguing that Israeli food manufacturers have not abused their power, citing rising consumer food prices despite stable factory gate prices. They urged the authority to complete its existing research on manufacturers' data and examine the entire value chain.