Strauss Group’s confectionery division has reached a market share close to pre-recall levels, according to the company.
Financial results for the full year 2022 and the company’s annual report show the incident in Israel had a significant impact on profit.
In April 2022, positives for Salmonella were recorded on part of the production lines in the confectionery plant in Nof Hagalil and on products in the factory, following routine tests. All items made there that were in the market were recalled. Elite-brand products had been sent to the United States, Canada, Australia, Europe, and the United Kingdom. Following the recall, the group halted exports of chocolate products but they are expected to restart in 2023.
Re-entering the market
The site was closed until all manufacturing systems had been cleaned and the entire inventory was destroyed. Production resumed in August. During the shutdown, Israeli New Shekel (NIS) 22 million ($6 million) was invested in the plant, mostly in food safety and quality infrastructure to improve standards. The company began to market products from the factory in November 2022. In March 2023, the division’s market share reached an average of 24 percent, which is close to what it was prior to the recall, said Strauss.
In basic chocolate tablets, the company has reinstated itself as a market leader but has yet to regain the share it held before the recall. In premium tablets, consumers appear to have substituted in rival products. In the chocolate bar category, as most firms except Unilever do not manufacture in Israel, the response to the absence of Strauss products in stores was not immediate.
Revenues were impacted by the incident. Gross profit in 2022 was down to NIS 2.8 billion ($770 million), with gross margin falling to 29.8 percent compared to 36.9 percent in 2021. Gross profit and margin erosion were large because of the recall, an adjustment plan in the Sabra plant, and rising prices of green coffee, raw milk, packaging materials, and energy.
This hit the company’s operating profit, which dropped from NIS 980 million ($268 million) in 2021 to NIS 379 million ($104 million) in 2022. Net profit also fell from NIS 639 million ($175 million) in 2021 to NIS 174 million ($48 million).
Ongoing investigation and compensation claims
In August 2022, Strauss announced it had created an independent committee to investigate the incident and make recommendations to the board of directors. This committee first met in December 2022. From January through to March 2023, it met five times. It has also scheduled eight meetings and interview dates until the end of May 2023.
When the annual report was published, seven motions for class certification were pending against the company plus a motion seeking discovery and inspection of documents. Because of the preliminary stage of claims, their outcomes cannot be estimated, said Strauss.
The negative effect for the full year and fourth quarter of 2022 following the confectionery recall was NIS 482 million ($131 million) on sales, NIS 380 million ($104 million) on operating profit, and NIS 293 million ($80 million) on net profit. This includes the costs of crediting the company’s customers, collecting products from retail, inventory write-off, costs of compensating consumers, insurance refunds, and estimated costs and lost profit due to the gradual resumption of production.
Income from confectionery and bakery fell to NIS 391 million ($107 million) in 2022 from NIS 848 million ($232 million) in 2021, largely due to the recall.
One of the company’s 2023 focus areas was to return to growth and profitability at the confectionery plant in Nof Hagalil.
Ofra Strauss, Chairperson of Strauss Group, said: “2022 was a year in which we dealt with internal and external challenges, whilst investing in the group’s infrastructure as a foundation for our future resilience. It was crystal clear to us that we are a company that places the health and safety of our consumers and people above anything else. A company that handles the challenges of the present and builds the future with a long-term vision.”
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