Strauss Group is continuing its recovery in Israel following a Salmonella chocolate recall and temporary plant closure in 2022.

Financial statements for the first quarter of 2023 showed 12.4 revenue growth.

Growth in gross profit and gross margin was partly because of the recall in the corresponding period last year. Improved operating profit and operating margin was largely because of the expenses and effects of the recall on results in the same period in 2022.

Despite a positive trend in market share, at the end of the first quarter of 2023 the company had not yet recovered its sales volumes and market share to levels prior to the recall in some categories. The main reasons for this were the growing competition in the relevant categories as well as the presently limited range of products manufactured at the confectionery plant.

The confectionery business continued to recover, and market share reached 21.6 percent in the first quarter of 2023 compared to 28.7 percent in Q1 2022.

Incident background

In April 2022, Salmonella was found on some production lines in the confectionery plant in Nof Hagalil and on products in the factory, following routine tests. All items made at the plant that made it to market were recalled. Elite-brand products had a wide distribution including the United States, Canada, Australia, Europe, and the United Kingdom. Following a recall, the group halted exports of chocolate products.

The site was closed until all manufacturing systems had been cleaned and the entire inventory was destroyed. Production resumed in August 2022 and products from the factory began to be sold again from November.

The negative effect for full year 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.

Seven motions for class certification and one for discovery and inspection of documents are still pending against the company.

In August 2022, Strauss 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 also scheduled eight meetings and interview dates up to the end of May 2023.

Strauss Group is the second-largest company in the Israeli food market, and in Q1 2023, the group’s value market share, according to StoreNext, was 12 percent of the domestic retail food and beverage market, compared to 12.7 percent last year. This decline is because of the phased return of products from the confectionery plant to the market after the recall in April 2022.

Shai Babad, Strauss Group CEO, said: “Strauss experienced growth across most of its businesses, with an improvement in market shares and revenue growth. However, the need to cope with rising raw material costs and inflation led to a significant decline in the group’s margins overall, most notably in Israel, while the price increases by the group offered only partial compensation.” 

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