Strauss-Elite Group

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Strauss-Elite Group

84 Arlozorov Street
Ramat Gan
52136
Israel
Telephone: ( +972) 3 675 23 38
Fax: ( +972) 3 675 22 79

Public Company
Incorporated: 1934 (Elite); 1936 (Strauss)
Employees: 6,700
Sales: $540 million (2003)
Stock Exchanges: Tel Aviv
Ticker Symbol: ELEI
NAIC: 311511 Fluid Milk Manufacturing; 311320 Chocolate and Confectionery Manufacturing from Cacao Beans; 311340 Non-Chocolate Confectionery Manufacturing; 311423 Dried and Dehydrated Food Manufacturing; 311520 Ice Cream and Frozen Dessert Manufacturing; 311812 Commercial Bakeries; 311821 Cookie and Cracker Manufacturing; 311911 Roasted Nuts and Peanut Butter Manufacturing; 311920 Coffee and Tea Manufacturing; 424410 General Line Grocery Merchant Wholesalers; 424490 Other Grocery and Related Product Merchant Wholesalers; 551112 Offices of Other Holding Companies; 722110 Full-Service Restaurants

Merging two of Israel's oldest and largest food companies in 2004, the Strauss-Elite Group has become that country's second-largest food company, behind Ofeh. Strauss-Elite produces and markets a full range of dairy products under the Strauss brand name, including yogurts, fresh and flavored milk, cheeses and dairy-based desert products. The company also remains a major shareholder in Strauss Ice Cream, alongside Unilever. The company's Elite coffee division is the world's eighth largest; the coffee division is also the company's most international division, with operations in 12 countries. Strauss-Elite is also well known for its Elite-branded chocolates and confectionery, including the company's flagship "Cow" chocolate, Elite's first product launched in 1934, and the Max Brenner premium chocolate brand acquired in 2001. Strauss-Elite also produces fruit juices, baked goods, salty snacks, salads, honey, olive oil, and cereals and cereal-based snacks. In addition to food products, Strauss-Elite is expanding into the café business with the launch of the Max Brenner chocolate bar. The company opened two cafés in Israel in 2004 and planned to open the first international Max Brenner café, most likely in the United States, in 2005. Strauss operates 22 production sites, including 14 in Israel, and the remainder primarily located in the Eastern European markets. The company has also entered South America through the purchase of a company in Brazil. Strauss acquired control of Elite in 1997; in 2004, under leadership of Ofra Strauss, granddaughter of Strauss's founder, the two companies were formally merged. Strauss-Elite is listed on the Tel Aviv Stock Exchange; Danone controls 20 percent of the group's shares.

Founding Israel's Food Industry in the 1930s

The origins of the Strauss-Elite Group reach back to the years before the founding of the Israeli state. Eliyahu Fromenchenko started making candies in his apartment kitchen in Russia, launching his own business in 1918. Fleeing the economic and political chaos of the early years of communism in the Soviet Union, Fromenchenko moved to Latvia, where he established a new confectionery business in Riga. That company, called Leema, quickly grew into the country's leading candy maker. Yet the rise of the Nazi Party in neighboring Germany, especially Hitler's election to the head of the German government in 1933, convinced Fromenchenko to leave Europe for Palestine.

Fromenchenko bought property in Ramat Gan, sold the Leema factory, and had a new factory constructed in Palestine. With backing from a number of investors, notably Ludwig Jesselson of the United States, Fromenchenko founded a new company—Elite. By spring of 1934, the company had launched production, and its first product reached the stores in time for Passover. That first product, "Shamnonit," a sweet in the shape of a red cow, was an immediate success and remained one of the company's flagship products through the end of the 20th century.

Elite's candies were so successful that they drew attention from around the world. By 1938, the company had already begun exporting its products, and the Elite brand became well known among Jewish communities in the United States, South Africa, England, and elsewhere. Back in Palestine, Elite began scouting out new expansion opportunities. In 1940, the company made its first diversification, acquiring jam and canned goods producer Freiman. That company had primarily manufactured for the British army during the U.K.'s control of the region.

By then, the Strauss family was also enjoying success in Palestine. The husband and wife team of Richard and Hilda Strauss arrived in Israel from Germany in 1936. The Strauss's founded a dairy farm in Nahariya, and began producing milk, cheeses, and other dairy products. Yet it was under the leadership of their children, Michael and Hilda Strauss, that the company grew into Palestine's leading dairy products group and one of its leading food groups. In addition to developing the company's fresh dairy products business, the brother and sister team extended the company into prepared dairy products. A major success for the Strauss company was its Milky brand of puddings; the company also launched its own hummous and techina products, then found international success with the Strauss Ice Cream brand, launched in the 1951.

Expanding Israel's Food Industry in the 1950s

The creation of the State of Israel in 1948 brought a new expansion to Elite's operations. In that year, the company opened its new Schachal factory and began producing techina and other dairy products. The company also became the first in Israel to launch a fruit-flavored yogurt. The new factory was established in part to meet the rising demand brought on by the influx of new immigrants to the young country; at the same time, Elite was able to provide jobs to the growing population.

A major milestone in Elite's history came in 1956, when the company acquired a new factory site in Nazareth. That facility dedicated to the production of chocolates, confectionery, and baked goods, became the company's flagship site. Total production at the site later reached 120,000 tons per day. The company added a new wafers wing to the site in 1958.

The mid-1950s marked another major strategic move for the company. The invention of instant coffee had swept the coffee market elsewhere in the world. In the mid-1950s, Elite decided to bring instant coffee to Israel and began construction of a dedicated production facility in Safed. Production was launched in 1958, and the new coffee was immediately popular in Israel. The company's decision to enter instant coffee production led it to develop its interests into the wider coffee market. Over the next five decades, Elite grew into one of the world's top ten coffee companies.

Elite had a new hit product at the end of the 1960s with the launch of its Ta'ami puffed rice, caramel, and chocolate snack in 1969. In 1970, the company launched production of its first sugarless chewing gum products. Also in that year, Elite expanded its coffee business, acquiring Lieber. Elite then expanded the Lieber site, boosting production and adding new brands, including Karat, Classic, and Haag.

Elite went public in 1973, listing on the Tel Aviv Stock Exchange. Through the 1970s, the company continued to build its foods businesses and also entered the retail market, opening its first confectionery shops. During the 1980s, the store chain was expanded throughout Israel. In 1989, Elite launched a second retail concept, the Sweet Minute shop. By then, a controlling stake in Elite had been acquired by the ED&F Man company led by the Federman family. David Federman became Elite company chairman, while the Federman, Jesselson, and other families combined to control some 62 percent of Elite.

International Expansion in the 1990s

Under David Federman, Elite began to develop its international ambitions. On the one hand, the company sought to acquire licenses for producing foreign brands in Israel. Such was the case with the company's agreement with Pepsico to introduce the Cheet-os and Ruffles snack brands to the Israeli market. As part of that effort, in 1992 Elite added a new factory in Sderot.

Yet the company's primary international focus was to expand its own brands and operations overseas. In 1992, Elite bought its first foreign facility, Union Kaffee, in Poland. Elite then launched a chain of coffee shops in that county. Next, Elite turned to western Europe, buying the Excella chocolate factory in France. In order to develop its international operations, Elite established a new subsidiary that year, Elite International, and by the middle of the decade had built or acquired eight factories in Europe.

Elite went on to acquire a number of other operations in Europe, notably Fort, based in Belgium, and Klaverblad, in the Netherlands. Both companies produced coffee for the private label segment and were part of Elite's strategy to develop itself into one of the world's leading coffee concerns. During this time, Eastern Europe emerged as the company's fastest-growing international market, especially after Elite built a new coffee roasting and grinding facility in Romania in 1995. Later that year, Elite Romania launched three coffee brands for the market—Pedro's, Sahara, and Elita. By the end of 1996, the company had already claimed a 5 percent share of the market.

Company Perspectives:

A constant will to win describes the atmosphere that runs through our organization and this is what motivates us. We are committed to doing everything we can to maintain our preference with the consumer, beating our competitors and overcoming the obstacles, wherever they may be, while remaining dedicated to the values of trust, honesty, quality, cooperation and innovation. The Elite Vision:

"Our goals for the future are long-term targets of the organization that reflects our ambitions. Having courageous and challenging goals demand an exceptional effort in order to achieve them . . . their purpose is to serve us as milestones along the way".

A repositioning of its branded line, notably with the introduction of the Elite brand there, enabled the company to capture a still more significant share of the Rumanian market. By 1998, the company claimed a 19 percent share, and by 2000 its share had risen to 45 percent, making Elite the leading coffee maker in the country. Elite quickly sought to capitalize on its success in Eastern Europe and entered new markets in other regions, including Bulgaria, Ukraine, Russia, Croatia, and Turkey.

Elite then sought to reproduce its success further abroad. In 2000, the company acquired Café Très Cuaracoes, based in Belo Horizonte, in Brazil. That purchase gave Elite its first foothold in South America and placed it closer to a primary source of raw materials. It also gave it a leading share in the state of Minas Gerais, and, on a national level, a 40 percent share of the country's large cappuccino segment.

Israeli Food Leader in the 2000s

Elite's international expansion came not without a great deal of criticism. As The Marker pointed out: "The main criticism is that the company has mortgaged its hard-earned profits and reputation in Israel for a fling overseas where it is has no real competitive advantage." Dissension among its shareholding families had also begun to grow during the early 1990s, especially after Ludwig Jesselson's sons backed a takeover attempt by Bino Zadik in 1995.

In response, the Federman family decided to exit the business and sold their stake to the Strauss family. Strauss quickly consolidated its control of Elite, and by 1998 the Jesselson brothers too sold most of their shares in Elite to the Strauss family. Michael Strauss took charge of restructuring Elite, notably by closing four of its eight production sites in Europe.

Under Strauss's ownership, Elite was restructured into four operating divisions, representing its candy, snacks, coffee, and sales operations. While Strauss and Elite themselves remained separate companies, the synergy between the two groups quickly became apparent with the 1998 acquisition of a 50 percent stake in kibbutz-based Yotvata Dairies, which specialized in dairy-based drinks. Under Strauss-Elite, the dairy introduced a new line of flavored milk drinks. The Yotvata acquisition also brought the company a 20 percent share of fruit juice producer Ganir-Primor, leading to the launch of a new line of fruit-based milk and juice blends.

Strauss too had undergone a number of changes in the mid-1990s. The company sold off a 50 percent stake in Strauss Ice Cream to Unilever in 1995 and spun off that operation as a separate business. The following year, Strauss sold a 20 percent stake to Danone. In both cases, Strauss gained licenses to introduce a number of Unilever and Danone brands into Israel.

After acquiring the Kfar Saba Biscuit Factory in 2000, Elite established a new bakery division the following year, launching a new brand, Chagiga, and acquiring the De La Paix bakery in Rishon Le Zion. In an extension of its chocolates activities, Elite bought the rights to the Max Brenner brand of premium chocolates. The company then reorganized the brand's chocolate range, which primarily focused on the premium and gift package segments, by adding new chocolate snacks and midrange chocolate varieties.

The company continued to expand its food range toward mid-decade. In 2003, for example, it launched a line of soy-based desserts. That same year, Elite expanded into cereal products with the acquisition of the Energy brand of snack bars and cereals. In 2004, Elite launched a new café concept featuring the Max Brenner brand. The successful opening of the first two chocolate cafes quickly encouraged the company to make plans to expand the café network. The company also began preparations to launch the Max Brenner brand internationally, with the United States as its first target.

Elite and Strauss remained separate companies into the 2000s, although investments in new production facilities, distribution operations, and moving into new product categories and markets came generally through joint efforts. Much of the companies' growth since during this time had been guided by Ofra Strauss, daughter of Michael Strauss, who had joined the company after a stint working for Estée Lauder in the early 1980s. Ofra Strauss, acting as CEO, began lobbying to formally merge the two companies.

The merger of the two companies was carried out in 2004, creating the Strauss-Elite Group and marking Ofra Strauss's ascension to the head of the family business empire. Strauss-Elite listed its shares on the Tel Aviv Stock Exchange in March 2004, replacing the Elite's former listing. Danone, however, chose not to participate in the merger and held onto its 20 percent stake in Strauss. Under Ofra Strauss, described by Fortune as one of the world's 50 most powerful businesswomen, Strauss-Elite was poised for future growth in both the Israeli and global food industries.

Principal Divisions

Candy; Snacks; Coffee; Bakeries.

Key Dates:

1934:: Eliyahu Fromenchenko of Russia sets up a candy factory called Elite in Ramat Gan, Palestine.
1936:: Richard and Hilda Strauss establish a dairy farm in Nahariya.
1940:: Elite acquires Freiman jam and canned goods company.
1951:: Strauss begins producing ice cream.
1958:: Elite launches the first Israeli instant coffee.
1970:: Elite acquires instant coffee manufacturer Lieber.
1973:: Elite lists its stock on the Tel Aviv Stock Exchange.
1992:: Elite signs a licensing agreement with Pepsico, launches Elite International, and acquires factories in France and Poland.
1995:: Strauss sells 50 percent of its shares in Strauss Ice Cream to Unilever.
1996:: Strauss sells 20 percent of its shares to Danone; Elite establishes operations in Rumania.
1999:: Elite enters Bulgaria.
2000:: Elite acquires Très Coracoes in Brazil.
2001:: Max Brenner brand is acquired.
2004:: Strauss and Elite complete merger to form the Strauss-Elite Group.

Principal Operating Units

Elite International; Elite Israel; Strauss Fresh Foods; Strauss Ice Cream.

Principal Competitors

Tnuva Central Cooperative for the Marketing of Agricultural Products; Unilever Israel Ltd.; Sunfrost Ltd.; Tara Agricultural Producers Cooperative Society in Nahalat Itzhak Ltd.; Soglowek Ltd.; Carmel Wineries.