Hannah sent us this one. She bought a La Roche-Posay face cream in a Jerusalem pharmacy right before Yom Kippur, rushed, sick, didn't check the price until afterward. One hundred sixty shekels. She'd bought the same cream on Amazon in the U.S. the week before for about seventeen dollars. So she's asking what we've circled before but never really dissected: why does the exact same product cost two and a half times more here, and is Super-Pharm's dominance actually the reason, or is that just the convenient villain?
The convenient villain is doing some of it. But the number that keeps getting missed is that the markup is happening before the product ever reaches a shelf. The Economy Ministry published wholesale price comparisons a few years back. Colgate Optic White toothpaste sold to Polish stores for four shekels twenty. Sold to Israeli stores for fifteen forty. Same manufacturer, same importer structure, same shelf. The Israeli store paid nearly four times what the Polish store paid before either of them added a single agora of retail margin.
So the importer is charging the Israeli retailer triple, and then the retailer adds their cut on top of an already inflated base.
And the ministry's own headline for that report was, and I'm quoting from memory, "The Inconceivable Gluttony of the International Manufacturers and Exclusive Importers Exposed." That's not a think tank. That's the government's official publication title.
That's the most undiplomatic government report title I've ever heard. It sounds like a Yiddish curse translated into bureaucratese.
It was a deliberate provocation. Eli Cohen was economy minister at the time. He said the Israeli consumer had become a cash cow for international manufacturers and exclusive importers, and that it was time to end the bonanza. He used the word piggish. In an official capacity.
And then what happened?
A basket of imported toiletries was found to be forty-eight percent more expensive in Israel than in thirteen comparison countries. Individual products were worse. Colgate MaxWhite toothpaste ninety-one percent more. Lady Speed Stick seventy-eight percent more. The report came out, there were headlines, and then the structure didn't change. Super-Pharm's mall exclusivity arrangements got struck down by the Antitrust Authority the same year, but that was about placement rights, not pricing. The exclusive importers kept their exclusivity.
So the answer to Hannah's question about how much comes from import costs, taxes, regulation, retail margins, or just the ability to charge more... the honest answer is that nobody has published a current product-level breakdown. But the direction is clear. The biggest single lever is exclusivity at the importer level. The retail concentration amplifies it.
Let me put numbers on the retail concentration, because they're starker than most people realize. Euromonitor's most recent data has Super-Pharm holding fifty-three percent of the value share in health and beauty specialists in Israel. By store count, Statista puts them at seventy-two percent of all drugstores. The next chain, Be, is at twenty-two percent. Good Pharm, the discount entrant, is at six.
Seventy-two percent of stores. That's not a market leader, that's a category owner.
And that fifty-three percent value share has held for five years. Good Pharm has been expanding into mainstream malls, sparking what retail analysts call a price war, and Super-Pharm's share hasn't budged. There's something sticky about their customer base.
The LifeStyle club.
The LifeStyle club, the mall presence, the fact that when you need a prescription filled at nine at night you go to the pharmacy that's open, and that pharmacy is Super-Pharm. Once you're in the store with a prescription in hand, the face cream is right there at eye level. The convenience is the moat.
And the private label. Super-Pharm has over four hundred Life and LifeStyle products. Those carry much higher margins than the branded imports, and they're positioned directly next to the expensive French creams. It's the classic good-better-best shelf architecture, except the "best" tier is priced for a captive audience.
The private label is also the reason Super-Pharm doesn't necessarily want the branded imports to get cheaper. If a La Roche-Posay cream drops to eighty shekels, the Life dupe at sixty starts looking less compelling.
So the dominant retailer has a structural incentive to keep the imported brands expensive. That's a nasty little dynamic.
And it's not collusion. It doesn't need to be. The exclusive importer wants high wholesale prices because their margin is a percentage. The dominant retailer wants high reference prices because it makes their private label look like value. Nobody has to meet in a smoky room. The incentives just align.
Now walk me through the actual cost stack. Hannah paid one sixty. What's the floor?
VAT is eighteen percent. That's roughly twenty-four shekels of her one sixty. Customs duty on cosmetics under the harmonized system chapter thirty-three is typically zero to eight percent, and Israel has free trade agreements with the U.S., the EU, the UK, Canada that reduce or eliminate most of it. So for a French product like La Roche-Posay, duty is probably near zero.
So tax is maybe a quarter of the price.
At most. Then there's the regulatory layer. Cosmetics in Israel are regulated by the Health Ministry's pharmaceutical division. One importer who's been through the process says the raw government registration fee is about eight hundred dollars per single product, before you factor in handling, testing, and labor.
Eight hundred dollars per product. For a face cream that retails at seventeen dollars.
And that's the fee, not the total cost. If you're a parallel importer trying to bring in a product that already has an exclusive distributor, you have to pay that registration fee yourself, navigate the Health Ministry's requirements, and then compete against someone who's had the brand for decades. The regulation functions as a moat.
A moat built out of paperwork.
Built out of paperwork and filing fees. The idea was that if a product meets European standards, it can be imported without a separate Israeli certification. That was supposed to lower prices by easing the standardization burden.
And did it?
The Knesset's own State Comptroller discussion found that the market is concentrated and the relief doesn't reach the consumer. MK Mickey Levy said the reforms in standardization and imports didn't justify the hopes, and the high costs ultimately rolled over to the consumer.
So the reform exists on paper, and the price at the till didn't move. That's the part that makes people cynical.
It's not that the reform did nothing. It probably lowered compliance costs for importers. But if the importer's margin is set by what the market will bear, lower compliance costs just become higher importer profit. There's no mechanism forcing the savings through to the shelf.
The savings get captured upstream. Same as the wholesale markup. Everything about this market captures value before the consumer ever sees a price tag.
And then there's the personal import threshold, which is its own comedy. The tax-free limit for personal imports was seventy-five dollars for years. Then in late twenty twenty-five it was raised to one fifty. Then in June of this year it went back down to seventy-five.
Wait. They raised it and then lowered it again within six months?
Six months. So if Hannah had ordered her cream from Amazon instead of buying it in the pharmacy, and the package was valued between seventy-five and five hundred dollars, she'd owe eighteen percent VAT on it. Under seventy-five, nothing. Over five hundred, VAT plus duty. Over a thousand, it's treated as a commercial import.
Which means the workaround of just buying on Amazon is legally unstable. The rule changed twice in half a year.
And the whiplash itself is a story about who benefits. Every time the threshold drops, the personal import channel gets less attractive, and the local exclusive importer gets more protected. The policy swings look chaotic from the outside, but they consistently land on the side of the incumbent.
Let's go back to Hannah's actual product. La Roche-Posay. Who's the exclusive importer in Israel?
I don't have the current importer name for La Roche-Posay specifically in front of me. But the pattern is consistent across the beauty import market. Lilit Cosmetics has been the official importer of NARS and others for over eighty-seven years. Dr. Samuelov has exclusive distribution for Weleda and the Dr. Wolff brands like Plantur and Alpecin. Fine Rituals has a portfolio of prestige skincare. These are long-standing exclusive arrangements that don't exist in most other countries.
In the U.S., if you want to sell NARS, you buy from NARS or from one of several authorized distributors. Here, there's one door.
One door, and the person standing in it has been there for decades and has no reason to lower their margin. The ministry's twenty seventeen report named specific importers, S. Schestowitz and Diplomat, as enjoying exclusivity in Israel in contrast to other countries where there's a range of distributors. Those names are in the public record.
So the official government position is that named companies are extracting monopoly rents, and the official response was to publish a report with a rude title and move on.
The Antitrust Authority did act on Super-Pharm's mall placements. That was a real structural intervention. They forced the cancellation of exclusive arrangements at one hundred twenty branches, with forty more to follow within four years. The idea was that Super-Pharm had locked up the best mall locations and competitors couldn't get in.
And did that change anything?
It changed where competitors could open stores. It didn't change the importer exclusivity, which is the layer where the wholesale markup actually happens. So you got more pharmacies in malls, but they were all buying from the same exclusive importers at the same inflated wholesale prices. The competition at retail level just meant the retailers competed on margin, not on wholesale cost.
The retailers are fighting over crumbs while the importer eats the loaf.
That's the cleanest way to put it. And the consumer sees the shelf price and blames the store, because the store is the face of the transaction. But the store's own cost base was already inflated before the product arrived.
Hannah's question was specifically about Super-Pharm. Is the lack of competition the reason prices are high? The answer is yes, but the competition that's missing isn't at the retail level. It's at the import level.
Although the retail concentration does matter, because it removes the pressure on retailers to squeeze importers. If there were fifty pharmacy chains, one of them would eventually try to break an exclusive arrangement, or import in parallel, or negotiate harder. With one chain at seventy-two percent of stores, the importer knows the retailer has nowhere else to go and the retailer knows the customer has nowhere else to go.
A chain of dependency. The customer depends on the store, the store depends on the importer, the importer depends on the brand, and at every link someone takes a cut.
And the brand itself, the international manufacturer, is complicit. The ministry's report said international manufacturers are taking advantage of exclusivity to charge high prices. The brand could license multiple importers. They don't, because the exclusive importer pays them more for the exclusive right, and that payment gets passed down the chain.
So La Roche-Posay, or L'Oréal who owns them, is perfectly happy with the arrangement. They sell the exclusive right to one Israeli importer for a premium, the importer charges triple wholesale, the retailer takes their cut, and the Israeli consumer pays two and a half times the U.S. price. Everyone in the chain is fine except the person holding the cream.
And the person holding the cream is Hannah, who was sick and in a hurry and grabbed the familiar brand because she didn't have the bandwidth to comparison shop. That's the moment the whole structure is designed to exploit.
The sick, rushed, pre-holiday shopper. That's not an edge case. That's the core customer.
Yom Kippur eve in Jerusalem, every pharmacy is about to close for twenty-five hours, you need medicine, you grab the cream on the way to the counter. The pricing model is built for exactly that moment.
Let me ask you something. How much of this is cultural? The Israeli consumer's willingness to pay.
There's a documented preference for brick-and-mortar cosmetics shopping in Israel. A TheMarker survey found Super-Pharm's in-store prices were up to fifty-six percent higher than online prices for the same products, and yet consumers still preferred the store. Solgar vitamin B twelve, sixty tablets, fifty-nine ninety in Super-Pharm, forty-three shekels online. Same product, same city, thirty-nine percent cheaper with a click, and people still walked into the store.
Fifty-six percent. For the same item. That's not a convenience premium, that's a behavioral subsidy.
Part of it is trust. Cosmetics are a tactile purchase. People want to see the texture, smell it, test it on their wrist. Part of it is the LifeStyle points. Part of it is habit. And part of it is that Israeli consumers have been conditioned to expect high prices and have stopped checking.
The expectation itself becomes the moat. If you assume everything is expensive here, you don't bother looking for the cheaper channel.
And the cheaper channel exists. iHerb ships to Israel. Amazon ships some categories. There are online pharmacies here that undercut Super-Pharm. The information is available. But the default behavior, especially when you're sick and rushed, is to go to the store.
So what would actually change this? If Hannah wanted to fix the market, not just her own shopping habits, what's the lever?
The single highest-impact change would be ending exclusive import arrangements for consumer goods. If three importers could bring in La Roche-Posay, they'd compete on wholesale price, and the retail price would drop. The ministry identified this in twenty seventeen. Nothing happened.
Because the importers are politically connected.
Because the importers are established businesses with relationships, and the brands like the predictability of a single partner, and the regulator doesn't have a strong mandate to break vertical exclusivity in cosmetics. The Antitrust Authority can act on horizontal market power, like Super-Pharm's mall placements, but vertical exclusivity between a brand and an importer is harder to challenge.
The personal import threshold going back down to seventy-five dollars just made the escape hatch smaller.
That's the thing I keep noticing. Every structural fix gets announced with fanfare, and then the implementation either stalls or gets reversed. The European standards reform was supposed to open the market. The Knesset's own oversight says prices didn't move. The threshold went up and then down. The Antitrust Authority broke the mall lock and the importer lock stayed intact.
It's like watching someone try to drain a bathtub by removing the plug, then discovering there's a second plug underneath, and a third one under that.
The water company is owned by the plumber.
Now you're just being bleak.
I'm being accurate. Look, the honest answer to Hannah's question about how much comes from each factor is that the data doesn't exist at a product level. The last granular breakdown is from twenty seventeen. But the shape of the answer is clear. Tax is maybe a quarter. Regulatory compliance is real but small per unit. The dominant share is exclusivity-driven wholesale margin and retail pricing power.
The retail pricing power is enabled by the concentration. Seventy-two percent of stores means you can charge fifty-six percent over online and keep the customer.
The customer who is sick, in a hurry, and holding a prescription. That's not a market failure. That's a market functioning exactly as designed, for everyone except the person at the counter.
Let's talk about what Hannah could actually do. Not policy, just her next face cream purchase.
The practical answer is iHerb or another international online retailer for anything she can plan ahead. Under seventy-five dollars, no tax. Between seventy-five and five hundred, eighteen percent VAT, which is still dramatically less than the local markup. The threshold whiplash matters, but even with VAT, the imported price usually beats Super-Pharm.
If she wants to buy locally, the discount chains like Good Pharm are expanding and their prices are lower on some categories. The price war the analysts keep mentioning hasn't moved Super-Pharm's share, but it's created pockets of real competition.
Good Pharm is interesting because they're going into mainstream malls, not just the periphery. That's the first time a discount pharmacy chain has tried to compete on Super-Pharm's turf rather than undercutting from outside. Whether it works is an open question, but it's the first real pressure on the retail layer in years.
The private label question. If she's buying La Roche-Posay for the formulation, the Life dupe won't do. But if she's buying for the brand comfort, there are cheaper alternatives.
La Roche-Posay's whole positioning is dermatologist-recommended, sensitive skin, clinical. When you're sick and your skin is stressed, the brand promise is worth the premium. That's not irrational. It's just expensive when the premium is two and a half times.
The brand promise costs seventeen dollars in the U.S. and forty-three here. Same promise, same tube, same French laboratory.
Same tube, different importer.
Hilbert: We counted them. That was the job, one summer. Nineteen seventy-nine, I was working for a market research outfit in Haifa, and they sent us out to count pharmacy shelves. Every pharmacy in the north, every brand of toothpaste, every shade of lipstick, every price tag. We wrote it all down in ledgers.
Hilbert: The importer names were on the back of every product. Same three names, over and over. Schestowitz, Diplomat, and one more I can't remember, something with a G. They had everything. And the prices were already double what you'd pay in Europe, even then.
Hilbert: The report went to the manufacturer's association. They paid for it. I assume they read it and did nothing. That was the summer I learned that knowing the number doesn't change the number.
The ledgers. You were doing Euromonitor's job by hand before Euromonitor existed.
Hilbert: We had clipboards and pencils. If it rained, the ink ran. I lost a whole day's data once in a downpour in Nahariya. Had to redo it from memory.
The ink running is a decent metaphor for the data problem here. The ministry's twenty seventeen report is the most granular public source, and it's nearly a decade old. Nobody has published a current product-level breakdown. The information exists, but it's held privately, and the people holding it have no reason to share.
Hilbert: The manufacturers knew in nineteen seventy-nine. The ministry knew in twenty seventeen. The number hasn't changed much. What changed is that now there's a computer in your pocket that tells you the U.S. price while you're standing in the aisle.
Which is exactly what happened to Hannah. She'd just bought it on Amazon, so the comparison was fresh. Most people don't have that reference point.
Hilbert: Most people don't want it. Easier to pay the forty-three shekels and not think about it.
That's the behavioral layer. The information is available, but the cost of acting on it is higher than the cost of overpaying, especially when you're sick and the pharmacy is closing.
Hilbert: I counted the shelves for three months. Never once bought anything from a pharmacy I counted. Bought my toothpaste at the shuk. Still do.
The shuk toothpaste. That's either a great deal or a terrible idea.
Hilbert: It's fine. Teeth are fine.
I'm not going to ask what brand.
Hilbert: Whatever they have.
The man who spent a summer documenting pharmacy markups refuses to participate in the pharmacy market. That's a coherent position.
Hilbert: It's the only position that makes sense. You can't fix the price. You can only decide whether to pay it.
That's the individual answer. The structural answer is ending exclusive import arrangements, and nobody with the power to do that has shown any appetite for it in nine years.
The one thing I'd take from this is that the villain isn't the store. The store is the visible layer, but the markup is baked in before the product arrives. If you want to understand why a seventeen-dollar cream costs forty-three here, follow the money upstream, past the shelf, past the retail margin, to the exclusive importer who has no competition and no incentive to lower the price. Everything else is just tax and theater.
The theater is convincing. The reform announcements, the ministry reports with rude titles, the antitrust rulings. They all look like action. But the wholesale price comparison from twenty seventeen, four shekels twenty in Poland versus fifteen forty here, is still the truest sentence anyone has published about this market. Nothing since has contradicted it.
We should have Hilbert count the shelves again. See if anything moved.
Hilbert: I'm not doing that again. My knees are older than the data.
Fair enough. This has been My Weird Prompts, the human-AI collaboration podcast. Thanks to our producer, Hilbert Flumingtop, for keeping the show running and for the clipboards.
If you enjoyed this, leave us a review wherever you listen. Or email us at show at my weird prompts dot com. We'll be back soon.
