Zanlakol: Can Dairy Become a Real Profit Engine
Zanlakol's dairy segment grew by nearly 30% in 2025 and lifted segment profit to ILS 6.4 million, but that still means only about a 4% segment margin. This follow-up shows why spare capacity, new products and the brand consolidation already create a real option, while raw-milk regulation, competition and another investment cycle still leave 2026 in proof-year territory.
The main article made the broader point: dairy has already become Zanlakol's growth leg, but it still does not carry a similar weight in the group's profit quality. This follow-up isolates the more important question: did 2025 already prove that the dairy plant can turn volume into margin, or is it still mainly building a platform.
There is a good reason to ask this now. Dairy segment revenue rose to ILS 162.4 million in 2025, from ILS 125.4 million in 2024. Segment profit rose to ILS 6.4 million from ILS 2.7 million. The company launched about 30 new products, consolidated the business under one central brand, and raised potential annual production capacity to roughly 40 million liters while utilization stood at about 75%. This is no longer just a paper turnaround story.
But it is also not final proof of a profit engine. Even after the improvement, segment profit still equals only about 3.9% of sales. Raw milk, the key input, accounts for more than 60% of the segment's raw-material and packaging purchases. Target price is updated quarterly, while regulated selling prices are updated only retroactively once a year. At the same time, the company itself describes fierce competition, promotions and discounts, and even says its market share is negligible in every product category in which it operates. That is the real issue. Demand already looks better. Economics per liter still do not.
The Sales Base Now Looks Like a Platform, Not an Experiment
The 2025 growth is not the result of one quarter or of the Shavuot holiday alone. Dairy sales rose in every quarter: from ILS 27.2 million to ILS 35.9 million in Q1, from ILS 28.9 million to ILS 41.6 million in Q2, from ILS 35.0 million to ILS 43.7 million in Q3, and from ILS 34.3 million to ILS 41.2 million in Q4. The company also says the segment has no meaningful seasonality other than some increase around Shavuot. In other words, this is a broad-based expansion of activity, not a one-off jump.
That matters because it connects directly to the business-model change made since the dairy acquisition. Zanlakol did not keep the business in its old structure of regulated products and private-label exposure to a few large customers. It shifted toward a free-market food-manufacturing model with a broader branded portfolio, changed the commercial and distribution model, consolidated the branding under Ramat HaGolan Dairy, and in 2025 added about 30 new products meant to widen the existing categories and increase exposure to non-regulated products.
The problem is that it is still too early to call this a full product-mix transformation. In the company's revenue breakdown, fluid milk alone generated ILS 123.1 million in 2025, equal to about 23% of group revenue and about 76% of dairy segment revenue. In other words, even after the launches and category expansion, the segment still rests mainly on a relatively basic category.
That is not automatically negative. Fluid milk is a volume anchor. It creates shelf presence, production continuity and customer relevance. But if dairy is supposed to become a real profit engine, the business still needs a steadily larger share of products where pricing is freer and margins are meant to be structurally better. By the end of 2025, the path is open, but it is not complete.
The Bottleneck Is Economics Per Liter, Not Physical Capacity
It is easy to get excited by the move in segment profit from ILS 2.7 million in 2024 to ILS 6.4 million in 2025. That is a 137% increase and, at first glance, looks like a clear sign that a profit engine has been born. But the base is still thin: ILS 6.4 million on ILS 162.4 million of revenue is only about 3.9%. Even in Q4, which was stronger, segment profit was ILS 2.35 million on ILS 41.2 million of revenue, or roughly 5.7%. Better, yes. Mature profit engine, not yet.
Why is that happening? The answer starts with raw materials. The company states explicitly that raw milk is the core input in the segment, and that it accounts for more than 60% of raw-material and packaging purchases in dairy. That means even a decent operational improvement still sits under a cost layer the company does not really control. Target price is determined under the Milk Law, updated quarterly, and directly affects dairy profitability. In regulated products, the selling-price update mechanism is slower and happens only retroactively once a year. That creates a built-in mismatch between an input cost that moves quickly and a selling price that moves slowly.
That is not the only bottleneck. The Israeli dairy market is described in the filing as concentrated and highly competitive. The company lists Tnuva, Strauss and Tara as the main competitors, alongside smaller players, cheese, butter and yogurt importers, and even large retailers that import some products on their own. In the same disclosure it says the market requires promotions and discounts, and that its own market share is negligible in every category in which it operates. The implication is straightforward: Zanlakol still does not have the kind of market power that would let it turn growth into pricing comfort.
And here is the point that is easiest to miss. Moving from private label and regulated products into a broader self-branded model is meant to improve profitability over time, but in the short term it also requires a much heavier commercial and marketing layer. The segment note shows dairy selling and marketing expense rising to ILS 21.1 million in 2025 from ILS 13.7 million in 2024. That is an increase of more than 50%, far faster than revenue growth. So anyone looking for a profit engine needs to recognize that the dairy business is still in the phase where it is buying shelf space, assortment, visibility and distribution before it can fully benefit from operating leverage.
What Is Actually Working, and Why It Still Is Not Enough
Despite the yellow flags, there is also a real base for a more constructive thesis. Potential production capacity has already reached roughly 40 million liters, and utilization in 2025 was about 75%. The company says explicitly that, at this level, it can meet some additional demand through higher output and better production planning without the need for significant additional investment. That is the key data point showing that the immediate constraint is not whether there is room to grow, but whether each additional liter can arrive at a meaningfully better margin.
Still, even here the easy reading would go too far. The company invested about ILS 16.4 million in the dairy plant in 2024 and another ILS 6.9 million in 2025. Cumulative investment from the acquisition through the end of 2025 reached about ILS 30.2 million. And for 2026 the company is already guiding to another roughly ILS 16 million of investment. So the statement "there is spare capacity" is true, but incomplete. If the business were already in a stable and comfortable profit structure, it is not obvious that management would still be presenting another sizable investment round one year forward.
| Checkpoint | What 2025 disclosed | Why the story is still open |
|---|---|---|
| Dairy segment revenue | ILS 162.4 million | Growth is now broad, but that alone does not prove pricing power |
| Segment profit | ILS 6.4 million | Only about 3.9% of sales |
| Fluid milk within the segment | About ILS 123.1 million | Roughly 76% of revenue is still concentrated in a basic category |
| Capacity utilization | About 75% | There is still room to grow before physical capacity becomes the bottleneck |
| Dairy investment | ILS 30.2 million cumulative through 2025 | Management still expects another roughly ILS 16 million in 2026 |
| Raw milk within raw-material and packaging purchases | More than 60% | The growth engine still rests on a heavy regulated input |
That is why next year still looks like a proof year rather than an automatic breakout year. For dairy to move from growth engine to real profit engine, three things need to happen together: a higher share of non-regulated products, better absorption of selling and distribution cost across a wider revenue base, and margin improvement that survives even while the key input remains regulated and expensive.
The Real 2026 Test
The right read on 2025 is not pessimistic, but it should not be generous either. Zanlakol has already shown that the dairy plant can grow, fill shelf space, launch products and improve segment profit. It has also shown that physical capacity is no longer the immediate choke point. What it has still not shown is that this growth can translate into a thick enough profit layer to carry the investments, the commercial effort and the pressure of raw-material economics.
Bottom line: dairy already deserves to be treated as a real strategic option inside Zanlakol. But as of the end of 2025, it is still not a mature profit engine. It is a growth engine whose economics per liter are still being built. If 2026 brings another step-up in sales together with a segment margin that moves clearly above the roughly 4% zone, without a matching jump in investment and commercial spend, the read on the dairy business will change. If not, 2025 will look like a year in which the plant still sold much better than it earned.
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