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With Efrat Neuman

The AM:PM chain of supermarkets and minimarkets, which stay open 24 hours a day, has spread like wildfire through the greater Tel Aviv region. It appears that Israelis are prepared to pay for convenience.

Founded in 2001, the chain has 17 stores - 15 in Tel Aviv and two in Ramat Gan. Five opened in 2005 and the chain has plans to open three more by the end of this year.

Here are some other numbers: According to the company's financial reports, of which TheMarker received a copy, revenues in 2005 totaled NIS 137.1 million - up 32% over 2004.

AM:PM, founded by three partners - brothers Ran and Gal Belinkis and Guy Edry  - is profitable.

How much is it worth? Well, the Giza-Zinger-Even consulting firm estimated its value at NIS 100 million back when it had 12 branches.

The cost of convenience

Though the chain maintains a policy of special sale offers all year long, mainly to customer club members, who now number over 35,000 - AM:PM's regular prices are usually higher than those at the large supermarket chains.

One can safely assume that AM:PM's retail margins (the difference between the wholesale price it pays, and the retail price at which it sells) are higher than at the big chain stores.

In all fairness, since AM:PM is a relatively small chain, its buying prices are probably higher too.

AM:PM's owners apparently realize they need to improve these margins; the past year has seen several disputes between AM:PM's suppliers and its owners over the chain's demands for better purchasing terms.

In 2005, AM:PM grossed NIS 34.2 million, nore than 25% of revenues, u pfrom 21% in 2004.

Super-Sol and Blue Square had similar gross profit rates, of 26.6% and 25.8%  of revenues respectively.

AM:PM's operating expenses in 2005 totaled NIS 28 million, leaving profits (before financing costs) of about NIS 6 million, or 4.4% of sales -  up from 1.9% in 2004.

High sales per square meter

One of AM:PM's advantages is that its branches are relatively small, measuring 300-500 square meters, bringing the company high sales per square meter.

In 2005, annual sales per square meter were about NIS 63,000, compared to about NIS 18,000 at Super-Sol.

In 2005, AM:PM's operating profits were similar to benchmark levels in Europe (4-5%) and to Blue Square's (4%), and better than Super-Sol's (2.5%). Net profits have also risen significantly from 0.9% of revenues in 2004 to 2.3% in 2005.

Some of these increased profits came from a reduction in inventory. In 2005, AM:PM had inventory valued at NIS 5.1 million, down from NIS 7.2 million at the end of 2004. These figures are somewhat surprising, as the chain added five branches during 2005.

It turns out that this was accomplished by streamlining the management of stock at each branch.

AM:PM finances its operations mainly via ongoing sales activity, meaning the chain receives credit from its suppliers and does not rely heavily on the banks. In 2005, AM:PM's bank credit was just NIS 3.1 million.

Dun & Bradstreet has awarded AM:PM a credit risk rating of 34, higher than the average (30) in the commercial retail industry.

No IPO yet

The option of floating AM:PM on the Tel Aviv Stock Exchange has been raised a few times in the past year. Sources close to the company say, however, that as of now, the partners have no plans to take the chain public, but rather to improve its value, which has still not exhausted its growth potential.

The sources note that the partners feel no need to issue stock or bring in an additional partner, as the cash generated from ongoing operations is sufficient to finance the company's expansion.

Yuval Zilberstein, a partner at Giza, said on Tuesday that the evaluation his firm conducted for AM:PM indicated room for growth and proved commercial performance.

AM:PM was recently chosen by TheMarker magazine as one of the 10 marketing successes of the year, because of the success of its brand, which caught the public's attention and proved that people are willing to pay more for the convenience of shopping close to home and at all hours of the day or night.

AM:PM stores are open around the clock, all year long, except on Yom Kippur.

Yet the chain faces stiffer competition from neighborhood branches of the big supermarkets this year.

Super-Sol has plans to launch a chain of minimarkets (My Super-Sol), while Blue Square, all of whose urban stores now come under the Super Center brand, is weighing the establishment of a chain of small branches in the 500 square meter range.