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For Country’s Food Retailers, 2016 Was a Tough Year and 2017 Is More of the Same

Consumers are still spending, but fewer of their shekels end up at supermarkets.

An Israeli supermarket.
An Israeli supermarket. Alon Assayag

The past year was a difficult one for the country’s supermarket chains, and it looks like the stiff competition for customers in the face of declining sales volumes is continuing into 2017.

Television viewers may have been surprised last week to see commercials from the Rami Levy supermarket chain advertising products including cottage cheese and cartons of milk at a shekel each (26 cents). And Rami Levy is not alone. Many of the food retailers rang in the new year with more aggressive sales than usual in an effort to bring the customers back into their stores.

But the year began with further indications of sluggish spending, so retailers are attempting to lure buyers at almost any price. It’s not always working.

The Rami Levy chain says the sales promotions are not a result of problematic sales volumes, and instead are part of an aggressive marketing policy. But executives at other chains acknowledge that something bad has overcome the industry. “January began in a shocking manner with a 10% decline in sales at this point, and that’s after a December that was also bad. So all of us [food retailers] have put our hands into our pockets and launched promotions,” admitted a source at a medium-sized supermarket chain. “Every day at noon, I check how we’re doing compared to our daily sales targets, to see if we have a problem, as usually occurs. [Then] we start with crazy sales until the end of the day.”

And he continued: “I launched promotions in the dairy department, but it didn’t work. It looks like customers won’t buy two cartons of cottage cheese instead of one just because the price is cheaper [per item]. They buy what they need. With meat, promotions have more of an effect. In recent weeks, we’ve visited competitors’ stores in several locations to see if the situation is bad for them as well. We found competitors’ stores in strong store locations that were standing empty with employees outside smoking cigarettes.”

For his part, Eitan Yohananoff, one of the owners of the Yohananoff supermarket chain, said January is always a period with sales promotions, but competition in the industry is particularly fierce now. “Our market is flooded with food stores.”

The tough current month is just a continuation of the pattern of last year. A summary of the past year in the industry by the StoreNext market data firm — whose information is based on cash registers receipts at over 2,100 food stores, including small groceries and convenience stores — stated that 2016 saw a 0.5% decline in spending volumes. And this is at a time when the country’s population grew by about 2%. The decline may sound small, but it represents a collective decline of 212 million shekels ($55 million) in sales.

StoreNext says the decline in sales volumes can be attributed to external factors, such as Israelis traveling abroad more and that customers have gravitated to other kinds of retailers for the food shopping needs – including greengrocers, butcher shops and liquor stores.

The industry has also been laboring under other influences. The social protests that erupted in Israel in 2011 over the cost of living focused on food, particularly cottage cheese. Apparently it is still a factor, as is government regulation that has made pricing more transparent.

But consumer spending in general has not declined. It’s supermarket spending that is down, and for Yohananoff, that is a source of consolation. “That means we have what to work with and that we are in a market that is alive, not dead. The country is not in a recession. New car sales are increasing, people are flying abroad more. People are eating out more. It’s not that people don’t have money. They just prefer to spend it on other things. So I am not concerned by the decline in the food sector. It’s true that our sector hasn’t grown, but at the moment natural population growth is 2% a year. So the food sector will return to growth sometime.”