The Bottom Line / A local hero
Rami Levy's war is the story of a small competitor; hungry and full of chutzpah. He is trying to capture market share at the expense of his huge rivals, big and fat.
Rami Levy's chicken-price wars were the economic talk of the town this past week. Not the outrageous wages paid to some in the public sector, not the corruption in local authorities, not the long-forgotten Winograd Report and not even the global economic crisis, sliding stock markets and the collapsing dollar.
None of these were anywhere near as interesting as the the price of chickens just outside of Haifa, and very justifiably so.
Rami Levy and his supermarkets supplied a real look into the battles of the business world, straight out of introductory college economics textbooks: Whoever offers the best price will wind up with the customers' money.
This is how we would expect as many markets as possible to function, for example the communications market, financial markets, banking and energy.
Rami Levy's war is the story of a small competitor; hungry and full of chutzpah. He is trying to capture market share at the expense of his huge rivals, big and fat. They would prefer for him to simply disappear, or at the very least hide in the corner quietly.
So who profits from such a competitive sector? Consumers, of course. But when customers make money, someone else is worried. And in this case it is the banks and suppliers, who are required to lower wholesale prices and increase credit lines. Therefore, in the banks' credit departments and suppliers' boardrooms they are debating how to get out of the chicken soup Rami Levy has cooked for them.
They know that in the meantime, the price wars are only taking place in a particularly competitive, low-priced sector. It may make a lot of headlines in the newspapers, but it does not really affect the overall consumer basket.
But they also know that a war that starts with frozen chickens can end in a slaughter. If Rami Levy collapses, it will leave the banks and suppliers with a huge hole and a completely different market, where the two huge supermarket chains, Blue Square and SuperSol, have almost complete control.
That is why they are really hoping that Levy will keep his war local and stick to capturing market share by taking advantage of the headlines. What they do not want is for Levy to take his battle further afield and expand it to the five new branches he plans on opening this year or, even worse, to his eight other existing stores.
Levy has other assets besides his supermarkets. The company itself has NIS 150 million in cash in the kitty. Nevertheless, that is not enough for a long, drawn-out war throughout the entire country. Even worse, the stock is displaying weakness, and has dropped 20% in two weeks - while his rivals' shares have barely moved. In the meantime, everyone knows who the new local hero is - and that is quite an accomplishment.
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