Analysis

The Strange Case of Dr. Rami and Mr. Levy

'Chicken for a shekel' supermarkets magnate Rami Levy is a consumer hero, but people don't want to look too closely at how he manages to deliver the low-cost goods.

Rami Levy
Emil Salman, Ofer Vaknin

Hearing the accusations against Rami Levy that surfaced this week leaves you thinking that maybe that discount-grocery king and consumer's hero must occasionally swallow some strange elixir, like the good Dr. Jekyll, and morph into a bad Mr. Hyde, a bullying, corrupt capitalist pig who harasses honest officials and manipulates the system.

Levy, who was detained this week for alleged fraud, has justifiably earned a reputation for being the good side of Israeli business.

Rami Levy's is a true rags to riches story. He was one of six children from an impoverished family who started out with a single grocery in Jerusalem’s Mahane Yehuda Market, and built it into one of Israel’s biggest supermarket chains. He took on the big boys like Shufersal  and Mega by beating the system and keeping his overheads low.

Levy invented discount supermarkets in Israel, and to this day, he almost always offers the lowest prices. Ahead of the Rosh Hashana holiday, the Israel Consumer Council said that a sample basket of groceries at Rami Levy supermarkets would cost the shopper 671 shekels ($190), the lowest of 14 chains surveyed and 280 shekels less than at the most expensive chain.

He himself contributed in no small way to his reputation. He is always prepared to talk to the press and engages in audacious marketing tactics, like selling fresh chicken at a shekel a kilo for a time. He has become a very wealthy man – as have a small army of relatives who work for the company – but no one can fairly accuse him of ripping off the public, quite the contrary.  

Enter Mr. Levy

That’s Dr. Rami. But more recently we’ve encountered Mr. Levy, too.

Last year Levy was accused of using the database of his cellular communications subsidiary to gather information on customers and employees. He was also accused of covering up sex harassment accusations against an executive and blocking unionization efforts.

Levy and his company deny the accusations and charges have not been filed in that case, but neither have they been dropped.

This week Levy is being accused of pulling strings in the Jerusalem suburb of Mevasseret Zion to get a shopping mall open quickly and avoid paying 21 million shekel in betterment tax. To achieve that, he allegedly hired an associate and the ex-wife of the local council chief as mall executives, and applied pressure directly on officials. Rami Levy Shivuk Hashikma, the business, issued a statement denying everything.

Israelis usually figure that businesspeople are an unsavory lot. Given the chance, they will rip off consumers, exploit their employees, dodge taxes, and defy rules and regulations that get in their way.

This narrative holds that there are good businesspeople, who are better behaved, although they are distinct minority. And, among those chosen few, who could be a better example that Good Ole Rami Levy, a true man of the people who knows what it was like to be on receiving end of capitalist exploitation.

Rami Levy and team open trading on the Tel Aviv Stock Exchange in commemoration of Rami Levy Shivuk Hashikma's 10th anniversary of trading on the TASE. June 25, 2016.
Guy Assayag

The fact is there’s probably no such minority of "better behaved" businessmen at all, certainly not among large-scale entrepreneurs like Levy. Business empires aren’t built on niceness, certainly not in the supermarket business, which has no paradigm-breaking new technologies that can vault you to the top.

If you’re going to charge low prices, then you have to keep your costs lower than the competition’s. That means forcing suppliers to cut their prices and your landlords to charge less rent. That means paying your employees less and squeezing more labor out of them. If you can get pay less tax, or avoid some costly regulation, you’ll do that, too, even if you might find yourself skirting the outer edges of the law.

Startup Nation at home, working abroad

In Israel, the problem is magnified by the heavy hand of bureaucracy. We may be Startup Nation, home to thousands of young high-tech companies, but they succeed because they don’t do any actual business in Israel. If they tried, they would run up against the fact that Israel is a lousy place to do business – it ranks 52 among 190 economies in the World Bank’s 2017 ease-of-doing-business rankings.

The shoppers and the media who laud Rami Levy’s low prices are in denial about how he provides them.

Likewise, the people who fawn all over entrepreneurs, most notably American Republicans, would like to think that their idols have special insights and abilities denied to other mortals that enable him or her to offer the products or services at low prices.

There are such entrepreneurs – Henry Ford with mass production of cars, or Steven Jobs and the iPhone – but they are very few and far between.

The great majority of business heroes succeed by being hard. If Rami Levy had simply kept his prices low without undertaking the often nasty work of creating the cost structure to do it, he’d still be ringing up groceries behind a counter in Mahane Yehuda.

Rami Levy is all about why people love what capitalism delivers consumers, hate the way it happens, and dream of some system that will somehow provide one without the exploitation. No one has come up with one yet.