Are Israel's Coffee Shop Execs Colluding to Keep Prices High?

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Last week’s launch of Cofix, a Tel Aviv takeaway where coffee - and everything else on the menu - costs just NIS 5, has reinvigorated the public debate over Israel’s high cost of living. People lined up to buy cups of coffee for less than half the usual price, and some even predicted it would set off a price war and eventually break the market.

But that’s unlikely to happen, presumably because the heads of several leading café chains maintain relationships that include discussing prices and other business matters.

Sources have told TheMarker that executives from a number of chains have decided, after examining the issue, not to cut prices or offer discounts in response to the opening of Cofix.

While the cozy relations among some of the chains, all of which have numerous branches, could be considered problematic and perhaps even illegal, all denied wrongdoing.

“We [the coffee shop executives] are online, on the phone, I talk with them and we’re in touch with everyone,” said Ronen Nimni, the owner of Café Café, which has more than 120 branches. Ultimately we’re all friends, we’re all together. All the big chains, we’re all in touch and we’re all talking and no one is going to reduce prices.”

Nimni said he and other executives spoke after Cofix’s headline-sparking launch, and discussed what they planned or didn’t plan to do. Thus, they learned that no one intended to lower prices. He refused to say who the other executives were, but he did say they were heads of the country’s biggest café chains.

Asked why he would believe his competitors, he said, “I’m friends with everyone …. We’re colleagues, I’m not a competitor.”

Café chains now account for 30% of all cafés in Israel and 70% of sales. According to Czamanski Ben Shahar and Co., a Haifa-based economic consulting firm, the largest chains are Aroma Israel (123 branches), Café Café (120) and Café Greg, with 88 branches.

Other important players are Roladin (44 branches), Café Joe (38) and Aroma Tel Aviv, with 25 branches.

The personal ties among executives are extensive, and nearly all the chains are part of this informal network. They maintain “business friendships” that include meetings, discussions of business matters and planning business steps. In some cases they even help competitors receive better terms from suppliers. In conversations with TheMarker, they referred to other as “friends,” “colleagues” and “not enemies.”

The owner of one café chain recounted that after Cofix opened, he received a call from a senior executive at Delek Israel, which owns Café Joe and the Menta convenience-store chain, asking whether he was planning discounts to counter the undercutting. “I told him I’m not responding, so he said, ‘I also thought not to respond, but I wanted another opinion.’”

Asked whether he didn’t consider this conversation problematic, the owner said there was no problem because his chain was not considered a monopoly. “You can’t ask a colleague about ideas?” he said, adding, “It’s not price-fixing or the like. It’s legitimate to ask if you’re going to respond to something someone did.”

The owner of another well-known chain confirmed to TheMarker that he and his colleagues at other chains discussed prices after Cofix’s launch. They considered offering discounts to divert media attention away from the upstart and deliver a “knockout blow” to Cofix, but decided to ignore the new sensation and wait for interest to abate, he said.

He said “all the chains” had considered offering sales. “It was a meaningless conversation. After all you have four to five of the biggest coffee chains, which control the market. They speak to one another, meet up,” he said.

He later said the chains hadn’t really felt pressured by the newcomer. “There was buzz, so everyone was talking about it. “They spoke and realized that it’s uninteresting, so they moved on.”

The Antitrust Authority said in a response, “The most effective way to deal with a cartel is a direct complaint to the Antitrust Authority. The authority invites the public to do so.”

Café Café, Aroma Israel, Café Greg, Arcaffe and Lehem Erez declined comment.

Aroma Tel Aviv and Roladin said they had no connection to the matter.

Café Greg owner Delek Israel said, “There was small talk among executives. The conversation did not involve any coordination. The company is law-abiding.”

The owner of Ilan’s House of Coffee, Yaakov Luzon, said he didn’t know personally the heads of any rival chains. Haim Malka, a co-owner of the Café Neto chain, said, “I wasn’t invited to that party. Even if I had heard something about Cofix, I wouldn’t coordinate. My product is completely different from Cofix’s so I have no reason to compare my prices with theirs.”

Cofix seems to feel that NIS 5 is enough for a nice cappuccino. Other cafes charge anywhere from NIS 10 to NIS 14 (illustrative).Credit: Bloomberg
A Tel Aviv coffee shopCredit: Eyal Toueg

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