Discount supermarkets have gradually won over many Israelis. Price-cutters like Super-Sol Deal, Mega Bool, You, Rami Levy and Yenot Bitan now account for about half of Israeli food spending, even more than the 40% their German peers control.
But what counts as “discount” in Israel would hardly impress a German. Prices at Israeli discount stores are still higher than those in Germany and other European countries.
Tamir Ben Shahar, chief executive of the retailing consulting firm Czamanski & Ben Shahar, points the finger at Israel’s big food makers — Tnuva, Strauss, Osem, Unilever Israel and the Central Bottling Company, often known as Coca-Cola Israel. Together they account for over 40% of the Israeli food industry. For years, these groups bought up independent brands and companies, often creating monopolies.
“The Food Law failed because it didn’t deal with the main problem: the profit margins of the manufacturers, importers and middlemen,” Ben Shahar says, referring to legislation due to go into effect next year. There’s now competition among the supermarkets, but not so much among food manufacturers, he says.
“We need to break up Tnuva, Osem and the others. How could the antitrust commissioner have let them buy so many companies and become such monsters?”
Still, the Israeli consumer bears some of the responsibility for the high food prices, Ben Shahar adds. “They’re unwilling to give in on service and wait at the checkout counter like the German shopper at chains like Aldi and Lidl. We’re spoiled and bad consumers,” he says.
Germany’s discount chains are discount stores with all that entails: no service, long lines, products displayed in packing crates, and lots of private-label brands that sell at under half the price of brand names.
White Line fades
At the height of the cost-of-living protests in the summer of 2011, Super-Sol launched its own cheap brand, Hakav Halavan (The White Line). It priced generic goods, particularly cleaning supplies and toiletries, at less than half the price of leading brands.
That’s a much steeper discount than 12% to 18% for the chains’ regular private-label goods, according to a price survey last week by TheMarker. But Super-Sol is cutting the line back.
The controversy over steep Israeli food prices was rekindled this month when Israelis in Berlin posted on Facebook a picture of a German equivalent of Israel’s Milky — an extremely popular packaged chocolate pudding. The German version was selling for a third of what Milky does in Israel.
But according to analyst Bianca Casertano, who covers the supermarket business in Germany, Austria, Italy and Switzerland for Planet Retail, the German version on the Facebook page isn’t the same as the one sold in regular supermarket chains. It’s from Aldi, a super-discounter.
Nevertheless, Israelis are right that Germany is cheaper, Casertano says. Germany is one of the cheapest places in Europe for food and soft drinks.
Germany’s concept of discount chains started in the 1960s and has gradually become widespread throughout Europe. Germans prefer cheap products, so this puts pressure on non-discounters, Casertano notes. Sales at discount chains make up 40% of all food spending in Germany, a showing only beaten by Norway.
Still, other countries are catching up. In Britian, for example, Aldi and Lidl have an 8% market share. That’s much less than that of the four largest chains, which control two-thirds of the market, but the cheaper alternatives have put pressure on market leader Tesco, cutting its share to 28.8% from 32.2% a year ago.
In France, the four largest chains have a 56% market share, in Spain 50%. In each of those countries, the old-school food retailers face new discount competitors.
But the mentality of choosing products based on price extracts its own price, say food-retailing experts. Aldi and Lidl operate stores about 1,000 square meters large in city centers. Service is bad and they only clean the store once at the end of the day, says a former senior executive in the Israeli retail sector.
“You can wait 10 minutes for the cashier, or even 20 minutes. In Britain, for example, it didn’t work, because the British aren’t willing to enter a store that isn’t clean or nice. So they improved the look of the place and the service, added a few brands and raised prices a little. There are virtually no brands there — more than 95% of the products are basic, cheap private-label brands,” the former executive says.
“You have to understand that the Germans don’t care about brands, they don’t care that in the regular waffle there’s chocolate and in the Aldi one there’s a waffle with the taste of chocolate. Price interests them the most, so prices there are very low.
"The Israeli consumer is interested in the quality of the product, and especially in the variety. She wants them to offer her hummus with the chickpeas, coarsely ground hummus and restaurant hummus. And she very much loves innovative products and expensive limited editions.”
Tel Avivians go to coffee shops and restaurants 100 times more often than their German and British counterparts, the former executive says.
“At most they go out to drink beer. We love to have a god time; we buy brands three times more often than the European consumer,” he adds.
“The number of people who wear Ralph Lauren here is insane. In Germany or Britain a worker only buys Ralph Lauren for his wedding. The German switches his Internet provider if it will save him 2 euros. He’s much more calculating.”
Awakening to price
Ben Shahar says that until a decade ago, the Israeli consumer was relatively indifferent to prices. “Only in the last year or two has he achieved a somewhat mature approach and realized he has the ability to influence things. But today the Israeli consumer is also often foolish,” Ben Shahar says.
“He can’t keep going to expensive supermarkets and expect prices to go down. If he sees an Osem product near home that’s 20% more expensive than at Rami Levy, he should buy at Rami Levy. He should buy more private-label brands, not expensive products. But the Israeli consumer buys and cries.”
Despite the clear differences between German and Israeli shoppers, experts say there’s room for the Aldi and Lidls of the world in Israel. “Aldi and Lidl could very well succeed here, but only in a limited way,” Ben Shahar says.
Israeli consumers would need to get used to their stores offering one type of hummus and one type of tahini. That means they would only see around 10% of the items that a neighborhood grocery store usually offers.
Still, Ben Shahar warns, Israeli prices would probably be higher than in Germany because of Israel’s 18% value-added tax, not to mention high rents and municipal taxes. On the other hand, they would probably be lower than at discounters Rami Levy and Super-Sol Deal.
“A decade ago, I traveled with one of the two large Israeli supermarket chains for a tour of Aldi and Lidl outlets in Germany to see if they could bring the model to Israel,” Ben Shahar says. “In the end they didn’t, but I still think there are people in Israel willing to compromise on the shopping experience.”
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