How Cheap Became Chic in Israel

It isn’t that luxury is louche, it’s that people are sick of being exploited, say discount barons Avi Katz and Rami Levy.

A branch of the Cofix coffee chain, south Tel Aviv, January 2015. Less profit per sale, but more sales.
Ofer Vaknin

It’s Sunday morning but the Ehad supermarket, launched in Ra’anana just a few days previously, is full. The only thing missing is familiar brands – no products by major Israeli foodmakers Telma and Osem, none by Tnuva or Strauss.

Yet although Israelis hadn’t heard of the brands in the aisles, the shelves in the cheese section were half-empty, after the initial stampede took management by surprise.

The prices at Ehad are generally lower than at standard supermarkets and, as said, its brands are unknown. But the place looks expensive – wide aisles, “upmarket” design.

People are coming from towns all around Ra’anana to check out the new discount store. “It’s a feeling in the belly that one doesn’t want to be taken advantage of any more,” says one shopper.

Ehad is riding a trend in Israel: look pricey, sell cheap. It began with the Rami Levy grocery chain, which, in 2010, offered chicken for a shekel a kilo way up north - causing a nationwide stampede. Next came the cellular revolution, spearheaded by former communications minister Moshe Kahlon, which brought cellular magnate Michael Golan and his explicit campaign message, “Enough of being a sucker!”

Then came Cofix, an explosively growing chain of cafés offering all of its products – from coffee to sandwiches to dessert – for 5 shekels (about $1.25); discount glasses by Carolina Lemke; and even discount haircuts, advertised as “Cofix in hair design.” One store touts itself as the “Rami Levy of printer ink”; then there’s the “Cofix of gyms.”

In short, cheap is in. The people demanded social justice but didn’t get it – and nifty entrepreneurs saw an opportunity.

Naturally, there has always been a market for cheap goods, exemplified a decade ago by low-cost electrical appliance stores. IKEA arrived in Israel in 2001 with its cheaper furniture. Also in the early 2000s, the department store chain Hamashbir Lazarchan and drugstore chains began offering cut-price perfumes, to compete with the duty-free. And in 2010, the trend arrived in clothes, when international chains like H&M came to Israel, offering good clothes at relatively reasonable prices. Israelis were charmed and discount garb became all the rage, including at upscale malls.

Come the Cofix revolution

Pretty much nobody had heard of Avi Katz before he opened the first Cofix outlet, offering coffee and a host of other things for 5 shekels a pop. Today he’s practically a celeb. Having survived despite claims by outraged café owners that his chain was unsustainable, he’s sought-after for lectures. He was even offered a place on Moshe Kahlon’s Knesset slate.

Katz feels he played his part in making cheap the new chic. “When I opened Cofix, everybody had something to say against me. The competition said I’d lose money and the business wouldn’t survive, that I was a cheat. What didn’t they say.”

But he’d been around the block before: Katz is the guy behind discount toystore chain Kfar Hasha’ashuim and the chain “Everything for a dollar,” too. Two weeks ago, he opened the 47th Cofix outlet, in Hod Hasharon, and he’s got around 25 more at the planning stage. Flouting the doubters, he and Cofix survived.

Across the street from the Haaretz building and the courthouse in south Tel Aviv is a new Cofix branch, which opened a month ago. At its tables are two men in suits, an American tourist reading a newspaper and a woman sitting at the “bar,” Yael Baniel, who says that Cofix and Katz changed the way she buys coffee during the day. “The coffee [Katz] sells is just as good as the competition when you know you can get it for 5 shekels, your heart won’t let you pay more,” she says.

Avi Shemer, the franchisee running the new Cofix branch, says turnover there is as brisk as expected and adds, “Our coffee and food is good quality, no less than products sold for more money.”

Can you make a profit selling coffee for 5 shekels? Yes, he says: less profit, but profit nonetheless. As another discounter points out, he makes less per product, but sells more products. It evens out.

Lookin’ good for less

A poll by the Panels research institute for TheMarker among 262 adults (via the Internet) found that 73% have visited a discount outlet at least once, mainly because of the low prices (67%) or curiosity (almost half). A majority (65%) say the discount stores really are cheaper.

The new Israeli consumer doesn’t want to buy dreck; he wants quality and good service, too – just not to get reamed.

Yossi Gabizon is bringing the discount trend to clothing, glasses and more. He’s behind the low-cost Carolina Lemke spectacles, Top10 accessories, and now he’s building a chain of Urbanizer stores for low-cost shoes and clothes. The new Israeli consumer wants cheap but he wants trendy, too, says Gabizon: fashion collections have to be refreshed frequently. It is true that supermodel Bar Refaeli appeared in ads for Gabizon’s stores, but it seems their success is more a function of positioning as fashionable and cheap.

Gabizon also feels some people are lowering their “branding” standards: if once a person would only buy top-tier brands, now they’ll go for midrange brands; and from midrange, people are lowering their standard to cheap brands, he says. Instead of buying Prada glasses for 700 shekels, they’ll buy Carolina Lemke for a fraction of the price.

Smart people buy at Rami Levy?

That would fit with economic analyses suggesting that Israelis have less disposable income.

“Our customers are from the rich to people who don’t have any money at all,” says Rami Levy, owner of the eponymous retail chain and still (sorry, Katz) the man most associated with discount shopping. People may be sitting pretty but still hate to feel they’re being taken advantage of, explains Levy, who, thanks to discount shopping, has become quite the business baron himself. “Naturally, the social-justice protest intensified the trend. A survey we conducted found that people who shop with us tend to be more educated than people who shop at other chains,” he adds – they get it, that they leave the store with more products for less money.

If there’s an exception to the rule, it’s top-tier restaurants – which, if anything, have been raising prices. In parallel, though, a slew of low-cost restaurants have been opening up – whole meals for $4, which are perfect for young adults in their 20s and 30s who don’t have much money. “They may be small and look messy but they have a culinary statement to make and the food is good,” says Janna Gur, editor-in-chief of On the Table magazine, noting especially restaurants on Lewinsky Street in south Tel Aviv, or the new-generation hummus joints across the country.

Upscale sellers are sweating, and they’ll have to lower prices, says importer Solly Sakal. “Prices of brands like Ralph Lauren and Tommy Hilfiger are significantly lower in the United States than in Europe and Israel a product sold here for 500 shekels costs 150 shekels in a U.S. outlet.” Once the name brands lower their prices, they’ll stage a comeback, he says confidently: the slogan will be “Good brands for less,” which is what the consumer wants.

Moti Scherf, who handles public relations for some of Israel’s biggest companies – including the likes of Teva Pharmaceuticals and Bank Leumi – says it isn’t that Israelis’ economic situation has changed. Their psychology has. “The economic parameters have not changed drastically in the last three years, but awareness of correct consumerism has increased,” he says.

Before, people might buy cheap brands, but they wouldn’t boast about it. “Now you can see people uploading pictures of a product they bought cheap on Facebook. They’re saying, ‘I’m smart’ ... buying cheap isn’t about economizing or poverty. It’s a way to say, ‘The companies won’t make their dime off my back.’”