The High Cost of Seder Dinner, Courtesy of Israel's Supermarkets

Stung by losses from declining food spending, Israeli supermarket chains have given their traditional Passover discounting a miss.

AFP

Passover, with its seder table groaning under the weight of matza and other holiday foods, is usually the time when Israel’s supermarkets make their biggest push of the year to lure shoppers with deep discounts.

But this year is different from all other years: Israelis have been cutting their food spending, and supermarkets have seen their revenues fall and profits fall further, with the older, high-cost chains sinking into the red.

To put a stop to this, food retailers have eschewed big sales and advertising spending to draw consumers’ attention. So at a time when supermarkets and other merchants are under pressure from the media and politicians to help lower Israel’s high cost of living, shoppers are ironically paying more at Passover.

“Prices this Passover aren’t that good as a result,” said a manager at a midsized chain who requested anonymity. “The chains aren’t committing suicide, there’s no chicken being sold for a shekel a kilo. In the first quarter of 2015 we saw that a lot of chains even raised prices.”

At Supersol, Israel’s biggest supermarket chain, TheMarker examined 15 leading products at the chain’s discount Supersol Deal stores. Prices were on average 23% higher in the run-up to Passover than they were before the holiday a year earlier.

In the absence of holiday sales, Taster’s Choice coffee, for instance, was selling for 24.09 shekels ($6.11 at the current exchange rate), compared with 29.90 this year. Persian rice was 44% higher than a year ago at 7.90 shekels a kilogram.

Forgoing sales not only helps supermarkets on the revenue side but boosts them on the cost side because they don’t have to advertise specials. At Supersol, advertising spending over the past three weeks was down 28% at 5.2 million shekels, according to the market research firm Ifat.

“Ad spending has shrunk,” said the manager at the midsized chain. “There’s a lot less of the hysterical advertising like ‘I’m the cheapest of them all, come to me.’ Everyone is more calculating and is constantly checking his profit margins. In the current reality, no one has the breathing space to err.”

Supersol eked out a fourth-quarter profit last year, but it lost 107 million shekels for all of 2014 as sales fell 2.6% to 11.55 billion shekels.

Alon Blue Square, the No. 2 food retailer with its Mega supermarkets, lost 422 million shekels in 2014, widening from 145.7 million the year before. Alon’s supermarket sales fell 5.7% to 5.4 billion shekels. Last month, David Wiessman, Alon’s CEO for three decades, stepped down in an acrimonious dispute with controlling shareholder Shraga Biron.

Supersol and Alon have been struggling to win back shoppers from the newer discount chains. But even the discounters are finding it tough to keep up with shoppers’ hunt for ever lower prices.

Rami Levy, the king of the discounters and the chain that won glory with one-shekel chicken, saw its net profit tumble 34% in the fourth quarter to 20.3 million shekels. Sales only grew because the chain added three new stores last year, but same-store sales slipped 2.7%.

“There’s been a change in consumer habits since the media have begun reporting day after day about the high cost of living,” Mega CEO Motti Keren told TheMarker after Alon released its results this week. He cited tougher regulation and the food law that went into effect this year that places restrictions on how supermarkets and food makers do businesses.

“People have stopped buying. It’s a phenomenon I’ve never seen in all my days in the industry,” said Keren, who joined Mega three years ago after a career at Unilever Israel.

“I expect it will peter out. All over the world, the market for consumer goods always grows at least at the rate of population growth, but it isn’t happening here. And if it doesn’t, then all the players in the market will be in trouble.”

Supersol learned the hard way about discounting. In the second half of last year the retailer lowered prices drastically under its campaign “The biggest price cuts.” But it found out that sales didn’t increase enough to justify the effort. The retailer has a higher cost structure than the discounters and can’t meet their prices and still be profitable, says one industry source.

People in the food retail sector are guessing that Supersol wants to encourage calm in the industry by not pushing rivals into deep discounting ahead of Passover. With the holiday’s special food requirements, people hosting guests and the children home for two weeks, consumers will be filling their carts no matter what.

In any case, with Supersol’s share price down 35% over the past 12 months, CEO Yitzchak Abercohen can’t risk a second-quarter loss because of Passover sales. And what Supersol does, others follow, say industry executives.

“Supersol leads the market,” said one manager who asked not to be named. “If Supersol comes out with a two-page spread advertising loss leaders, everybody will do the same. If Supersol acts more circumspectly, the competition eases.”