Mega CEO Acknowledges the Major Challenges Ahead

Only three weeks into the job Raviv Brookmayer expresses 'cautious optimism' but says the supermarket chain's suppliers will have to assume some of the risk as well.

Ofer Vaknin

A judge’s approval on Tuesday night of a bailout plan for the financially troubled Mega supermarket chain, the country’s second-largest, came as relief to the company’s employees. The plan, which was approved by Judge Ilan Shiloh of the Lod Central District Court, includes an injection of some 520 million shekels ($138 million) by Mega’s parent company, Alon Blue Square, and a rescheduling of payments to creditors.

The arrangement, which also applies to Mega’s You discount store brand, gives the employees an equity stake in the company. Before the court hearing, the employees had agreed to store closures and layoffs.

But many of Mega’s suppliers and lawyers for the chain’s creditors expressed the sense on leaving the courtroom on Tuesday that they may be back in court in a matter of months, facing another crisis at the retailer.

For Mega’s staff, the court’s approval of the bailout plan was reason for relief, but Mega’s new CEO, Raviv Brookmayer, who has been in his job for three weeks, acknowledges the upcoming difficulties. On Tuesday night, he said, he began to realize the huge challenges that he faces.

“The first thing that needs to be done is to get the wheels of this big organization moving again,” he told TheMarker in an interview. “Over the past two to three weeks it has been in a crisis that included partially empty shelves, unclear relations with suppliers and consumers who probably placed their allegiance elsewhere.”

The next six months are critical for Mega, said Brookmayer, who most recently was CEO of Ne’eman Porcelain and before that was with the country’s largest food retailer, Super-Sol. He also headed the Home Center do-it-yourself chain at one point.

“If we really manage to get through the next half-year, overcoming the obstacles and managing to create confidence and transparency, we will be able to say that we are back on track, but the real test will be in the coming months.”

Asked how he could overcome reticence on the part of suppliers, who are insisting on payment in cash for future merchandise, Brookmayer said that an understanding with them that involved certain risk for both sides was necessary. Suppliers, he said, will not permit themselves to forgo the business of a 160-store nationwide chain.

“Until the end of July, we are operating on cash, as the judge decided, and beginning August 1, we want to come to agreements to return to regular credit terms.” With respect to past debts, 70% of the suppliers’ debts are to be paid in four, weekly installments in August. The other 30% will be paid in 36 installments, only beginning in another two years.

“I don’t accept this approach of suppliers who say that they won’t supply to us,” Brookmayer said, regarding future supplies of merchandise. “Mega is important to everyone, including the suppliers. When a supplier buys a production line, he also assumes risk.”

Brookmayer rejected suggestions that Mega’s Mega Ba’ir stores, which are largely smaller stores in urban areas, should be converted into a discount supermarket chain, saying that the retailer “will continue with the attributes of service at quality at a fair price.” The company’s primary focus, he said, would be on the Mega Ba’ir stores. It would not neglect its You discount stores, he promised. and would invest in renovating them. But the You stores would not get most of Mega’s promotional budget.

Brookmayer expressed what he called “cautious optimism” about Mega’s survival. “You need to understand that it’s a tough market, but there is also an opportunity here. If we continue what we have started and continue becoming more efficient, we will find ourselves leaner, more focused and more prepared to compete in a market where our major competitors are younger and leaner companies,” he said.