Israel's Mega Supermarket Chain Urgently Seeks to Offload Loss-making Discount Stores

Rami Levy, Victory interested in some stores, but owners want to sell chain in its entirety.

Ofer Vaknin

The third-quarter financial reports for Alon Blue Square Israel, which were released late Monday night, prompt questions about the ability of the company’s Mega supermarket chain to survive. The parent company seems to be having difficulty putting Mega on firm footing, and both Mega and Alon Blue Square’s most recent financial reports contain a going concern warning, an expression of concern about their financial futures. The current focus seems to be on finding a buyer for Mega’s discount supermarket chain, You.

Avigdor Kaplan, the chairman of Mega and CEO of the Alon group, has spent time over the past week attempting to find a buyer for the You stores, which have caused the company major losses. The most significant discussions appear have been held with Rami Levy, the controlling shareholder of the chain that bears his name, who is apparently interested in buying the entire network of You stores with the exception of a few that are near Rami Levy locations.

There is a history of bad blood between Mega and Levy dating back to a prior effort to have him buy 53 Mega locations, and the differences have continued even recently, when an announced plan that was to have Levy purchase six locations from Mega came to naught. Currently Mega is seeking between 70 million shekels ($18 million) and 90 million for 22 You store locations.

Kaplan also had a meeting last week with Eyal Ravid, the owner of Victory supermarkets, who has expressed an interest in buying about half the You stores, but Kaplan seems intent at the moment on selling the entire chain.

“We are in contact with a variety of parties, some from the [supermarket] sector and some from outside it,” Kaplan told TheMarker on Tuesday. The sale of You is particularly important in light of the heavy losses it is causing, Kaplan acknowledged, but he declined to specify the size of the losses. They are thought to have been in the range of 40 million to 50 million shekels between January and September alone.

If and when Mega offloads its You stores, it will be left with 106 of its Mega Ba’ir supermarkets, eight other Mega sub-brand stores and 12 Zol Bashefa locations, which target ultra-Orthodox shoppers.