Rami Levy Mulling Purchase of Struggling Mega Supermarket Chain

Antitrust opposition may scuttle the takeover, however.

Rami Levy, founder and chief executive officer of Rami Levy Chain Stores Hashikma Marketing 2006 Ltd., Israel's largest discount food retailer, sits on a row of shopping carts outside a Rami Levy Supermarket in Jerusalem, Israel on Sunday, Nov. 23, 2014.
Bloomberg

The struggling supermarket chain Mega has piqued the interest of heavy-discount supermarket owner Rami Levy.

Levy, who owns the heavy discount chain Rami Levy Shivuk Hashikma, is apparently thinking of buying at least some branches of Mega’s urban brand Mega Ba’ir. Over the past few days Levy’s representatives met with Avigdor Kaplan, CEO of the company Alon Blue Square, which owns Mega.

While the prospect of a discount chain making further headway into Israel’s cities is attractive for Israeli consumers, Levy is not thought to be a particularly likely buyer for Mega Ba’ir.

For one thing, Israel’s Antitrust Authority could torpedo any takeover of Mega Ba’ir by Levy because he already owns a significant number of supermarkets. Also, Levy and Alon Blue Square negotiatedin the past, a story that ended in mutual recriminations.

Daniel Bar-On

If Levy buys Mega Ba’ir’s 114 stores, he would likely to use them to run his own brand of supermarkets, which are characterized by large shelf space and low prices - and locations in the low-rent areas surrounding cities, not in high-rent city centers. The Mega stores are smaller than Levy’s usual outlets and being located inside towns, the rents there are higher. Levy is still likely to try to offer lower prices than Mega Ba’ir currently does, although the stores may charge higher prices than his usual stores.

In other countries it’s not uncommon to have discount supermarkets within cities. The discount chains Aldi and Lidl have large outlets outside cities, as well as discount outlets within cities.

Israel does have some discount supermarkets within cities - the Victory and Machsanei Hashuk chains,for instance. Some think that trend will pick up: "The market is slowing, Israeli consumers have less money to spend and we’re seeing the result at the cash register,” saysTamir Ben Shahar, of the Czamanski Ben Shahar consultancy.

Also, he says, Israeli consumers have learned to compare prices and to prefer discount outlets. Since the discount chains are looking for growth drivers, he says, and already have branches nearly everywhere, they’ll look to open stores near where people actually live.

However, sector observers don't think a deal between Alon Blue Square and Rami Levy is likely.

In 2012 Levy negotiatedto buy 53 branches of Mega Bool, which later evolved into the supermarket brand You. The negotiations ended in mutual recriminations over leaks to the media. More recently, a few months ago Levy agreed to buy six branches of Mega, but that never happened. Levy said Mega failed to meet obligations, while Mega countered that Levy pulled out in order to send Mega into bankruptcy proceedings and to buy the stores for cheap in court.

As of a few weeks ago, Levy had been planning to buy most of YOU’s branches, but Alon Blue Square backed out at the last minute and sold instead to a buyer who offered a higher price.

Other sources add that Levy is careful and calculated about business decisions, and would likely move slowly on any acquisition, while Mega is in a hurry to sell.

Levy declined to respond. Mega stated in response that it has seen interest from several potential buyers.