Shufersal Cutting Salaries as It Trims Down to Compete With Discounters

Top managers will take a 10% salary cut and others a 5% drop.

A shopper in Super-Sol takes her pick of chocolates.
Ofer Vaknin

Faced with declining profits and market shares, Shufersal – Israel’s biggest supermarket chain – is planning to cut salaries for everyone from top managers to store managers retroactive to August, TheMarker has learned.

Top managers at the food retailer will see their salaries slashed 10% while ordinary workers and lower-level managers on personal contracts earning more than 9,000 shekels a month will see their pay trimmed 5%.

In addition, Shufersal plans to cut back staffing at its headquarters, although the extent of the firings hasn’t yet been determined, and offer hundreds of employees voluntary early-retirement buyouts.

The cutbacks come as the supermarket chain struggles with growing competition from discount chains. In the second quarter, the retailer posted a loss of 157 million shekels as its operating profit slid 46% to just 2% of sales. CEO Itzik Abercohen said last month that he expected further declines in the third quarter.

Shares of Shufersal rose 1.9% to 10.60 shekels on Tuesday in Tel Aviv Stock Exchange trading. But the stock is down close to 19% so far this year while Rami Levy, the biggest of the discount chains giving Shufersal so much trouble, is down 0.7%.

In a letter to employees obtained by TheMarker, management said Shufersal was embarking on a new strategy but assured them that the new, lower pay would not impinge of severance pay terms or social benefits.

Shufersal declined to offer further details. In a statement to TheMarker, it said: “In the framework of the company’s new work program, which includes cost reductions for the company, it was decided to reduce salaries as well as reduce the number of workers at company headquarters, which will be undertaken at a later date.”

In fact, the savings will not be that great for the food retailer because it will apply to no more than a few hundred staff. In 2013, the last year for which there is a public record, Shufersal’s top five executives received a combined 11 million shekels in compensation, with Abercohen alone receiving 3.8 million shekels.

All told, Shufersal employed more than 13,200 people at the end of 2013 – 367 at its headquarters – with a total wage bill of 909 million shekels.

Shufersal announced in June a retrenchment program, including voluntary layoffs of hundreds of staff, closing 15 money-losing branches and reducing floor space elsewhere in the chain.

The retailer is also spending heavily to alter its image in the eyes of shoppers, who have abandoning it for Rami Levy and other discount chains. In a campaign flagged “Big price reductions,” Shufersal has been cutting prices and closing the price differential between its lower-priced Shufersal Deal stores and its more expensive Shufersal Sheli outlets in central city locations.

Dorin Zelnir-Palas, an equity analyst at IBI Israel Brokerage & Investments, estimates that Shufersal’s turnover will show a 4% decline in the second half of the year due to a 3% reduction in selling space and lower shelf prices. Increased traffic from shoppers lured back by lower prices and an increase in online sales will only partially compensate for that, she said.

As a result, operating profit – the key measure of retailers’ earning power – is likely to fall by 60 million shekels in the second half, Zelnir-Palas forecast.

Liat Glazer, who follows Shufersal for Excellent Investments, said she expected the retailer’s gross margin to decline another 0.8% to 1% in the third quarter from the second, when it was 23.5%. It will try to offset lower sales by restricting discount to groups, squeezing better prices from suppliers and the opening of a new logistics center in Shoham – the later alone saving it tens of millions of shekels annually.