Supermarket for Sale - Who Do We Want to Buy It?

Receivers will have to decide between selling Mega as a block or in pieces, to an existing retailer or a new player

Ofer Vaknin

The receivers responsible for selling the struggling Mega supermarket chain will have to decide over the next month whether to sell it as a single business or sell individual stores to the highest bidder.

Their decision could have a major impact on cnsumers and workers, ensuring continued competition in the retail food sector and continued employment for Mega’s 3,500 employees.

Apart from that, Mega’s court-appointed receivers would ordinarily prefer to get whichever sale structure brings in the highest price.

“The receivers would prefer that Mega be broken up because that will bring in more money,” said Tamir Ben Shahar, CEO of the retailing consulting firm Czamanski & Ben Shahar. “In addition, prices will be lower if the stores are bought separately . But a buyer would prefer to get the whole thing because the price will be better and it will strengthen his market positon.”

Several possible buyers are already circling Mega, which won court protection on Monday for the next 30 days. Once Israel’s second-largest supermarket chain, Mega has been whittled down by store closures and the sale of its discount You chain. Still on the block are 114 Mega in the City outlets, high-priced stores located in urban neighborhoods, and 12 Shefa B’Zol stores, which are geared toward ultra-Orthodox shoppers.

Among prospective buyers that would pass muster with the Antitrust Authority are medium-sized chains like Rami Levy and Yeinot Bitan, both of which are planning to make offers for the entire chain.

In addition, an investor group led by Yossi Sagol, whose family controls Keter Plastics, and Eran Meital, a former Delek Real Estate CEO, had been in talks to buy Mega from its parent company, Alon Blue Square, before this week’s court order. If they make a deal, it would mean Mega remaining an independent competitor.

Eitan Yohananoff, whose eponymous chain, is also weighing a bid for all or some of the Mega supermarkets, isn’t reluctant to say it’s in the consumer’s best interest for the chain to be broken up.

“The minute a Rami Levy or other discount chain buys all of Mega, they will have the ability to play with prices and bring down the competition. Anyone who suddenly gets 4 billion shekels [$1 billion] of turnover from urban stores, with their high profit margins, will be able to lower prices at its discount stores,” explained Yohananoff.

Shoppers would benefit in the short run from the price war, he said. “But for sure in the long run it would hurt them, because players that don’t have urban stores won’t be able to match those prices and they’ll go bankrupt.”

But the workers’ committee at Mega would prefer a single buyer, who is considered more likely to ensure they can keep their jobs and save them from pay cuts. At least one other food retailing executive said he agreed with the unions.

“It would be preferable for Mega to be sold as a single business and not in pieces to different discount chains, because at the end of the day the market needs order – we can’t have a jungle,” said the executive, who asked not to be identified. “The market needs an organized player from the point of view of professionalism, organizational culture, work conditions etc.”

Antitrust experts are divided on what would be the better outcome for a Mega sale. Selling the chain to an existing chain would ensure stronger competitor for Super-Sol, Israel’s biggest supermarket chain, but it would also increase business concentration in the food retail sector

Food manufactures and importers said they would prefer for a new player like the Sagol group to enter the market rather than see one of the existing chains increase it bargaining power opposite them. “The existing discount players are killers, they’re very difficult,” said one. “If one of them buys Mega, the war with them will be very hard.”