Supermarkets Launch New Battle on Urban Customers' Doorsteps

Mega and Super-Sol match prices at their own out-of-town stores in bid to push city-center branches.

"It's not worth going out of town for a few shekels," says a new radio and TV ad trying to lure shoppers to Mega's Mega Ba'ir (Mega in the City) stores.

It's all part of a new strategy by Israel's second-biggest food retailer to break down the distinction between its pricey but conveniently located Mega Ba'ir stores and its cheaper but distant Mega Bool discount chain. Mega claims to have reduced prices on no fewer than 1,000 items over the past two weeks at its Mega Ba'ir branches, with the list including many of its best-selling products. It's also cutting back the number of Mega Bool outlets and promoting its You customer club.

Super-Sol, which also operates premium and discount chains, has responded quickly but less decisively. Rather than committing itself to low prices on a wide range of products, the chain is focusing on promotional sales, such as a 24-hour 50%-off-all-prices extravaganza last week. Well, not quite - the sale was limited to customer club members and limited each household to three items.

Neighborhood outlets of large supermarket chains have long suffered a reputation as expensive places to shop. Convenience comes at a price, with the big chains acknowledging that their city-center stores often charge 20% more than their discount branches for the same products. Shoppers know that while it's not worth taking the car to buy a few urgent staples like milk or eggs, it pays to do the big weekly shopping trip at a discount store, even if it involves a drive of a few kilometers. The smaller bill will more than compensate for the gasoline.

Following Mega's latest move on prices, we set out to check the differences in prices between the two store formats and discovered that, indeed, the differences have narrowed.

A survey of 30 products indicates that Mega shoppers have no real reason to get into the car and drive to a Mega Bool to save money. The difference between Mega Ba'ir and Mega Bool for a shopping cart full of items amounted to just 1% - NIS 577.25 at Mega Ba'ir, compared with NIS 570.70 at Mega Bool. This should be good news for city dwellers, but raises a question for the company of what purpose the discount stores serve and how they can continue to expect shoppers to travel distances to their discount locations.

At Super-Sol, however, shopping at its premium Super-Sol Sheli outlets still costs more than at the Super-Sol Deal discount stores. Our shopping cart at Super-Sol Sheli cost NIS 616.55, which was 12% more than at Super Deal, where we paid NIS 552.80 for identical items.

Moreover, in a change from our previous price comparisons, Super-Sol Sheli is now 6% pricier than Mega Ba'ir. On the other hand, between the two discount chains, Mega Bool remains more expensive than Super-Sol Deal, although only by 4% these days.

Another sample we took of 20 different products surveyed only a month ago, following the High Holiday season, showed that prices at the discount stores have been creeping higher. At Mega Bool the prices among the basket of items climbed an average of 3.5%, while at Super-Sol Deal they rose 3% on average. At Super-Sol Deal, for example, a box of Telma cornflakes cost NIS 15 following the holidays and now costs NIS 15.90 – a 6% increase. Hashachar chocolate spread, which cost NIS 12 a month ago at Mega Bool, has now gone up 8% to NIS 13.

Choice limited to expensive brands

It isn't just prices that differ between discount supermarkets and the neighborhood stores, but also size and product selection. The large-scale discount locations carry a number of brands of each product, while at local branches customers are often limited to the leading brands - which are also usually the most expensive.

For example, Tel Aviv's Ben Yehuda Street branch of Super-Sol Sheli stocked only cans containing the smaller-sized Beit Hashita pickles, which are priced higher than cans of large pickles found only at Super-Sol Deal. In fact, most of the package sizes carried by the branch are smaller. Telma mayonnaise wasn't available in a 1 kg. jar but only in 1/2 kg. jars at a higher relative cost.

The Mega Ba'ir at Dizengoff Center also tends to stock higher-priced goods on its shelves, probably due to lack of space. For example, Osem's spaghetti pasta is only available here in special packs of quick noodles costing NIS 8.50, rather than Osem's regular spaghetti pasta (taking three more minutes to prepare), which is sold at Mega Bool for only NIS 5.80.

A more economical option taking shape is Internet shopping, although neither chain has given it much publicity. It seems they don't exactly know to exploit this channel, but understand they can no longer ignore it. A survey by TheMarker, along with price comparison website mysupermarket.co.il, established that the best deal won't be found in the city or the outskirts, but through the personal computer at home.

A basket of items checked on Super-Sol's website cost NIS 554.95 – just NIS 2 more than at the low-price format Super-Sol Deal but 11% cheaper than at Super-Sol Sheli, for a saving of over NIS 60. Add the NIS 30 delivery charge and it still works out more economical. Prices on Mega's website also rate favorably when compared to its stores. The basket of items in our survey cost NIS 569.70 online - NIS 1 less than at Mega Ba'ir and NIS 8 less than at Mega Bool. A NIS 28 delivery charge must be added to this, but for many customers this is worth the time saved. The difference between the baskets on the Super-Sol and Mega websites is just 3%.

While Super-Sol refused to comment, Mega responded: "The price reductions on the range of products at Mega Ba'ir is meant to reduce the gap between the city and discount chains, and provide a shopping experience that blends convenience and proximity with fair and worthwhile prices. We are proud that the results of the survey reflect this trend."

Price were surveyed on October 31 in Tel Aviv at the Super-Sol Sheli on Ben Yehuda Street, Mega Ba'ir at Dizengoff Center, Super-Sol Deal on Yigal Allon Street and Mega Bool in Yad Eliyahu. None of the prices took into account customer club discounts.

Dan Keinan
Moti Milrod