A Supermarket Saint, or a Greedy Grocer: Who’s the Real Rami Levy?

He made his name as the consumer’s champion with cheap frozen chicken, but some assert that Israel’s celebrity food retailer’s image isn’t deserved.

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

Rami Levy won the hearts of Israelis by offering them a kilogram of frozen chicken for one shekel (25 cents). Considering that everybody else was selling the birds for between 25 shekels and 30 shekels a kilogram, his special limited offer, made by his supermarket up north, was spectacular, and caused quite a big of congestion on roads in the area.

Now, years later, his reputation as champion of the Israeli shopper is under threat. Some former workers allege that his pay practices are anything but considerate of the little man, and there are even accusations that his eponymous retail company overlooks sexual harassment complaints.

Scene: Last Tuesday, the National Labor Court in Jerusalem. Rami Levy, surrounded by a battery of lawyers and advisers, has shown up for the hearing in his trademark jeans and a simple white shirt. Pitted against this purported Robin Hood of Retail were workers from Bikurei Hashikma, a subsidiary that merged with the supermarket chain.

These are people who work hard to make a living. They don’t live in a mansion with a swimming pool like Levy does. They sued in the hope of blocking a merger between Rami Levy and Bikurei Hashikma, though that did go through at the start of 2016, and over the fact that pay at Rami Levy is lower than at Bikurei Hashikma. Levy barely exchanged a word with the workers in court, though the judge kept hinting that the parties needed to talk.

Poor timing

Actually, the lawsuit’s timing is lousy for Levy.

Levy began with a tiny store in Jerusalem’s Mahaneh Yehuda market that he grew into a nationwide retail empire. He arguably began the deep-discount trend in Israel and was even invited to light an Independence Day torch in honor of his contribution to narrowing social gaps. But others latched onto his gambit (sort of “pay less, get more”) and some of his suppliers and workers complain of exploitation.

Discount stores now account for 60% of Israel’s food retail market, says the market research chain Czamanski & Ben Shachar, and though Rami Levy has the biggest chain with 34 branches, he has competition in the cheapo corner, from chains such as Victory and Osher Ad, to name a few.

Levy was the antithesis of Nochi Dankner: a man of the people born with nothing, who built his empire with his own two hands, versus a tycoon born to riches who built his empire through the strength of his connections.

Levy destroyed the domination of food retail by expensive chains (one of which, Mega, has just collapsed), by offering the cheapest “basket” of products. In every place where he opened a branch, prices fell as, kicking and screaming, the competition had to adapt. Levy was also brilliant at reading market trends: For instance, he was the first supermarket chain in Israel to offer low prices over the Internet.

Consumers did well and so did he, but some of his employees and the farmers supplying his stores claim that they are getting screwed.

The Bikurei Hashikma people won a partial victory in the end. Levy rehired all of them, rather than just some, under the same conditions as before. Levy was satisfied because the decision was reached before the court could rule. But his saintly image had been tarnished.

“He’s a huge manipulator,” claims Eyal Malul, a truck driver for the company and one of the leaders of the workers’ battle. They had a 10-minute talk, he says, during which Levy swung between victim- and tyrant-mode: “Why are the workers doing this to me?” followed shortly by “You know I could shut down the company tomorrow?”

“He has no boundaries,” Malul says. He’d worked at a rival chain, Supersol, owned by Dankner, for four years and felt nothing for Dankner, for better or worse. But he and the other drivers, Mizrahim from Israel’s poor geographic and social periphery, felt that Levy was one of their own who made it, so now they feel doubly betrayed.

Levy built his reputation on his concern for the downtrodden consumer, while also looking out for members of his family. Rami Levy, which is worth 3.4 billion shekels on the stock market, employs nine of his relatives. “When Dankner appointed his daughter as a director, what a fuss there was,” says a senior figure in the Israeli capital market who was speaking on the condition of anonymity. “Levy has a whole tribe in his management and nobody peeps.”

Levy also has many political connections. He is said to have close ties to Kulanu, the party founded by Moshe Kahlon, and is a friend of the finance minister’s brother Kobi Kahlon, a former head of the Jerusalem Planning and Building Committee. Before the last general election, in March 2015, Levy was offered the third slot on the Kulanu ticket for the Knesset. Levy declined, but he has a permanent entry permit to the Knesset.

Levy is a member of the Jerusalem city council, but not an active one. He has no portfolio, despite being chairman of the coalition. Many suspect that Mayor Nir Barkat slated Levy on the list (from 2003) just because he’s a votes magnet. In any case, it doesn’t look great, considering Levy’s many interests in the city — six stores and plenty of land for development. His stores been accused of irregularities and Levy, wearing his hat building-contractor hat, is in talks with the local zoning board.

He’s also engaged in a 3-million-shekel dispute with the Jerusalem water and wastewater utility Hagihon — the charge for infrastructure for a mall he’s building in Mevasseret Zion, a town just north of Jerusalem. As a municipal company, Hagihon’s directors are appointed by the Jerusalem city council — of which Levy is a member.

Not always the lowest

As long as Levy’s prices were really the lowest, criticism of him was muted. He’s still the cheapest, but in Ashdod, for instance, his store has suffered from competition by next-door neighbor Mahsanei Shuk, a chain with 23 outlets. “In the past we only shopped at Rami Levy but today the competition is offering great stuff for just as good a price, so we hardly go there any more,” one shopper observed.

The Levy people shrug that the Shuk outlet is new, so people are curious, but they’ll come back.

Fact is, one can feel Levy raised his prices, claims Yuval Luvenshtein, a strategic retail consultant. “It stands out with the fruit and vegetables ... even the private label Levy launched some months ago isn’t cheap enough, in my opinion.” Levy’s slogan has always been “the cheapest price” and he’s a marketing genius but after some years, Luvenshtein feels the Levy brand is eroding.

So are his profits. For the third quarter of 2015 (the last for which there are figures), operating profit came to 1.9% of turnover, compared with 2.5% last year.

Excellence Nessuah Brokerage Services analyst Michal Alshech feels that Levy has been affected by Israel’s security situation because his stores are mainly in Jerusalem and the West Bank, but that’s not the whole story. “Note that in 2015, he opened six stores, growing from 28 outlets to 34, which is a very big jump for a chain that size,” Alshech says. Sales at the new stores are relatively slow because shoppers don’t know it yet, but the stores nevertheless have overhead. She foresees operating profit recovering to 2.15% in the last quarter of 2015 — but that’s still lower than the 2.7% achieved in the fourth quarter of 2014.

Tomer Czamanski points out that Israel’s retail market isn’t growing: It’s worth 64 billion shekels a year and the addition from population growth is hardly felt — and discount chains have been popping up like mushrooms after rain. The differences between them in price are no longer large.

Levy had been in negotiations to buy the collapsing Mega chain; ultimately, with accusations flying in all directions, he bought six of its outlets. Alshech thinks the reason he forwent the others is because the Mega branches are in city centers, where rent is sky-high, while his mega-markets are outside city centers. “His strategy is to be the cheapest. Entering the city center would have mean changing strategy,” Alshech says. She believes his chain will grow to 50 or maybe 60 stores but they’ll stay in peripheral areas where rent is low.

One problem he had with Mega may have been its labor union, an institution he can’t stand. His treatment of workers, as one can see in the Bikurei Hashikma affair, is key to understanding his conduct. The Rami Levy chain says it has 4,900 employees and 1,200 contract workers (cleaners, guards, etc.) Most make minimum wage or slightly more. The next rung, department managers, don’t make much more. The head of the produce department may get 5,500 shekels to 6,000 shekels a month (around $1,400-$1,500). Supersol pays such workers about 1,000 shekels more a month.

A typical Levy store has three times as many workers as a Supersol store, but his management is much leaner. Alshech says Levy workers are indeed not paid well: “Levy’s sales are around 70,000 shekels per square meter, compared to less than 20,000 shekels at Supersol. He needs all those workers, mainly stockers and cashiers. But his employee churn rate is high, which suits the chain, because under a collection bargaining agreement, workers get raises after four years. “Workers get changed like socks,” says a former low-level Levy manager.

Versailles II?

Levy has a habit of first opening a branch, and only then obtaining permits. The national planning and building enforcement agency is investigating some of his branches in Jerusalem over alleged violations that include the blocking of an emergency exit and using areas designated for parking as additional retail space. In other words, he “occupied” part of the parking lot to increase sales space. One branch was fined 18,000 shekels over such violations and for operating without a business license. The enforcement unit refused to discuss the cases but according to the company’s 2014 financial report, there were six outstanding legal proceedings against the company. Levy himself has explained the logic: The fines involved in such cases are tiny — “immaterial to the company.”

In 2013 the company was fined a not-tiny 350,000 shekels for operating without a license in Ashdod and other offenses, including the illegal construction of a 600-square meter gallery space. “This was not a mistake in judgment or negligence,” wrote the judge. “It was a deliberate act done while blatantly ignoring the provisions of the law, apparently for economic and/or marketing reasons, or others.”

In 2013 the company was fined a whopping 900,000 shekels for illegal use of land and other offenses in Mevasseret Zion: For five years the company had failed to demolish an illegal metal building that it rented (not owned). The great snowstorm of 2013 did the trick: Snow built up on the roof and the whole thing collapsed. Since then, Levy has no supermarket in Mevasseret Zion. “The fine was big, but Levy got lucky,” observed an enforcement agent. “If the thing hadn’t collapsed on Shabbat, we could have had a Versailles II incident,” referring to Israel’s worst civil disaster, in May 2001, when 23 people were killed and 380 injured during a wedding due to faulty construction compounded by later negligence. If dozens of people had been injured or killed because of violations at a Levy store, that would have ruined his reputation, said the agent, who was speaking on condition of anonymity.

Levy’s no favorite of farmers either, who claim, among other things, that he uses unfair methods, including classifying produce as defective when it isn’t, in order to pay less. Others say Levy didn’t invent the wheel: Everyone works that way. “The system is rotten. Levy just continued a grand legacy of terrible conduct,” says a former employee who asked to remain anonymous. But maybe the whole point is that people expected more of him.

Rami Levy denies paying his employees only minimum wage. They receive more and also receive benefits, the chain stated, and get more perks after three years with the company. It also claims that its employee turnover rate is the lowest in the industry and by the end of 2016 it will have created an additional 2,000 new jobs. As for the Bikurei Hashikma affair, the workers’ claims are untrue. As for the farmers, the company doesn’t deal with them directly, it said, and the claims are designed to prevent it from continuing to sell at the lowest prices in the land.