The Super-Sol supermarket next door to the G shopping mall in Kfar Sava checked out its last groceries not so long ago, squeezed between competition from the mall and growing online sales.
And what happened in Kfar Sava could happen elsewhere to Super-Sol’s network of brick-and-mortar stores – the biggest in the country – as Israeli consumers forswear shopping carts in favor of smartphones.
Online sales for the food retailer jumped 30% in the first quarter and now account for 12% of total turnover. Meanwhile, overall sales were a sluggish 1.5%, lower than the 2.2% for all supermarkets, which spells falling sales per square meter of grocery store space and per employee at its branches.
Super-Sol hasn’t made a final decision on how many of its stores will close or shrink this year. In fact, it has plans to add two more in Be’er Sheva’s Ramot neighborhood and in the new city of Harish, south of Haifa. But executives have been talking about 8,000 square meters, or about 1.6% of the total.
Israelis have been slow to buy online, but the trend is quickening and Super-Sol executives say that within three years, web sales will reach 15% of the total.
They expect that 5 to 7% of stores will be converted into warehouses, where online orders can be fulfilled near the customers who have ordered them. In the retail industry these are known as “dark stores,” a retail facility that resembles a conventional supermarket but is not open to the public and houses goods used to fulfill orders placed online.
Eventually, though, even these facilities will be abandoned in favor of dedicated logistics centers. In fact, right now Super-Sol is building a 55-million-shekel ($15.6 million), 8,000-square-meter facility in the coastal town of Netanya, which will open in the first half of next year.
Not long after it is completed, Super-Sol expects to have reduced its retail selling space by 7% compared to the end of 2016, and 18% relative to the end of 2012 – a total reduction of 100,000 square meters by the end of 2019.
It is all part of a cost-cutting operation that began in 2014, in response to heightened competition from discount retailers like Rami Levy. More recently, the rapid adoption of online shopping has made the cutback even more urgent.
Super-Sol’s strategy has implications beyond grocery shopping patterns. It’s a big blow to the company’s real-estate unit, which owns many of the stores that it leases to its parent. Super-Sol Real Estate owned 67 of the food retailer’s stores as of the end of last year, and rents another 205 stores from other landlords in Super-Sol’s name.
Super-Sol’s brick-and-mortar retreat is no less a potential blow to mall owners and operators, especially since Super-Sol supermarkets serve as an anchor store for many of these malls.
Super-Sol spun off its real-estate operation four years ago with the idea of eventually taking it public, but since then the unit has become more of a burden than an asset.
Sources at Super-Sol say they aren’t concerned about the shrinking number of stores, saying they should be able to find alternative tenants – but the company’s own financial statements point to a different story: Super-Sol Real Estate’s rental income dropped 3.8% last year to 126 million shekels, while net operating income dropped 4.9% to 118 million shekels.
Want to enjoy 'Zen' reading - with no ads and just the article? Subscribe todaySubscribe now