Key Supplier Stops Deliveries to Israel's Second-largest Supermarket Chain

Others still doing business with Yenot Bitan and Mega stores, but express concern about chain’s finances

Yenot Bitan founder Nahum Bitan at one of his supermarkets in 2015.
Pavel Tulchinsky

Israel’s second-largest supermarket chain, Yenot Bitan, suffered a severe blow on Tuesday after one of the country’s biggest food suppliers, Neto, stopped deliveries out of concern it will not be able to pay suppliers.

No other food makers or importers were reported to have followed Neto’s stance, but the move sent shock waves through the industry and may spur others anxious over Yenot Bitan’s finances to halt deliveries as well, industry sources told TheMarker.

Yenot Bitan vaulted into the No. 2 spot among Israeli supermarket chains just over a year ago, behind Super-Sol, after it bought the failed Mega chain for 455 million shekels ($127.9 million). But financing the acquisition was costly and Yenot Bitan has failed to turn around Mega’s declining sales.

“The problem with Neto is a painful blow, because [CEO Dudi] Ezra has a reputation of being the first one to see a problem,” one major supplier, who asked not to be identified, told TheMarker. “That’s what happened with Mega previously – Neto was among the first to stop deliveries for merchandise not paid for in cash.”

He said other suppliers were concerned about credit terms. “I assume that many companies are having discussions about what to do in light of the Neto-Bitan affair,” he added.

On the Tel Aviv Stock Exchange the news sent shares of Neto lower, ending down 3.3% at 361.80 shekels. But grocery chains rallied: Super-Sol rose 2.5% to 19.06 and Rami Levy added 3.35% to 173.

“The feeling is that Yenot Bitan is going to have trouble steadying itself over the next months/year, and in the meantime the other chains will exploit that,” said Dorin Palas, head of research at the IBI investment house. “In a scenario where Yenot Bitan doesn’t recover, we see a reduction in floor space coming that will be a gain for the supermarket chains.”

Neto had already halted deliveries of meat and fish products several months ago, but on Tuesday it extended the ban to the rest of its products, which include Tibon Veal packaged meats, Williger canned goods, Delidag fish products and frozen bakery products from the Three Bakers and Rich’s.

Neto declined to comment. Yenot Bitan said in a statement that “business has never been better,” and that Neto was “engaging in slander and nonsense” because the chain had successfully found other suppliers in place of Neto.

Some industry sources said Neto had reduced deliveries to Yenot Bitan and Mega stores so much that the most recent move was mainly symbolic. Nevertheless, they said many in the industry were concerned about Yenot Bitan’s future.

“From the start we knew the purchase of Mega by Bitan wasn’t a good deal,” said one executive, who asked not to be named. “We knew Bitan was financing the deal from cash flow, but it has been meeting payments and we assumed that meant it was not facing collapse. But it could create a domino effect with suppliers seeing that Neto has acted and follow it.”

Nahum Bitan built his discount supermarket chain into Israel’s fourth largest with 71 stores. But industry sources said he has made some critical mistakes since taking over Mega – once the No. 2 chain itself, but focused mainly on the higher end of the market with neighborhood stores that charge higher prices.

One mistake, they said, is that Bitan decided to drop Mega’s private label line of goods at a time when the segment is a growth engine for supermarkets. Another is his failure to draw in shoppers with sales.

Another error was his agreeing with Mega’s workers committee to preserve salaries and other conditions at Mega stores, even though they were more generous than the industry norm. He also agreed to limit layoffs to just 50 employees.

As a closely held company, its financial figures are not made public.