Discount supermarket chain Rami Levy signed an agreement on Monday to take a stake in Cofix that could eventually lead to its controlling the cafe chain that made Israeli consumer history with its single-price menu, as well as its sister chain of grocery stores.
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In a two-part deal, Rami Levy said it would buy 20% of Cofix at a company valuation of 105 million shekels ($30.3 million), and took an option to increase its stake to 50.1% within 24 months after the sale is completed.
In addition, Rami Levy said it had taken an option to buy the 50% of Cofix’s Super-Cofix chain of grocery stores from the Green Lantern private equity fund in exchange for repaying a 50 million-shekel owners’ loan at 12% annual interest. The option is in effect for 18 months from the completion of the first transaction, the two sides said.
Cofix is famous for launching a chain of cafes where everything on the menu cost five shekels – although it has been forced to retreat from the policy this year amid strained finances. However, Rami Levy’s real interest is in the Super-Cofix grocery stores, which were also forced to abandon the single-price strategy.
The deal could be a win for both sides. Cofix has been struggling, forcing it to raise many prices and abandon its one-price strategy. Meanwhile, Rami Levy, the king of Israel’s discounters, has failed to develop its chain of neighborhood-based supermarkets, Rami Levy in the Neighborhood.
Rami Levy has just one neighborhood store while Super Cofix counts 30. The plan is for the grocery stores to adopt the Rami Levy name.
Shares of Cofix ended 16.3% higher at 11.16 shekels in Tel Aviv Stock Exchange trading. Rami Levy shares rose 3.5% at 191.50. Cofix will have the option of selling the stake for cash or Rami Levy shares. Shareholders, as well as the Antitrust Authority, still must approve the deal.
A senior executive at Rami Levy, who asked not to be identified, said the aim was to turn around the Cofix and Super-Cofix chains by exploiting its purchasing power with manufacturers and importers.
“The minute we improve terms of trade for Cofix and Super Cofix, we’ll turn them into profitable companies,” he said. “In addition, the minute we turn the Super Cofix stores into Rami Levy in the Neighborhood stories, we get a nationwide chain with good locations.”
In addition, between the groceries and the cafes, Rami Levy will be adding 150 new sales points for its cellular service and private label brands, the executive said.
Rami Levy also signed a joint operating agreement with Cofix’s controlling shareholders, led by founder Avi Katz.
The deal comes only weeks after Cofix effectively dropped the one-low-price policy on which it had built its brand. Its new menu has some five shekel items but others sell for between eight and 12 shekels, and even 15 shekels in the case of a children’s menu.
The announcement came after Cofix suffered an 832,000 shekel loss in the third quarter as revenues rose just 5.2% from a year earlier. Last February, Cofix raised prices across the board at its cafes to six shekels, a move that alienated many customers.
Super Cofix had an even worse third quarter. While sales were up 30%, thanks to the addition of seven new stores, a jump in costs left it with an operating loss of 1.5 million shekels.