Simhon: Retailers Do Compete, but to Detriment of Consumers

Secret report on profit margins in Israel's retail industry shows them to be ‘among the highest in the world,’ says Industry Minister.

A secret report on profit margins in Israel's retail industry shows them to be "among the highest in the world," Industry Minister Shalom Simhon said yesterday. In short, he explained, consumers are shouldering the full cost of the supermarket chains' frenzied race to open new branches.

"We're living in a bubble" of unreality, the minister said in a conversation with TheMarker in which he discussed the existence - if not the details - of the secret report, prepared by an Industry, Trade and Labor Ministry committee. The chains are opening new branches like mad, he said, and the unfettered competition could well cause one of them to implode, just as happened to Clubmarket. That chain went bankrupt and was bought by Super-Sol in 2005.

Shalom Simhon - Emil Salman -21072011
Emil Salman

The secret report is based on an inquiry into dairy prices led by Industry Ministry Director General Sharon Kedmi. Simhon has passed the Kedmi report to Antitrust Commissioner David Gilo for further handling. If the commissioner decides there is no true competition, he could launch an inquiry of his own. Meanwhile, Simhon will present the findings to Prime Minister Benjamin Netanyahu today.

At a meeting of the Knesset Finance Committee yesterday, Simhon said the secret report relates to margins both revealed and concealed. The retail chains compete madly to open new branches in which they invest "not one single shekel - the consumer pays for it all," the minister said.

He used the small town of Carmiel to drive home his point about unchecked expansion by the big supermarket chains: It has no fewer than 11 stores, and the Carmiel municipality has received requests for permits to open seven more.

This "illogical competition" is ultimately the antithesis of competition, Simhon said: It doesn't serve the consumer's greater good.

Over at the retail chains, tensions were running high ahead of Simhon's report to the prime minister. The chains' CEOs were calling around last night to try to figure out what the "dramatic information" in the "secret report" is supposed to be.

"Simhon understands nothing," said Adi Zim, co-owner of the Kimat Hinam chain, last night. "I urge him to stop protecting the four big chains. He'd do well to dismantle the big companies and open the market to imports instead of blaming the retail chains."

Adi Dovrat-Meseritz contributed to this report.