Israel’s next big war may not be fought in Gaza or Lebanon, but in the country’s shopping malls and downtowns, and online.
The fight is due to get underway in November, when Super-Sol, Israel’s biggest supermarket chain, enters the so-called pharmacy business against the dominant retailer in the segment, Super-Pharm.
While pharmacy includes drugs, it’s really about toiletries, personal care products and cosmetics, and the stakes are high, which is why industry sources expect no shortage of bloodletting.
Super-Pharm, with sales of 5 billion shekels ($1.4 billion) annually and 240 stores nationwide, is determined to protect its turf. Super-Sol, already the dominant player in food retailing, needs to find new segments to conquer.
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In fact, Super-Sol’s ambitions are so great that many in the industry say its real goal is to become the Israeli Walmart – the place where you can buy everything.
“Super-Sol will make use of its network, including online and logistical warehouses – they have a great site and a logistics system already that even now enable consumers to all kinds of things at one time,” said Tamir Ben-Shahar, a partner in the market research firm Czamanski & Ben Shahar.
“Like Walmart they can sell in one shopping basket food, pharma, fashion, which adds value. In other words, one plus one will be more than two for Super-Sol value,” he said.
Super-Sol’s is getting into the pharma segment through its acquisition of New Pharm, a struggling No.2 to Super-Pharm with just 63 stores it acquired less than a year ago. Super-Sol CEO Itzik Abercohen has plans to boost that number to 100 in five years, although that will still leave New Pharm with a much smaller presence.
Super-Sol also plans to development New Pharms website and link it with Super-Sol’s, already one of Israel’s biggest and most successful platforms. Super-Sol has plans to begin also in November to sell a wide array of products online with its new American Online website and to get a toehold in the tourism business.
No one doubts that Super-Sol has the resources to do it. It has annual sales approaching 12 billion shekels, 14,000 employees and a hugely successful private label brand. A publicly traded company, it has the capital to grow and the means to raise more.
Super-Pharm, a closely held company that reveals less information about itself, has turnover less than half of Super-Sols and part of that is derived from stores in Poland and China. However, industry sources said, it’s extensive store network gives it a huge advantage as does it’s format that has proven hugely popular with the Israeli shopper.
“Super-Pharm has operated in the segment with any real competition,” said Avi Zeitan, an expert on strategic marketing.
“You can find all the product categories sold at Super-Pharm at other places -- drugstores, supermarkets, specialty stores, even in duty free, but Super-Pharm’s unique format has no rival today in Israel,” he said.
“The customer experience in its store is part of every shopper’s trip to the mall … Young people, parents, women and men have been ready to pay even Super-Sol’s premium price to enjoy the experience because no one else offers it.”
Super-Sol could quickly close the gap with Super-Pharm in terms of number of stores by putting New Pharm shops inside its supermarkets. But Ben-Shahar said that would only solve half the challenge posed to Super-Pharm.
Theoretically, tomorrow morning Super-Sol could open a store in a store in each of its 248 branches, and enable consumers to make one single purchase of food and pharma,” he said. “But it must first strengthens its pharma brand enough to convince consumers give up the Super Pharm, which until now has been their preferred shopping venue.”
One place where the two giants are unlikely to fight their wars is over price. As it is, according to a Bank of Israel study, prices for toiletries, cosmetics and personal care products have been falling, thanks to increased shopping by Israelis on foreign websites or more foreign travel.
Both retailers have traditional refrained from using their market dominance and economies of scale to bring down prices. Zeitan said the one place there may be competition is in private label.
“If we’re going to see a price war between the two chains, no doubt private label will be an important place for them strategically. [Super-Pharm’s] Life brand and Super-Sol private label have both earned important places on their shelves and offer customers an option of saving without sacrificing quality—and that’s a trend that expected to grow,” he said.