Private Supermarkets May Lose Out in Expansion Drive

After two years of expansion, private supermarket chains are expected to expand even further this year, creating more competition with the big publicly traded chains. However, this expansion could result in losses for the private chains.

The smaller chains are planning at least 30 new branches, with an average floor space of 3,000 square meters each, a Haaretz study has found.

In 2003, the private supermarket chains had control of some 29 percent of the consumer market, as compared with 26 percent in 2002, according to data released by ACNielsen. The share of the large chains - Supersol, Blue Square and Clubmarket - dropped from 70.1 percent in 2002 to 67.45 percent of sales in 2003. The current consumer market in Israel is estimated to total of NIS 34.7 billion.

But the large chains are also expected to grow this year. Blue Square is due to open another four to six branches of its Mega supermarkets, Clubmarket plans to open another six branches of its Jumbo supermarkets and Supersol is also believed to be planning new branches.

The private chains buy their goods from the large suppliers at a slightly higher price than the large chains but sell them at prices 15-25 percent lower than the expensive outlets of the large chains. This is because they manage to maintain lower operating costs and make do with smaller profits.

In the past, all of the smaller chains tried to operate in a limited geographical area and to compete mainly with the big chains. The expansion of the small chains will lead to greater competition among themselves. For example, Hyper Ramah has opened a branch in Holon next to Hatzi Hinam. And Hatzi Hinam has bought a 34-dunam plot in Ashdod where Abba Victory operates and Tiv Ta'am has expanded its branch there.

Sources in the private-chain market say that this could lead to losses among the private-chain branches. They operate on a 5-6 percent profit margin and will also lose money by investing in expansion. Sources say that suppliers are already viewing them with concern.