A Tale of Missed Opportunities

The press had been reporting for months about stiffed suppliers, Clubmarket's shrinking market share, and the company's search for a new CEO, or candidate board members.

The press had been reporting for months about stiffed suppliers, Clubmarket's shrinking market share, and the company's search for a new CEO, or candidate board members. Finally, CEO Yaakov Ginsburg had it, and announced his resignation.

Ginsburg stepped down, leaving Clubmarket Marketing Chains battered and bleeding, far behind arch rivals Super-Sol and Blue Square Israel. Perhaps the case again proves the hypothesis that Israel has no room for three supermarket giants, hence Clubmarket's collapse into the ashes of its predecessor, the Greenberg chain.

But look into Clubmarket's past and you see a story of missed opportunities. The chain had the opportunity to become a player, but a series of bad decisions (in hindsight), and the owners' decision not to put any more money into the chain, spelled its doom. The shareholders thought the chain would be developed using its own resources; now, three years after it was bought by the Borovich-Mozes group, Clubmarket is leaving the story much as it entered. There's just one difference - competition has become fiercer.

Clubmarket had been the first of the three big chains (the other two being Blue Square and Super-Sol) to pass into private hands. The Borovich-Mozes group bought it in 2001 for NIS 440 million. After some streamlining, which involved firing a third of its workers (1,800 people) and shutting down some branches while converting others, the chain had turned around, one year after its acquisition.

Clubmarket reported an operating profit of NIS 9 million for 2002, versus a combined operating loss of NIS 118 million for 2000 and 2001. Clubmarket positioned itself to fight for the heart of consumers in a lean, mean condition. While its rivals sat about waiting to be bought, Clubmarket started opening discount Jumbo outlets and reported impressive growth. It had an opportunity to conquer the market while its rivals dozed.

Positioned to surge

When supermarkets started to go out of fashion, Clubmarket was more prepared to contend with the phenomenon than the bigger chains. The chains had lost their image of giving good prices; in retrospect, Clubmarket was well-positioned to surge. But management forgot one thing - to get anywhere, you need a destination in mind.

The chain seems never to have developed a clear strategy. Instead of considering the solutions needed by Israel's food market, Clubmarket seems to have adopted a "me too" idea. Jumbo is its answer to Mega and Cosmos, but the investment cost it tens of millions of shekels. In another sign of short-term thinking, it converted chains into Hetzi Kupah discount outlets.

A year after its acquisition, Clubmarket had increased the average area of its stores to 1,760 square meters, by opening 11 new Jumbo outlets.

Clubmarket assumed the lower prices would drag the masses from the cities to its giant stores in Glilot and Ramat Gan. At first, it looked good. In 2003, Clubmarket increased its market share 5 percent compared with the year before, while Blue Square lost 4 percent of its market share and Super-Sol lost 8 percent. In the last quarter of 2003, Super-Sol presented its smallest market share in three years: just 26.6 percent, while Blue Square's was 25.7 percent.

But Clubmarket never created a unique character for Jumbo, focusing on price instead of the shopping experience. With no added value for consumers, stores opening too near one another, and competition intensifying, Jumbo started to lose altitude. Clubmarket surrounded Tel Aviv only to find stores eating one another alive.

While investing massively in its big outlets, smaller ones in the cities and elsewhere were neglected. When Ginsburg took over, he decided to convert four stores into Hetzi Kupah outlets, again designed to attract buyers through low prices. The four succeeded, leading to more conversions. The Clubmarket brand itself was left with just a few stores up north.

By the end of 2003, only 30 Clubmarket outlets remained, while there were 63 Hetzi Kupah stores. But nobody ever made a decision such as eliminating Clubmarket entirely and focusing the marketing effort more tightly.

Nothing changed but price

In parallel, Dedi Borovich proposed buying 18 Super-Sol outlets that it had earmarked for closure, to gain more presence inside the cities. But while Blue Square invested in adding value to its outlets, Clubmarket never fixed up its stores: It changed nothing but price.

The results were devastating. In 2004, Hetzi Kupah sales dropped by 26 percent, a death blow considering the sub-chain's ascent in 2003. AC Nielsen said Hetzi Kupah had become Israel's sixth biggest chain in 2003, sales-wise; in 2004, it dropped to ninth place with a 3.5 percent market share.

Turning the city chain into a discount chain meant much more than a mere change of name. The high-margin city outlets are supposed to make up the shortfall at the discount stores, but at Clubmarket, margins were eroding everywhere.

Clubmarket was first to consolidate its brands. It focused on three - Jumbo, Hetzi Kupah and Zol Po - successfully. But, in practice, the management floundered for direction.

A lack of new blood

Manufacturers also said there were communications blackouts. Decisions made at headquarters didn't always filter down to the sales floor. Many of the managers hailed from Super-Sol, an advantage in experience, but a disadvantage too: Lacking new blood, they brought their habits from Super-Sol and couldn't come up with fresh ideas to differentiate Clubmarket.

The confusion went up the ladder, too. Above Ginsburg was chairman Yossi Rozen, owners Tami Mozes-Borovich, who was involved in marketing decisions, and shareholder Dedi Borovich (her husband), who occasionally shot off a statement to the press. There was Granite Hacarmel manager Ami Sagis, himself an ex-Super-Sol man; and Jacob Gelbard, now Pele-Phone Communications' manager, who found time to roam the stores making suggestions.

Ginsburg had a problem: His mandate was to improve the chain and differentiate it, but the owners weren't putting paw into pocket.

So, he picked on the suppliers and landlords. He would withhold a portion of rent as a "fine" and delay payments to suppliers for many and myriad reasons. Dedi Borovich called it "lengthening supplier credit and obtaining better rental terms." The market called it "reneging on commitments."

Eventually, stories began appearing about Clubmarket failing to pay, and landlords who sued. Negative headlines were the last thing the chain needed.

The elimination of the Jumbo brand spelled the end for Ginsburg, though its sales actually increased in 2004, while Clubmarket's own sales dwindled. Despite market studies showing a relatively high company loyalty to Jumbo, the chain decided to rebrand its stores as Empire, a decision Ginsburg did not support.