Coming Soon to a Shopping Center Near You: An Organic Megastore

Within five years, Eden Teva Market chain will have 25 outlets, its founder promises.

Until about five years ago, Israel's organic sector consisted of small health-food stores. Then Guy Provisor decided to take a risk.

Provisor is the one who introduced the concept of supermarkets, even megastores, for natural and organic foods to Israel, through his chain Eden Teva Market.

He knew all about natural and organic foods, having won the franchise to locally market G&C vitamins and food additives 10 years earlier. Provisor and partners set up a chain of 12 small stores, one of which closed due to losses.

In 1999 he went to Australia to carry out a project for the company. A year later, upon his return, Provisor established a mini-chain of two stores called Olam Hateva. It flopped. Why should Eden Teva Market be any different?

"I set up 11 G&C stores within two years, and when I left the company, it was still profitable," Provisor says, adding that the chaos set in only after he left. "I closed down Olam Hateva because I realized I couldn't wear two hats at the same time. I decided to stop messing around with small stores and opened Eden Teva Market." It was a new animal in Israel, and a successful one.

The first branch opened in 2003 in Or Yehuda, a popular venue among retailers and shoppers. It was a huge thing, 700 square meters. "It changed the sector," Provisor avers. "Until then health-food stores had been small things 40 to 50 square meters in size. Some didn't even bother to open on Sunday. Suddenly along came this megastore that lowered prices by 30% or 40% and adopted a policy of fair prices for consumers."

Provisor claims that the small stores habitually doubled or even tripled their costs when pricing products for consumers.

"I entered into long-term arrangements with growers and lowered the prices," he says.

He even claims that Eden Teva Market is around 15% cheaper than his competition among regular food retailers, for organic products that is.

As for comparing regular products with organic ones, that can't be done, Provisor argues. "Our raw materials are far more expensive. But if I have to compare, then the organic and ecological basket of products is 10% to 15% costlier at Eden Teva Market compared with the regular basket at the retail chains."

Today the Eden Teva Market chain consists of three big branches. Within five years it will have 25 outlets, Provisor promises. He isn't the only one who sees the potential: A year ago, Blue Square Israel bought 51% of Eden Teva Market for NIS 22.5 million.

The relatively high price of organic and natural products defines the target population for Eden Teva Market. "Of course, we'd like everybody to shop with us," Provisor says. But realistically, the chain targets the wealthiest third of Israelis, people who tend to be more aware of the upside of organics and who can also afford it. But you see all types at the stores, he says - families, singles, young, old. "Two weeks ago a bus of Israeli tourists from Be'er Sheva stopped at the store to have a day of fun at Ikea and with us."

The mere fact that a bus of Israeli tourists treats Eden Teva Market as an exciting attraction attests that it's addressing a niche. How do you break through the boundaries to the mainstream?

"We have long since broken through the niche," Provisor insists. "We have more than 14,000 items. There isn't an item in the supermarket for which we don't have an alternative. Segmentation that we conduct through credit cards shows that more than 35% of our customers come from Tel Aviv."

He may scorn them but the small health-food stores remain the main competition. There are about 120 of them, he says. The next level of competition is retail chains that sell organic and natural products too. The third level is life itself: "People don't buy organic chicken and regular chicken.

"They don't buy ecological dish soap and regular dish soap. They buy one or the other. Provisor, however, doesn't think the regular retailers are a true threat because the Eden Teva Market chain sells something different, and more of it. A regular supermarket may offer one type of organic pasta. Eden Teva Market offers 50.

Blue Square bought into Eden Teva Market because it realized people were looking for healthier alternatives, and it wanted to increase its buying power for its other chains - Shefa Shuk, Mega, Mega in the City. Blue Square agreed to assume NIS 47 million in debt, mostly caused by investment in Eden Teva Market's new outlet in Poleg, near Ikea in Netanya. Provisor remains the man in charge.

He isn't fazed by Blue Square's feud with the ultra-Orthodox community and believes its strong financial backing will help advance Eden Teva Market. His ambition is to open one new outlet per quarter, which would mean 25 throughout Israel by 2013.

Blue Square isn't halting its investment in the health-food chain because of its troubles with Shefa Shuk, he says.

Blue Square's numbers for this year's first half indicate that Eden Teva Market is contributing more to Blue Square than Blue Square is contributing to Eden Teva Market, as far as profit margins are concerned. Consolidation of their financial statements increased Blue Square's revenues by 3% in the half.

Provisor predicts that Eden Teva Market will achieve sales of NIS 85 million to 90 million, almost double the year before. Naturally, that's still peanuts for Blue Square, where first-half sales amounted to NIS 3.74 billion.

Meanwhile, the word is expand, expand, expand. Eden Teva Market's next outlet is in the Haifa Bay area. It's a vast creature with 2,400 square meters, Provisor says. By year-end the chain will be opening outlets in Ashdod and Ramat Hasharon. It has several sites earmarked for new outlets in 2009, including in Ramat Gan, Kfar Sava and a giant 3,500-square-meter store opposite the Ayalon shopping center. "That will be Israel's first ecological store, which will operate according to the official leading standard in the world, Lead," Provisor says.

He predicts that other Eden Teva Market stores will adopt ecological operating standards too. The undertaking increases costs by about 15%, Provisor admits. But by virtue of its substance, Eden Teva Market has to blaze the trail, in his view.

Is he realistic? When opening the first outlet he declared that he would open five more within three years. In five years he opened three. "It didn't happen because I wasted a year and a half trying to establish a branch at a certain site in Ra'anana, and ultimately it didn't happen," he says.

"Then I worked on a project to open a store at the Big center in Netanya and that didn't work out either." Building the Poleg branch involved many a battle, which drained time. "This time I'm not making a statement - I'm doing. There are signed agreements in place for all the branches I mentioned."

No, he doesn't feel any drag from the looming economic slowdown. Obviously, a recession would hurt everyone, he says - it's a question of degree. "Our plan is to continue opening branches and leading in the sector. I believe that even during recessions, people care what they put into their bodies. They may buy less, but we'll compensate by recruiting new customers."

The potential is there, possibly. Organics account for 2.9% of food sales in the United States, Provisor says, compared with only 0.3% in Israel. In Germany, Britain and other European countries, the proportion is 3.5%, he says. From a market worth about NIS 200 million today, at most, Provisor predicts a billion-shekel market within five years. "When people have an organic supermarket next to their house, they'll buy there. It will be accessible to all."