Good for Pigs, Bad for Piggish Capitalists

It was quite amusing to listen to the heads of the large supermarket chains and their main food suppliers, who were terrified by Arcadi Gaydamak's takeover of the Tiv Taam supermarket chain.

Gaydamak, as is his wont, let loose a number of bombastic announcements about ending the sale of pig meat at Tiv Taam, as well as increasing the number of stores. In one off-the-cuff statement, Gaydamak completely reversed the chain's entire business strategy.

Dan Propper, the CEO of Osem, was scared. Ronnie Kobrovsky, the head of the Central Bottling Company (Coca Cola Israel), was horrified. Effie Rosenhaus, the CEO of Israel's largest supermarket chain, SuperSol, made choking noises.

They are not accustomed to such ground rules. They are not used to such a provocative and unconventional player in their game.

Over the past two years, they grew comfortable with the idea that the supermarket business had settled down after the trauma of Clubmarket's collapse. The last thing they need now is a hungry new owner with very deep pockets entering their game. This will force them to question their own strategies in depth and adjust them to the new reality. Who has the strength for such changes now, after the market has finally calmed down?

Plenty has been written - and much more will yet be written - about Gaydamak. His considerations are not purely business ones; they also relate to political and social influence and power. And among other things, there is the small matter of the authorities in France wanting to extradite and investigate him.

But if we ignore such factors and examine the Tiv Taam deal only on its economic merits, the move is extremely important for the retail food market. The collapse of Clubmarket left a vacuum, with no number three supermarket player.

SuperSol bought Clubmarket and firmly established its position as number one. Blue Square was left behind in second place, and all the small, private chains - Rami Levy, Tiv Taam, Hetzi Hinam and others - can together be called a "fourth chain."

Every one of the small chains has the ability to become number three if it comes up with an expansion and growth plan. But none of them are ready for that. The reason is that their existence and success are proof that in supermarkets, the way to beat the big boys is by guerrilla warfare.

A careful, slow expansion of the number of branches, very tight control over expenses, a strategic choice of locations, and pricing and product policies that differentiate them from their competitors and draw in customers are the small players' answer to the deep pockets of Nochi Dankner's SuperSol and David Weissman's Blue Square. In order to compete with the two big chains, you need a complete, solid concept, including prices, products and a unique shopping experience.

Tiv Taam has such a concept, which Gaydamak wants to abandon. Therefore, it is not at all clear where the chain is heading.

Gaydamak has deep pockets, which may let him work by trial and error. He can drag the industry into a price war and frequent changes in business strategy. This is what has all the major suppliers scared, as they are still licking their wounds from the Clubmarket failure.

But despite the message they are broadcasting, their real fear is not that Tiv Taam will go out of business and leave them holding a pile of debt, since this time, they will know that they need to get better guarantees. Their real fear is that of greater competition, which will hurt their profitability - and their bonuses.

Removing the pork from Tiv Taam is a real reason to celebrate, if you are a pig. But for piggish capitalists who hate competition, Gaydamak's entry into Tiv Taam is a worrying move.