Taking Stock / Nochi Can Still Ring Up Sales

Until two years ago, the day on which Supersol published its financial statements was a happy occasion at the IDB group. The supermarket chain was the most prolific cash cow in the entire group.

Even after the onset of the economic slowdown, the thousands of cash registers at the chain's 150 branches continued to generate income at a fantastic rate; and at the end of 2001, as the recession bit deep into every segment and sector, Supersol maintained its rising profits.

At the start of 2002, when Nochi Dankner began negotiating to buy IDB Holding Corporation, Supersol was considered the group's crown jewel.

Yet in the last half year, even before Dankner took the reins at IDB, he knew that the gem had cracked, and that the chain was going to become the group's problem child. And indeed, from quarter to quarter, its operating results dwindled. Sunday, the company reported its second straight quarter with operating losses.

Now that Supersol has lost the title, which firm will be IDB's new crown jewel? On what company can Nochi Dankner rely to serve as his deep pocket?

The least-talked about firm in the company's entire wide-flung portfolio, of course; the company with the smallest advertising budget; a firm whose financial statements attract absolutely no interest whatsoever.

A few points for comparison

Clal Insurance has yet to publish its results for the second quarter of 2003; but we can guess that unlike Supersol, the scars of the recession will barely show, and profits will continue to flow. Here are a few points of comparison between the two companies:

*Supersol's customers have become increasingly sensitive to prices. Their disposable income is eroding and more and more are unemployed. Moreover, long-time customers are sick of being suckers and like to buy cheap. The result is relentless pressure on Supersol's margins, and leakage of customers to competing discount stores.

Clal Insurance's customers, on the other hand, are generally unaware of the price they pay for their life-insurance policies, which are the company's main source of profit. They do not know how to read their policies; they have no idea what they are paying and for what; and they do not question whether they'd be better off with another form of investment.

*Supersol's customers have no loyalty to the chain or to its sub-brands - Hyper-Neto, Universe Club, Cosmos or Machsanei Mazon. Sometimes a single visit to a cheaper or more convenient store, or one open on Saturdays, seems sufficient grounds to ditch their usual Supersol branch. Customer club cards don't help either, if customers feel they're getting a better deal somewhere else.

But Clal Insurance's customers have no practical option of getting a better deal elsewhere. They are tied to the company through a long-term agreement that is very hard to break. Almost nobody shifts from one insurer to another. The main danger facing Clal Insurance is the falling wages of its customers, who may even have to cancel their policies outright if they lose their jobs.

*Supersol expanded rapidly in recent years. It opened dozens of new branches and invested tons of money in branding its sub-chains. With the recession now hitting hard and competition even fiercer, it is very hard to roll backward, abolish those long-term rental contracts and close down branches.

Clal Insurance has also felt the recession through cancelled policies and rising redemptions; but it does not have hundreds of branches tied to long-term contracts. Its distribution is handled through agents who live on commission. It also has to adjust to the harsher circumstances, but it has a lot more wiggle room.

*Discount stores like Hetzi Hinam and Tiv Ta'am are gouging chunks of business from Supersol. They have all the advantages of big players, without Supersol's disadvantages. They can open on Saturdays; they can sell non-kosher foodstuffs; their management costs are markedly lower; and they have managerial freedom of the kind a publicly traded firm like Supersol could never have.

Insurance has also seen the entry of new players, namely the direct insurance companies; but they just helped the veteran, big players adapt faster.

The Antitrust Authority has been investigating how the retail chains contract with suppliers for years. The chains' managers have spent no small amount of time being questioned at the watchdog's offices.

Insurance, on the other hand, is just starting to see the first buds of regulatory involvement, which ultimately aims to reform the industry. Only now has the regulator begun to demand that the companies disclose the real cost of policies to customers. Only now have the insurance companies' profits come into the range of the treasury's reforms.

*For Supersol, each quarter has become a war over profitability, cash flow, bargains and marketing. Mistakes leap straight to the chain's bottom line.

Clal Insurance, on the other hand, has a fat life-insurance portfolio that has generated handsome profits over years and years. Mistakes made today will reduce results years in the future.

*Supersol's second-quarter results clearly showed the marks of the recession. Despite the timing of the Passover holiday, in the second quarter of this year, versus the first quarter of last year, the chain's sales slid and its operating profit eroded.

Clal Insurance, in contrast, will be posting handsome gains from its investments in stocks and bonds because the stock market, unlike the hapless supermarket chain, had a great second quarter.