Israeli Supermarkets Expand Beyond Groceries to Sell Cars and Electronics
Israeli retail is undergoing a significant transformation driven by intense competition, forcing supermarkets to radically alter their traditional business models. No longer just points of sale for basic groceries, Israeli supermarkets are evolving into comprehensive retail platforms, now offering items ranging from home appliances and electronics to even automobiles. This shift is a response to the highly competitive environment, which has squeezed profit margins in traditional grocery sales, compelling retail chains to seek alternative revenue streams.
Consumer habits have also changed considerably. Amidst rising food prices, shoppers are reducing the volume of their purchases, meticulously comparing prices and traveling further to discount stores for better deals. The loss of even a few shekels on a staple item can now mean losing a customer to a more affordable competitor. While the total turnover for everyday goods has reached an impressive 63.18 billion shekels, this growth is attributed to inflation and shifting consumer flows rather than increased consumption.
Discount chains like Rami Levy and Osher Ad are leading this transformation. They are sacrificing profit margins to maintain low prices and customer traffic. Rami Levy has taken an unprecedented step by selling Chinese BAIC cars directly through its stores and warehouses. Osher Ad, known for its large store formats, bulk packaging, and minimal prices, has also expanded its offerings to include high-end gadgets and Kia cars, which sell out quickly.
In contrast, the once dominant supermarket chain Shufersal is facing significant challenges, with declining revenues, falling sales per square meter, and a drop in operating profit. The company's problems are systemic, as customers increasingly favor discount stores. Despite efforts to restructure, develop private imports, and optimize operations, Shufersal faces a dilemma: raising prices to improve margins risks alienating more customers, while maintaining current prices continues to deplete financial reserves.
Other market players, such as Yohananof and Victory, are also navigating this challenging landscape. Yohananof is increasing its market share and sales but at the cost of lower gross profitability due to constant discounts. Victory is experiencing a decline in core sales, compensating for reduced operating profit through one-off real estate deals and aggressive promotion of electronics.
The inclusion of cars and gadgets in supermarket inventories is a pragmatic response to a difficult economy. With minimal margins on groceries, chains aim to monetize the large, regular customer traffic by offering high-margin products. The retail war in Israel has escalated beyond just the grocery basket to encompass the consumer's entire wallet.
