Israel’s Blue Square supermarket chain is up for sale and among those submitting bids are several fuel and automotive companies. As Israeli companies look set to join a global trend of food and fuel partnerships, correspondent Aaron Priel looks at the benefits such a partnership could bring. 

The forthcoming sale of the Cooperative Society’s controlling stake of the Co-op Blue Square supermarket chain, Israel’s second largest food retail company, is considered one of the largest ever deals in the country’s food sector. The chain’s annual sales returns amount to between NIS5bn and NIS6bn (US$1.4-1.25bn). The Society’s other holdings include Hamashbir Lazarchan, Israel’s largest department store, which is scheduled for sale; and Ikea-Israel, a phenomenal success by any terms, which is not for sale yet.

The companies that submitted bids to purchase the Blue Square chain are Gaon Holdings, headed by Benny Gaon who served in the past as Blue Square’s Chairman and CEO; the Kardan Group, with UMI automotive company, the importers-distributors of General Motors and its subsidiaries; the Delek Group, which has a controlling share in Starbucks-Israel; Dor-Alon Fuel Company; Paz Fuel Company in cooperation with Bank Leumi; Amnon Dik/Deutsche Bank plus a European investor; Eldan, the country’s largest car rental company, and Motti Zisser, an Israeli and European real estate entrepreneur. The Sonol Fuel Company has a controlling stake in Club Market, the third largest food chain in Israel.

Fuel companies show interest in the food market

It is not an unusual phenomenon that among the companies that submitted their bids to purchase the Israeli retail food chain there are quite a few fuel and automotive companies. Why do so many fuel and auto companies show a keen interest in the purchase and control of a food chain? The answer may be found in the global trend that started over a decade ago when fuel companies realised that selling a basic and vital commodity – fuel – can serve as a lever to promote other businesses “by converting the fuel stations’ areas to incorporate retail outlets for other products than gas or car-service,” according to a survey in Maariv.

The first Israeli company to realise this was Dor-Alon, which established in its stations the Super-Alonit convenience stores, which now register annual sales revenues of NIS200mn. Super-Sol, Israel’s largest food chain, supplies Super-Alonit convenience stores with the merchandise and store management know-how. Dor-Alon Chairman and CEO David Weissman stated that if his company does not win the Blue Square bid, “we will convert our convenience stores into a supermarket chain that will compete with Super-Sol, Blue Square and Club Market.”

Today, all the fuel companies own and operate 7 days a week convenience stores. But, the survey points out that this is not the only connection between food and fuel: Dor-Alon has a stake at Sagfredo coffee, it owns Pizza Hut and has the Kentucky Fried Chicken franchise in Israel. Paz Fuel has full ownership of the Burger Ranch fastfood chain in Israel, and as noted above, Delek Fuel controls Starbucks Israel.

Food and fuel: A perfect partnership

Retail fuel sales and retail food sales go hand in hand these days. According to POC Consulting, fuel and food companies can provide services to the many people that visit these establishments daily. Starting in the early 1990s, retail food companies and fuel companies increased their cooperation in many countries throughout the world. In the UK, noteworthy examples are the cooperation between Esso and Tesco; and between Shell and Sainsbury’s. In Spain, there is cooperation between El Cortes Ingles and a local fuel company.

The two parties see profits in applying such a mode of cooperation. The retail food chain operates the fuel companies’ convenience stores. The fuel companies enjoy a more professional management infrastructure, while the retail food chain increases the volume of products it purchases from its suppliers. Joint coupon and sales promotion campaigns are likely to direct shoppers at a supermarket chain to patronise the fuel company and get gas at a discount, and vice versa: customers who purchase fuel at a certain station will get coupons that will be honoured only by the chain that has a joint deal with the fuel company.

Food chains everywhere strive to establish their own exclusive “identity” and brand awareness to better compete with other chains. A fuel station that operates near a food store can promote a chain’s exclusive identity – and vice versa – a food store adjacent to a fuel station may encourage drivers to stop by. A commercial centre around a gas station might influence potential customers to purchase at these premises the two basic and vital commodities: food and fuel.

Still, there may be additional reasons why fuel companies are participating in the race to purchase the Blue Square food chain. The survey notes that the reasons might be linked to a strategy to diversify the fuel companies’ investment portfolio. Still, the joint fuel/food venture is a promising enterprise here, and as the survey shows, in other countries throughout the world. According to several economic analyses, the food chains will increase their position in the country’s food sales, and when relating the analysis specifically to Blue Square, “It is a strong and well established food chain that could contribute to the reduction of the fuel companies’ investment-risk factor”.