Israeli supermarket majors face a new threat to their supremacy from a perhaps unlikely quarter. Drugstore and general goods chain SuperPharm is planning to hook up with the Israel Grocers Association to manufacture foods under a joint label, as Aaron Priel reports.
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Israeli chain SuperPharm and the Israel Grocers Association plan to manufacture foodstuffs under a joint label, to be sold in private groceries, minimarkets and branches of the pharmacy’s chain of stores throughout the country, as part of a joint battle against the major supermarket chains. Sources at SuperPharm confirmed that the chain is planning to cooperate in this venture, considered the first of its kind in Israel.
According to a report in Ha’aretz, the first phase of this campaign is to train the heads of the grocers’ association in the development and management of a private label, to be handled by a SuperPharm executive. SuperPharm has established the most successful private label in Israel, “Life,” which comprises 1,200 products and constitutes about 7% of the chain’s annual sales turnover of NIS2bn (US$444.44m). It is not yet clear whether the planned new label will retail under the SuperPharm brand or an entirely new brand name.
The joint venture has been initiated by Grocers Association chairman Eli Stavi, who approached SuperPharm with a request to learn from the chain’s experience how to manage a private label. The outcome of this move was SuperPharm’s agreement in principle for future cooperation between the two enterprises. Stavi was quoted as saying that SuperPharm’s management “understood the importance of strengthening the grocers’ position against the big retailers, which also compete with SuperPharm in many areas”.
Private label a powerful tool in battle against the giants
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By GlobalDataWhat motivates the grocers to establish a private label is their strategy to halt the declining share of the small groceries and minimarkets on Israel’s food market. It should also help SuperPharm, which experienced in recent months a tough battle with the supermarket chains. SuperPharm is Israel’s fourth-largest retail chain sales, following supermarkets SuperSol, Blue Square and Club Market, which have been investing heavily to curtail SuperPharm’s hegemony in certain categories, such as baby food and toiletries.
The Israel Grocers Association, comprised of owners of neigbourhood small stores and minimarkets, was created a few months ago by a number of grocers, with the aim “to improve the competitive situation of the small retailers, in part by selling a new product line under an exclusive private label to the organisation’s members.”
A private label is a brand sold exclusively by a retail chain, which purchases the products from an alternative supplier, rather than the well-known brands. The chain lends its name to the brand and sells it at a lower price than the major competitors. It is estimated that the profitability on private label products is 10% higher than on products that the chain purchases from major external suppliers. All the major retailers in Israel have private labels: SuperSol has the SuperClass, Blue Square uses Leader Price and Club Market sells its products under the Premier Club brand.
Small grocers seek to emulate foreign example
According to the Grocers Association, until six years ago small grocers accounted for 40% of the retail food and consumer goods market in Israel, but they have since lost a 20% share. “Consumers are voting with their feet against neighbourhood grocers, and the major suppliers keep the best deals for the big retail chains. The changes in Israeli consumption habits have led 7,200 grocers to unionise in order to limit the damage from the fierce competition with the big supermarket chains,” the report notes.
It adds that the proposed private label will be established as a cooperative of 3,000 groceries, slated to help grocers both in negotiating with suppliers and competing with bigger players. The association hopes to emulate the success of Germany’s grocers’ forum Aldi, with 3,000 members that sell high-quality private label goods at low prices, as well as the success of the French retail chain Carrefour, which operates under a similar model.
The resources for this ambitious project are slated to come from a no less ambitious initiative: the Grocers Association plans to bid for the state gas mask collection tender, valued at about NIS110m. “The groceries and minimarkets have all the qualifications to succeed in collecting the gas masks from Israel’s citizens,” according to the Association manager Stavi, as quoted in the report.
