Can Rami Levy remain lean?

Ilanit Hayut

Rami Levy will have to prove that he can swallow the Mega supermarkets, while continuing to operate as if it were a small-scale business.

"By 2015, we will have 50 supermarkets and we'll be number 1 in Israel, said Rami Levy Chain Stores Hashikma Marketing 2006 Ltd. (TASE:RMLI) chairman Rami Levy, offering a glimpse of his business plan, just over a year ago. It is not clear whether he really meant that he could surpass Shufersal Ltd. (TASE:SAE), which has an annual turnover of NIS 11 billion, but it was clear that he was aiming high.

Since Rami Levy held its IPO in 2007, the independent supermarket chain has succeeded in building a strong discount brand. The company's excellent image is reflected in its growing sales. Its annual turnover has quadrupled from NIS 570 million before the IPO, and the chain has become the third largest in the country.

Rami Levy started out as a family business, and it still is to some extent. Rami's wife, Adina, and their two children work in the business, and many stores are run by relatives, guaranteeing almost blind loyalty. The fact that the chain was small helped Levy not only keep control of the company, but gave him the flexibility to react quickly to retail developments. The company's rapid growth, combined with the social protest and consumer awareness about prices (despite a preference for Rami Levy) are reflected in the company's performance, which has seen its profit margins narrow.

Rami Levy's big challenge is to absorb the acquisition of 40 more supermarkets, given that the company's current HQ is too small for the larger scale of operations. He will have to prove that he can swallow the supermarkets, while staying lean and continue to operate as if it were a small-scale business, with all that that implies, even though it now a big one.

As for the seller, Alon Holdings Blue Square - Israel Ltd. (NYSE: BSI; TASE: BSI), the negotiations to sell 40 Mega supermarkets is also a turnaround, and possibly a sign of determination to take extreme measures to improve its financial situation. It is also a capitulation in the discount supermarkets war. The bitter price battles underway in Maaleh Adumim and Beit Shemesh (by Shufersal Ltd. (TASE:SAE) against Rami Levy and Ad Osher Ltd., respectively) is proof that retail competition will increase, and that it is sometimes necessary to say, "enough", as Mega is saying now.

Rami Levy can already chalk up one advantage from the pending acquisition. Shufersal will discover that fighting a chain with 64 stores is not the same as fighting a chain with 24 stores.

Published by Globes [online], Israel business news - www.globes-online.com - on June 18, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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