The Alon group's Mega supermarket chain launched its first You discount store today. The format will gradually replace the Mega Bull stores as the group's discount chain. Mega CEO Motti Keren said today that the new chain would promise the cheapest shopping basket, and even gave a commitment that the chain would give a refund to anyone who managed to shop more cheaply.
"We are committed to the cheapest shopping basket," Keren said, "The customer is not prepared to pay a premium for a company's inefficiency. The trick is not just to buy cheaply. If you paid NIS 200-300 more than necessary, you haven't achieved anything. We're talking about genuine change."
On his declaration that he will refund customers who manage to buy more cheaply elsewhere, Keren commented, "We are making a bold move. I hope that the market will not exploit it cynically; I can't be the cheapest all the time on every product. I expect people in Israel to be fair, and that not everyone will make a trip to obtain a refund. A liter of gasoline costs NIS 8 to get a refund of half a shekel."
Experience shows that in price-war areas, supermarket branches have worked with zero gross margins and have lost money. How far will you go with your promise?
"I want to ensure that we have the cheapest shopping basket, and if that means zero gross profit or losing money, that's what I'll do. We are very serious about our strategy."
Keren commented today on the "Globes" report that Marc-David Bismuth is negotiating to buy Mega. "The Alon group is a serious company," he said, "and there is a reporting obligation when something matures into a deal."
The Alon group is negotiating with Bismuth, and there is a reporting obligation relating to negotiations as well, not just when they mature into a deal. Are you saying that Alon failed to report something it had an obligation to report?
"I can't speak in the name of the Alon group."
Sources inform "Globes" that Bismuth plans to come to Israel in the first week of December, but he may delay the trip a little. A source close to the negotiations said, "Mega is on the ropes, and so this is a fantastic opportunity. The first offer to the Alon group to buy Mega was made six months ago, but Alon didn't want the deal, and in the meanwhile Mega has published further financials, and the price has dropped."
Meanwhile it emerges that Mega has encountered difficulties over credit insurance, and is being required to put up higher collateral. Keren refused to comment directly on this, but said, "There's something strange about the timing. On Monday there was a report about negotiations to sell the chain, today a report about insurance. Someone is feeling pressured by Mega's moves."
Under the strategic plan presented today, by the end of the year the chain will roll out 20 to 30 You branches, most of them converted from the Mega Bull format, which currently numbers 66 stores. The remaining Mega Bull branches will become one-stop-shops, and will not compete in the discount arena.
The upshot is that despite the promise of the cheapest shopping basket, Mega is reducing its discount store activity, which is responsible for the chain's poor performance.
Keren says that You will operate on a low gross margin of 16-20%, but that, despite that, "we know how to sell cheaply with high quality and not lose money."
"I need to provide a solution to a population of eight million, and I can do that with 30 stores deployed nationally."
When will we start to see the results of these moves in the financials?
""We will have a few tough quarters. The results are improving from quarter to quarter, but not at a satisfactory pace. I assume that it will take another two quarters, and somewhere in the first or second quarter of 2014 we'll start to see results."
Published by Globes [online], Israel business news - www.globes-online.com - on November 20, 2013
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