The day after Ori Watermann was appointed CEO of Shufersal Ltd. (TASE:SAE), Israel's biggest retail chain, he was asked about the latest price hike for bread. "They asked me what I am going to do. I told myself. What now bread? Just as I was getting into the job suddenly Diplomat asked to put up prices, in an out of context way. I felt that they were taking advantage of the situation. Shufersal has a new CEO so let's try him out. They were looking to see how strong I was. There really had been reasons for price increases, the end of the Covid pandemic, shipping prices went up, the currency rate depreciated, the Russia-Ukraine war. There had been reasons for price increases, and yet, not like this, not all at once and not to this extent. But the suppliers think, there is a new CEO, it's not Abercohen, so fine."
In the ten months since then, Watermann has had to steer his way through a very difficult market. More moderated price rises have returned like a boomerang in the last two months, with an unprecedented wave of price hikes, partly from Tnuva. Two weeks ago Shufersal also had to deal with the sticker storm at the Be pharmacy branch in Bnei Brak, in which women's faces were hidden on the store's products. And if that was not enough, this month 50 branches of the international food giant Carrefour were launched in Israel, with a strong private brand and a promise to compete with the big chains.
How worried are you that Carrefour can bring a price revolution?
"Carrefour hasn't really entered the Israeli market. It's Yeinot Bitan disguised as Carrefour. It gave its name and its franchise to Yeinot Bitan, a problematic loss-making chain that has been trying to rebuild itself for many years. I respect all rivals, but Carrefour is another chain that has a lot to prove. If the CEO of the global company really wanted to enter Israel, he would invest money here, take a risk. Carrefour has not invested a single euro here, it only has the possibility of profiting from the commission it charges on the turnover and the sales of the private brand. The franchise it gave is worthy, and nice. In the world this is a good and interesting network, but there are many more like it. We will manage."
Nevertheless, you organized a launch event for your Cash & Carry wholesale outlet in Ashdod exactly on the same day Carrefour launched in Israel. What happened there? Was it an attempt to spite them?
"Shufersal has more than 400 stores. We opened stores almost every week. One week it's an Express branch, the next week a Deal outlet, Be, Stock or Cash & Carry. A month or two before the event the CEO of the subsidiaries opened his diary and that was the date chosen. It's a coincidence that journalists love to make a story out of. When we were contacted for a comment, we laughed. It is also immaterial. Not relevant to look at them at all. If I decided to respond to their launch, I would do something much more significant. Believe me. This is Shufersal. I would not launch a Cash & Carry store. From what I hear, the people at Carrefour say they want to be Shufersal.
"I think that I will have succeeded in this job if I can convince both you and the capital market that Shufersal is a different company from the competition. There is no rival that invests NIS 600-700 million a year in technology, in upgrading, in innovation, in the level of employee satisfaction, in our supply chain which includes four logistics warehouses and two automated centers for online delivery. It is true that Shufersal started as a supermarket chain, but over the years through strategy and growth engines, we have become a different company. Shufersal is a retail group, food is the core, but we also have pharma, real estate, finance, stock, B2B, and Shufersal businesses. So you should look at us differently. In the end, the combination of all these activity areas will generate a profit for us on par with the best companies in the world."
So who are your rivals?
Rami Levy, Osher Ad, Superpharm. Rami Levy in terms of turnover is the second biggest player. We have good and worthy rivals but their lives are much easier because each one of them only operates in one segment."
"I don't have four recalls every week"
As part of Shufersal's expansion, the group signed an agreement five months ago with Dutch franchise SPAR to launch its stores and sell its products in Israel. Under the agreement, SPAR will operate as a joint company, managed by Amit Zeev. At the moment, the two are waiting for the approval of the Israel Competition Authority.
"I understood that this has the ability to change the cost of living equation. SPAR is an instrument for me to handle the big suppliers to cut prices for customers. As soon as I realized that I could put SPAR products in 300 Shufersal stores around the country, there is the corporate capability to influence the cost of living. At the moment, the deal is awaiting approval. In our conversations with people at the Ministry of Economy, everyone understands that this is the right way, and I commit here that we will sell SPAR's brands for less than our private brand."
Won't it cannibalize your own private label?
"Shufersal's private brand in its existing form is not a strategy. The strategy is to have on the shelves cheaper brands than the brands of the leading suppliers at better prices, to create a better option for the consumer, and so that we have more power in negotiations with the suppliers on shelf space. It really doesn't matter if it's Shufersal or SPAR brand, assuming it's with us, and in our agreement with Amit Ze'ev, SPAR will either be on the shelves at Shufersal or at his online store.
"Annual Shufersal sales from the private label are NIS 3 billion, and a company like SPAR makes €40 billion, so it has much greater purchasing power. Once we have access to this, we will be able to bring products that we don't have today at all because of size limitations, both those that we will put next to our private brand ours, and others that will replace our private brand. That's the whole idea."
But there is limited space on the shelves. People have already shown you that they want the big brands
"The Israeli consumer will have to decide. We have managed to reduce shelf space of major suppliers by almost 10% in recent years. There are places of monopolies where there is no choice, the government should take care of that. But when you come to buy a brand, if the consumers choose the private label, we all profit, and then suppliers will also lower prices. But when consumers continue to buy the big brand, in the end I'm just a middleman, I buy and sell, most of the profit doesn't stay with me. I can't say, 'Well, you won't get that from me,' because it will go to a rival. We saw what happened at the end of last year. I was hit in Shufersal's results, because I took a stand, and I didn't have some of the products of the big suppliers on the shelf. And when I brought them back, sales went up. In Europe there are companies that have 80% private label, so I'm not saying we should be there, but what's wrong with 35%?"
When you announced your agreement with SPAR, some said you had conceded that it was right to bring Carrefour to Israel
"Our influence is 20 times that of Carrefour because of the scale of sales, the customers, the spread of branches. Our customers trust Shufersal that if a product is on our shelves, I have checked it out and it is quality. I don't have four recalls every week."
You present you private brand as a cheap alternative, but its prices have also gone up over the past year
"There is one major difference. The private brand is mainly from small Israeli manufacturers, and they are all struggling with crazy inflation this year, the increase in inputs, the consumer price index, the rent, the electricity, the property tax, the minimum wage. And the suppliers from abroad - I will fight with them, but if in the end, if there is no choice, I will raise it by the minimum. But the giant suppliers in the world are raising prices, because they see Israel as a country where prices can be raised."
"We needed to restore individual pride
Two weeks ago the company made headlines when the faces of women on product packaging was hidden in the Bnei Brak branch of Shufersal's Be pharmacy chain. This caused an uproar and organizations called for the branch to be boycotted for deleting women from the public domain. In response Be replaced the products for others pictures of women after talks with the city's chief rabbi. The protests continued until Be restored the original products with women's faces on the packages.
Shufersal was criticized for its conduct. "To say we exclude women or to accuse us of gender inequality is far from reality," Watermann insists. "When I joined Shufersal, I appointed five female directors. Previously there had been one. For six months, I sought a female CEO for Be (he finally appointed Einat Peled Shapira), because most of our customers in the pharmacy chain are women. I believe that women manage better than men. It is clear that putting stickers on women's faces is an exceptional and mistaken event. It had been going on for ten years, and as soon as it was brought to our attention and Einat was made aware of it, she acted to resolve it.
"But we are in the middle of a haredi neighborhood, Shufersal provides service to all the people of Israel, and I, as a human being, first of all, respect my customers regardless of who they are. If they are haredi, I would rather talk to them and respect and resolve it through dialogue than to take unilateral steps. It took her 72 hours to reach an understanding and the issue has been addressed. Shufersal is a reflection of the people of Israel, I cannot underestimate the importance of this thing."
Where do you want to be in another five years?
"In Shufersal. At Shufersal the job of the CEO is for many years, because there is such a range of businesses here that you can't get bored with them for a moment. There is so much to do here, it is unlike a job anywhere else. Shufersal should continue to develop in the areas of food, and through technology and innovation you can do amazing things. Be will be bigger and more profitable, the world of real estate, finance, Shufersal business, which has the potential of billions, stock. There is an amazing platform here. In three to five years, Shufersal will know how to generate good profitability in food and even better profitability in all subsidiaries and growth engines, and together we can report results like Walmart and Tesco.
"I have far-reaching plans to collaborate with startups and establish tech incubators. There is the world of corporate responsibility, which makes it possible to give back to the community, for example by reducing food waste (in cooperation with Latet Shufersal donates food intended for garbage to families in need). Last year we saved food worth NIS 60 million, almost 4,000 tons, and my goals is to double that in the coming years. I believe we are here to do good.
"And I also hope to enjoy the journey. I have an amazing management team that I have formed, wonderful employees, with extraordinary human strength. As a person and as a manager, I am completely committed."
Published by Globes, Israel business news - en.globes.co.il - on June 2, 2023.
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