Carrefour is Here – and so are the High Prices

Nurit Kadosh
09/05/2023 19:35

Today’s launch of the Carrefour brand in 50 renovated Yeinot Bitan and Mega Ba’Ir stores has garnered a lot of attention. Yet despite chain CEO Uri Kilstein’s announcement that it is “an earthquake”, it is not enough to lower the cost of living in Israel, or even to lower the cost of food products.

The converted stores did launch products from Carrefour’s private label at low prices, but a considerable part of the shelves are stocked with high-priced local supplier products. In fact these 50 stores, which were some of the most expensive in Israel, show a slight decrease in prices, which still leaves them considerably more expensive than the discount stores.

Minister of Economy Nir Barkat, who came to the ribbon cutting and launch ceremony in Ra’anana, thanked Carrefour last night for “deciding to take a gamble on Israel”. However, the French company did not invest in Israel and took no such gamble. Quite the opposite, it is expected to receive royalties for the use of its brand, which will be paid by Israeli consumers through the products’ pricing.

During his speech at the store launch, Barkat expressed his opinion about the Israeli food and consumer product market, and said: “One of the challenges is fighting the cost of living, and within that fight, reducing the price of food products is a strategic goal. Unfortunately, the Israeli market is monopolistic, and unfortunately cartelistic, and I intend to fight the Israeli residents’ war on the cost of living without compromise.” This is a strange declaration, considering that if the Minister knows about cartels in the food sector, one might expect him to act against them instead of wasting his time in launches of commercial companies.

Kilstein and Zvika Schwimmer, Electra Consumer Products CEO, can add another success to their record. Although Yeinot Bitan had already been considered defunct, and there was real doubt about their ability to convert 50 stores in a limited time frame, they have managed it. Schwimmer was the one who brought Carrefour to the table and signed the franchise agreement with the French company a year ago. And so Schwimmer can take credit for bringing the first foreign food-retail chain to Israel. Kilstein, who was appointed chain CEO less than a year ago, has accelerated and implemented the launch plan. However, both are now facing a big challenge that involves immense investments. Converting 50 stores has cost the company ILS 250 million. The company owns 102 other stores. Excluding the stores that serve the Haredi public and are not intended for conversion, this leaves 87 stores to renovate. Even if we take into account the company’s increased efficiency in construction, we are looking at a cost of approximately ILS 400 million. We may estimate that because some of the stores have already undergone cosmetic renovations in recent years, this amount can be minimized to about ILS 300 million.

The company will have to invest this amount despite recording immense losses in 2022. This past year was concluded for Yeinot Bitan with a 4% decrease in sales and a net loss of ILS 207 million. Carrefour’s launch is expected to increase sales, because of the interest garnered by the French brand, but it will not be enough to cover the net loss, even before it cut prices and minimized its gross income.

The launch ceremony was attended by Carrefour International senior officials headed by President Alex Bompard, alongside Nachum Bitan, Yeinot Bitan founder and holder of 47.5% of the stock (including about 9%-worth of options he has given to banks and employees), and his partners, brothers Danny and Mikey Salkind, controlling shareholders in Electra Consumer Products, who two years ago have purchased 35.5% along with Phoenix Insurance that purchased 15%.

Kilstein thanked company owners, Carrefour representatives, and the employees, but strangely did not mention Bitan, who attended along with his son Yossi, formerly Yeinot Bitan’s deputy CEO, even though he was a key player in the launch and was involved and supportive behind the scenes. In the next few months, the Salkind brothers will have to decide whether to exercise their option and purchase the remainder of Bitan’s stock. This will not be an easy decision. The price tag specified in the agreement between the parties is no less than ILS 450 million. Along with the branch renovation expenses, it amounts to ILS 750 million, which will be added to the ILS 250 million that were already invested in renovations, and to the heavy losses incurred by the Bitan chain.