Israel Retailers Tangle With Prices, Amazon and Now Shoppers
Israel Retailers Tangle With Price Wars, Amazon And Now Shoppers
(Bloomberg) -- About six years ago, equity analyst Gil Dattner stood at his front door arguing with a delivery man from one of Israel’s largest grocery chains. Half the items he bought online were missing, yet the man still expected a tip. When he declined, the courier “left in a huff,” Dattner recalled, and never returned with the rest of his order.
Dattner’s experience isn’t unusual for Israeli customers, something the country’s leading retailers are trying to address. Among the most prominent of them is Shufersal Ltd.
Over the last two years Israel’s biggest supermarket chain has renovated outmoded branches, poured 600 million shekels ($166 million) into centers to fill online orders and overhauled its website. Late last year it rolled out a partnership to offer cashierless checkout.
Shufersal’s effort to keep customers happy reflects the evolution of consumers in Israel, which in recent decades has gone from a poor socialist country where price was paramount to a more sophisticated nation of shoppers. An economic boom has lifted the average Israeli wage 20% in the last seven years, also boosting consumerism. Israelis have used their recent prosperity to finance a growing appetite for travel, refining their spending tastes further.
Adjusting to this shift is critical for Israeli retailers, which may soon have to contend with competition from Amazon.com Inc. Operating margins crashed after cost-of-living protests in 2011 led to reforms that increased competition and sparked price wars. With the fight over costs still raging, Shufersal has focused on service to gain market share.
“The standard of service in Israel is not very high,” Zvi Baida, Shufersal’s chief customer officer, said in an interview. “That hasn’t changed, but our customers have. They’re more global, and the experience they got from Amazon or their bank -- whatever -- they expect from everyone else.”
Some of the country’s biggest retailers are taking note. Fox Wizel Ltd., the clothing manufacturer, recently opened a website similar to the U.K.’s Asos.com, which offers next-day delivery of global brands.
Still, Israeli companies lag behind European and American retailers when it comes to understanding their customers, according to Arje Sanders, Israel managing director of Micompany, which helps major corporations build artificial-intelligence capabilities. Israeli firms have been slow to mirror the efforts made by the world’s largest retailers to build data-science departments and improve websites and stores.
“There’s this status quo that views data science as some complex external thing, and so they outsource it like they would with a lawyer,” Sanders, whose company’s clients include EBay Inc., Nike Inc. and Heineken NV, said in a phone interview. “But it’s a core competence. No one would say I’m going to outsource my marketing department or my CEO.”
Shufersal is looking to make up ground, the most ambitious example being its push with a local startup to rival AmazonGo, a cashierless grocery venture. The two firms are working out kinks in the product and should roll it out in about a year, Baida said.
The company’s shares fell 1.2% at 11:16 a.m. in Tel Aviv, bringing its yearly decline to 2.6%, ranking in the bottom half on Israel’s benchmark stock index this year.
The other pillar of the strategy is online sales, which account for 16% of Shufersal’s roughly 13 billion shekels of annual revenue, the highest percentage of any major supermarket chain in the world, according to a study by McKinsey & Co.
Margins are lower online than at stores, but Shufersal wants to keep expanding that business because online customers are more loyal, Baida said. The company’s first automated logistics center will be ready in about a year, and four more will be built, he said. Shufersal aims to generate as much as 30% of sales through its website, he said.
“They’ve upped their online game a lot,” Dattner, an analyst who covers retailers at Bank Leumi, said in a phone interview. “This is the one area where they can really stand out.”
Shufersal still has room to improve its online operation, whose delivery service still relies on subcontractors. Progress can be slow, Baida said.
“Change is a very difficult thing to achieve for an established company like ours,” said Baida, whose customer experience department didn’t even exist until three years ago. “But it’s also an opportunity.”
To contact the reporter on this story: Yaacov Benmeleh in Tel Aviv at ybenmeleh@bloomberg.net
To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Michael S. Arnold, John J. Edwards III
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