Arkady Gaydamak, the Russian-Israeli billionaire who is buying the supermarket chain Tiv Taam, is planning to transform the non-kosher chain into a kosher one, leaving a vacuum in the non-kosher niche market, and possibly spurring a localized price war in the kosher food chain market.
"Tiv Taam has been building its business on the non-kosher food market," said Richard Gussow, senior analyst at Excellence Nessuah. "Transforming the chain into a kosher chain will cause much damage. Tiv Taam will be losing this niche and its niche population and as such its competitive edge as well as leaving a vacuum to be filled."
Under the terms of the deal, Gaydamak is purchasing a 51 percent controlling interest of the Tiv Taam supermarket chain from owners Amit Berger and founder Kobi Tribitch for $100 million at a company value of about NIS 820m., which is 80% above the company's market value on the day of the deal, which was Friday.
The deal marks Gaydamak's fourth Israeli acquisition in less than a month following Gilon Investments Ltd. and Ameris Holdings Ltd., which controls the Israel Petrochemical Enterprises Ltd. chain of gas stations, and real estate company Ocif Investment & Development.
As part of overhauling Tiv Taam into a kosher chain and one which is more attractive to the religious community, the Russian billionaire is planning to close the Tiv Taam chains on Shabbat and to open new branches in Jerusalem and Sderot. Market sources indicated that the motivation of transforming Tiv Taam into a kosher chain also fits well with Gaydamak's intention to run for mayor of Jerusalem, as he has indicated.
Although the majority of food chains in Israel sell kosher food, there has been growing evidence of a significant non-kosher food market over the past years, largely as a result of the significant Russian immigration to Israel, many of whom do not eat kosher food, as well as the evolving culinary habits of younger secular Israelis, in particular in the Tel Aviv area.
Tiv Taam's transformation, at least in the eyes of one analyst, will not be an easy one. "A kosher Tiv Taam will find it very difficult to compete with the two major players in the market, SuperSol and Blue Square. The large supermarket chains can bear the cost of economies of scale, which Tiv Taam can not," said Gussow. "Until now, Tiv Taam has been selling products which you could not get elsewhere and therefore the chain could charge higher prices. Taking non-kosher products off the shelves, Tiv Taam will have to be much cheaper selling products with a heavy discount, which could spur a localized price war."
Gussow added that in addition to offering discounted prices, Tiv Taam will have to make itself more attractive by offering value-added services in order to stand a chance of competing with the large chains.
Israel Co-Op grows with Machsanie Mazon buyout
The Israel Co-Op supermarket chain has signed an agreement to acquire the "Maman Machsanei Mazon" private supermarket chain for an undisclosed sum.
Maman Machsanei Mazon operates four branches across the country, including Netanya, Or Akiva and Moshav Porat, with an annual sales volume of NIS 240 million. The acquisition will turn Israel Co-op into the third-largest supermarket chain in the country, with combined annual sales expected to reach NIS 1 billion in 2007.