Just 18 months after Cofix upset the coffee market with its NIS 5 coffee and snacks – a recipe that has led to a record expansion to 75 branches – the company opened the doors to its newest discount venue Tuesday: Super Cofix.
Like its caffeinated counterpart, the Super Cofix grocery store, located in Tel Aviv’s Florentin neighborhood, sells products for a maximum of NIS 5, and everything else for a fraction (colored labels differentiate items that can be bought in higher quantities, up to five items for NIS 5).
Beyond the simple pricing mechanism, however, Super Cofix is taking a gamble that consumers want to shop differently.
“Super Cofix is redefining the concept of discount packaging,” founder Avi Katz told The Jerusalem Post. “Until today, what did we think? Buy a lot, throw away half, put some in storage and you’ll get it cheap. Discount pricing means ‘buy the right amount at the right price.’” Discount competitor Rami Levy sells large quantities at discounted prices, targeting large families with cars who can drive to their suburban stores. Cofix, in contrast, is betting that city dwellers believe good things come in small packages.
“If you buy 400 grams and throw away 100 gr. for 10 percent less than I sold it, did you save, or did you lose?” Katz asked, testing the rusty math skills of the media invited to the grand opening.
Instead of buying in bulk, having to store items in small apartments, or throwing away food that’s gone bad, he offered, why not just buy in smaller quantities? Cofix’s Gil Unger estimated that the average Israeli family throws away NIS 360 worth of food each month.
“In the city, for the right package and the right quantity, you pay a terrifying premium. The gap between the packaging at Rami Levy and the local supermarket is an incomprehensible gap of [dozens] of percentage points,” he added.
To cajole suppliers to sell the company either discounted goods or create smaller units to sell, Cofix put three operating principles in place. The first, a single price point, means there is no flexibility in negotiations with suppliers.
The second is to offer only one brand for each product, meaning that whichever company agrees to supply the store with, say, cottage cheese, would reap all the cottage cheese sales from the 100 branches Super Cofix plans to open in the coming years.
The third is that Cofix is willing to forgo “having it all” in terms of its offerings, though the 700 products that line its shelves cover a broad swath of consumer needs.
The strategy seems to have worked. An unscientific survey comparing a handful of Super Cofix prices to that of a Mega supermarket in central Tel Aviv found that Cofix had secured the price advantage. When adjusting for quantities, cheese was about a third cheaper, turkey cold cuts half the price. The same box of tissus sold at Cofix for NIS 5 was NIS 8.90 at Mega, on discount from NIS 10.90.
Milk was nearly identically priced, but came in an 800-ml.
carton instead of the standard 1 L.
Items that have caused price furors in the past were also cheaper: Two Milkies at Mega were NIS 5.8 next to Cofix’s NIS 5, and the ever-important cottage cheese came out 15% cheaper. Of the products surveyed by the Post, only diapers were more expensive at Cofix (several reporters wondered what use consumers would have for a four-pack of diapers anyhow).
The focus on smaller, more convenient quantities “is a change all over the world, not only in Israel,” said Unger, a former Mega executive who stepped down as Cofix chairman Tuesday to make room for Katz.
Unger, who remains on the board, said the company is aiming to take 1% of the country’s NIS 70 billion food market within five years, despite fierce competition.
Poor performance at Mega, in particular, has raised speculation that the chain could close or be bought up.
“I’m afraid that, yes, one of the chains will not exist in the next year,” Unger said.
Maayan Bergman, a 33-year-old DJ who lives in the apartment building above the new Super Cofix, said he thinks the store will be a major success.
“I think it will succeed, because people are looking for cheaper solutions,” he said.
Anat, a wife and mother of three from the North who happened upon the shop while visiting with her son Omer in Tel Aviv, said that both the price point and the small packaging are attractive, despite the needs of shopping for a large family.
“Everyone has his own preferences.
I like the energy snack in this flavor, he likes a different flavor, but you still have to buy a package. Here, you can get three for five,” she said.
Already the opening has had an effect on the market: Victory, a competitor, said it would lower its prices to compete.
Asked whether he sees a price war as a threat, Katz replied, “A threat? I won! I can close my doors and go home. Yesterday he sold it for [NIS] 6, today he sells it for [NIS] 4.90; from a Zionist perspective...
I’ve already won. If that’s not winning, what is winning?” Cofix is preparing a public offering to help raise capital for its rapid expansion, which already includes three Super Cofix branches in Petah Tikva, Herzliya, and Tel Aviv’s Yigal Allon Street.
The company is pouring NIS 10 million into the four branches.