Cofix mogul launches X Lab Diamonds, offering more affordable gems

Avi Katz's new venture produces lab diamonds, which are manufactured by using technology that simulates conditions beneath the Earth’s surface

X LAB’s flagship store recently opened in Petah Tikva’s Ofer Mall (photo credit: GIDEON LEVIN/181 DEGREES)
X LAB’s flagship store recently opened in Petah Tikva’s Ofer Mall
(photo credit: GIDEON LEVIN/181 DEGREES)
Right from the beginning of my conversation with entrepreneur Avi Katz, I wondered aloud if smack in the middle of the COVID-19 pandemic, when countless businesses are collapsing and millions of people are unemployed, was the correct time to start a new business – no less than in the lab-grown diamond industry. Who has the desire or courage to take such a leap of faith?
Katz, 57 – a divorced father of five, grandfather of three and a Tel Aviv resident – is famed for his Cofix venture, which opened in 2013 and drove the country crazy with its five-shekel coffee, inspiring many imitators. He just recently launched his new baby: X Lab Diamonds.
“First of all, it takes time to open up a new business,” Katz explains. “I began working on this new venture over a year ago, way before the COVID-19 epidemic hit. Anyone who thinks that our economic problems will be solved by receiving unemployment benefits for a couple months or offering grants to self-employed people is simply wrong.
“There is only one way out of this mess: local growth. And the only way to achieve local growth is by creating new businesses, preferably those with an innovative vision. Every morning when I wake up and begin my daily prayers, I thank God not for the COVID-19 epidemic, but that I am creating my new company during the epidemic. I thank the Holy One for letting me open another business just at the right time.
“Say, for example, in December or January, a young man made the decision to propose to his girlfriend. He wanted to buy her an engagement ring, but before he could, the COVID-19 outbreak fell upon us. All the stores closed down and due to the epidemic, his salary was cut in half. Or perhaps he was fired from his job. He still wants to propose to his girlfriend, but he probably won’t have a diamond ring to give her.
“Now that our shop has opened up, this same guy can actually afford to buy that diamond ring and turn his proposal into the romantic occasion he’d imagined it would be, since our rings only cost half as much as mined diamonds. That’s why I think the timing here was so perfect. And by the way – sales have been great, which pretty much proves that my theory was right on target.”
LAB DIAMONDS are manufactured via technology simulating the conditions beneath the earth’s surface (Photo Credit: X Lab Diamonds)LAB DIAMONDS are manufactured via technology simulating the conditions beneath the earth’s surface (Photo Credit: X Lab Diamonds)
Lab diamonds are manufactured by using technology that simulates conditions beneath the Earth’s surface. According to Katz, the resulting diamonds meet the stringent standards of the gemology industry and are 100% identical in their chemical, physical and optical composition to diamonds that were mined.
X Lab Diamonds has raised over NIS 20 million from investors. Their flagship store recently opened in the Ofer Mall in Petah Tikva. Additional branches in Israel are scheduled to open in the coming months, in addition to branches in Moscow and London.
KATZ IS the co-owner with his daughter, Hagit Katz-Shinover, who is serving as CEO of the chain. According to Katz, the prices of X Lab Diamonds are considerably lower than diamonds that are mined, sometimes even half the price. He believes that just as the global market has already accepted that there’s no need to harm the environment in order to enjoy diamonds at attractive prices, this idea is slowly becoming accepted here in Israel, too.
“Our diamonds,” explains Katz, “are a solution for two types of people. First, they are perfect for people who refuse to buy diamonds for ideological reasons, since mining diamonds from inside the Earth causes air and environmental pollution, deforestation and damage to animals’ natural habitats. Moreover, diamond mining is detrimental to children’s rights and to people who are forced to work in unsafe conditions and at extremely low wages. Almost every mine employs 2,000 children in slave-like conditions. Not to mention blood diamonds, in which groups overtake diamond mines to finance their wars.
“The second type of people who prefer lab-grown diamonds are people who up until now could only afford a simple bracelet with tiny, inexpensive stones, but who now can spend the same amount of money to buy a really nice and respectable piece of jewelry.”
Katz imports most of his diamonds from Hong Kong and India. He knows that periods of economic crisis can serve as great opportunities for new businesses.
“There are ups and downs in economies. The only thing that helps drag you out of the depths of despair is when you realize no one is going to come save you, and so you decide that you’re done crying. It’s at this point that enterprising and hardworking people start new ventures.”
So, what you’re saying is that you are continuously reinventing yourself.
“I keep reinventing the market. Three times already I’ve been the first person in the world to do something specific. I’ve done this six times in Israel. Millions of Israelis have been to the US and seen the dollar stores firsthand. Many of them have turned to their spouse and said, ‘Whoever opens one of these stores in Israel is going to be a huge success.’ Well, I did it.”
Katz, together with partners, was the brains behind a number of successful ventures, including Kfar Hasha’ashu’im (1993), Hakol Bidollar (1995), Sheshet (2000), Keren Hagshama (2009), and Cofix (2013).
“The idea to create the Hagshama Investment Fund was fantastic,” Katz continues. “We wanted to offer regular people the opportunity to invest NIS 100,000 or NIS 200,000 or however much they wanted, to play the market just like people who were investing NIS 20 or 30 million, by joining together with a group of other people like themselves. So many people are making money this way. This business is still going strong and more people are always joining.”
But some people have also lost money in these investments.
“This is how the model works: You choose one specific investment and invest only in that one place. You don’t care if 100 other investments were successful. You only care if your specific one did well or not.
“Let’s say that out of 100 investments, 97 were successful and made a lot of money, but there are still three that didn’t. Add to this the fact that there’s a plethora of lawyers looking for clients and newspaper headlines, so they form a class action suit. In the 10 years Hagshama has been operating, there have only been three such suits. That’s not much.
“I don’t get upset anymore when people write bad things about me in the newspaper. It’s fun seeing my face on the news. By the way, I haven’t sold any of my stocks in Hagshama. That’s just another lie that was published. Some of my partners were bought out, but I wasn’t.”
MOST PEOPLE identify Katz with Cofix. The chain operates mainly as franchises, and some of the franchises that didn’t do well claimed that the chain’s operating model was not economical. In February 2017, the chain raised the price of coffee to six shekels, and then changed its business model again and went back to selling coffee and other products for five shekels.
Eventually, Rami Levy became the controlling shareholder of Cofix in an effort to lend stability to the company.
“My daughter and I previously owned 40% of the company, but now we own 20%. I am Rami Levy’s partner in Cofix,” Katz explains in an effort to demonstrate that Cofix is still popular.
“Just today alone, more than 100,000 people will enter a Cofix branch and purchase a product for five, six or seven shekels; products that used to cost around 15 shekels. Statistics show that 80% of new food businesses end up folding within the first three years. The opposite has happened here. After seven years, 80% are still going strong. In my mind, that’s a dazzling success.
“I’ll never forget the time about 10 years ago when I went up to a kiosk and took a can of Coke without asking the price. The seller tells me, ‘That’ll be 12 shekels.’ I just put the can right back down and left, even though I had plenty of money. Nowadays, no shop or kiosk can get away with selling drinks for more than five shekels, since they need to compete.
“After seeing myself portrayed on TV by everyone as a crazy person who will never succeed at selling coffee for five shekels, now all the cafés are also charging five and not 15 shekels. I just don’t understand how people can be so ungrateful. They go on and on about the ‘failure of Cofix’ when we were the only ones who brought about a big change in the last 10 years.”
Katz admits that 20 to 30 families lost money, and that certainly hurts.
“Regarding these families who ran franchises that didn’t succeed, perhaps it was their fault, or maybe it was mine. Maybe they didn’t clean the counter properly and customers didn’t like it when they put their hands on the sticky parts. We would tell them, ‘You need to keep the place cleaner,’ but they didn’t clean it, so people stopped coming there.
“Or maybe the owner was a lazy guy whose father had bought him the franchise, thinking that this would encourage his son to work hard, but it didn’t. Or maybe it is our fault. I don’t want to go into that now. The 20% is painful.
“When a journalist meets someone who just lost his life savings, which is what happened with Hagshama, do you think the journalist is going to focus on all the families who made money? That wouldn’t make for a very sexy story. When I opened Cofix, it was a big hit. People stood in line for the chance to invest three million shekels in the franchise.”
Katz says that Cofix had 110 branches after it opened.
“As far as I know, 25% have shut down,” he explains. “I was so sad for these families, but what can I do? I came up with an idea. I didn’t know it would be such a big success. It was so much bigger than I expected. In just the first week we received requests from 6,000 people who were interested in purchasing a franchise of something that even I didn’t know much about yet or how it would develop.
“Where is the responsibility of these 6,000 people who were willing to invest way before it was clear what it would turn into? So, when someone fails and comes to me and says, ‘If you don’t give me back the money I paid you, I’m going to tell my story to the press,’ there’s nothing for me to do other than to tell him he’s welcome to speak with the press. That’s life.”
Avi Katz, founder of X Lab Diamonds (Photo Credit: Courtesy)Avi Katz, founder of X Lab Diamonds (Photo Credit: Courtesy)
That’s an uncomfortable situation to be in.
“Yeah, at first I took everything to heart and couldn’t sleep at night. I got divorced during this period, and my ex-wife says it’s because of this terrible period when I was suffering from intense persecution. When does such a phenomenon turn into a revolution? When you take a situation in which only a few are benefiting and the rest are suffering, and then you flip the situation on its head so that the opposite is true.
“Take for example, comments people make online. Say you write the following on the Internet: ‘Avi Katz donated a building to a hospital.’ Someone will probably comment, ‘Sure, he stole so much money he can afford to.’ So, I stopped reading all the comments.
“Soon after, I stopped reading newspapers altogether. Only when there was an exposé about me, I’d wake up in the morning and read the whole article. Some people will like me, and others won’t. There’s no way to get seven million people to like you, it doesn’t matter what you do.
“Even in the Book of Esther that we read on Purim it says, Mordechai was ‘Great among the Jews and accepted by most of his brethren.’ Even after saving the Jewish people, Mordechai was only liked by most people? Why didn’t everyone appreciate him? That’s just how it is.”
Did you make mistakes along the way?
“Of course! Plenty of them. Everything is trial and error. Everything I’ve tried has been innovative. For example, we began considering the dilemma of raising the price at Cofix from five to six shekels. My daughter wanted to keep it at five shekels, but I wanted to increase it to six. In retrospect, she was right, because there were a few franchisees that we couldn’t save when we raised the price to six shekels.”
Let’s leave business aside for a moment. What other things do you like to do with your time?
“You know how so many people say to themselves, ‘One day I’ll do XYZ.’ Well, I actually go and do all those things,” Katz says excitedly. “I bet you that I’ve read most of the books you’ve read. I am a voracious reader. I do art and lots of other interesting things.
“I also love giving lessons. I am proficient on an academic level in studies about the Jewish sages from the Talmudic period and biblical legends. I’m completely obsessed with the world wars. I even know details about all the different battalions. I love hiking along the Israel National Trail, bike riding, and traveling around the world in an RV with my family.”
KATZ SAYS he began collaborating with Hagit, his eldest child and his partner in the X Lab Diamonds venture, when she was just a child.
“We’re very connected.”
Do you have a similar way of thinking?
“No, not at all. She thinks I’m reckless and that I’m always making decisions after being grateful to someone for past kindnesses. Hagit, on the other hand, is very matter-of-fact. Something is either right or it’s wrong. I’m old, with rounded corners, whereas she is young and sharp.”
So, what you’re saying is you complement each other?
“When we were working together on Cofix, we would argue and yell, but at the end of the day I was the one who made the final decisions. Now, in the X Lab Diamonds business, after all the yelling and arguing, she’s the one making the final decisions.
“That was her condition for joining the venture with me. I get to talk and make a big ruckus, but she gets to make the final decisions. If important issues arise, she consults with me, we discuss the options and then she makes the decision and moves on. I certainly don’t feel like I know how to do things better than she can, but sometimes you have a better view of someone drowning when you’re sitting up in the lifeguard’s chair.”
What’s your idea for the next project?
“It’s already up and running, but I can’t talk about it yet since there are so many competitors, and I wouldn’t want anyone to ruin it for me before I even get started. The longer I can keep it secret, the more chance for success before people begin trying to torpedo my efforts.”
Translated by Hannah Hochner.