November 18, 2013

Israeli Supermarket Chain Badly Hurt by Orthodox Boycott Looking for French Bailout

TEL AVIV — A major deal may be in the works to acquire a large Israeli supermarket conglomerate that never recovered from an organized boycott by Orthodox Jews. According to the prestigious Globes business publications Catterton Partners and France's Auchan Group are negotiating for 55% of Mega, Teva Eden Market, and AM:PM supermarkets. Under the pending proposal, Catterton Partners will acquire 55% of the supermarket chains at a value of NIS 1 billion, including Mega's debts, which are estimated at several hundred million shekels. Mega is Israel's second largest supermarket, after Shufersal Ltd. It has 213 branches, 130 of which are neighborhood supermarkets under the Mega Ba'Ir format, 66 are discount stores under the Mega Bull format, and 15 are Zol Beshefa stores, a discount label for the haredi (ultra-orthodox) community. Mega Retail owns 51% of the health food chain Eden Teva Market, with the rest held by its founder and CEO Guy Provisor. Eden Teva Market has 21 stores, nine of which operate within Mega supermarkets.

According to Globes, Mega has been struggling for years from shrinking sales. The downturn began in March 2008, when haredim (Orthodox Jews) declared a boycott of Shefa Shuk, following Alon Group's acquisition of AM:PM, which is open on the Sabbath. Shefa Shuk lost hundreds of millions of shekels in sales a year, and Mega has been struggling with the fallout from the boycott. It gradually converted most Shefa Shuk stores to Mega Bull stores, which only worsened the business results. Mega has also been hit by competition from independent chains, led by Rami Levy Chain Stores Hashikma Marketing . Sources are skeptical that the new owners will be able to turn things around for Mega especially if the AM:PM stores continue to be on Shabbat and offer non-kosher products.