Eretz Yisrael Time

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Tuesday, February 19, 2008
There is currently a Price War going on. A serious one.

While it looks like a good thing now for the consumer, ultimately it may mean that at least one supplier will be destroyed, while the others will be so bloodied that the only way for them to recover will be to raise prices far higher levels than before the price war.

In reality, the best way to avoid being a victim of a price war (as a supplier) is to avoid it and continue to supply a better product, a better service, and better value.

[That’s always been my philosophy when in the past my competitors, with their inferior products, have dropped their prices in an attempt to grab my market. True we would temporarily lose a client or two, but in the end, they always returned.

The clients would even ask themselves, why is the competitor giving away the product so cheaply, and even at a loss – it must be inferior (and they were right).]

True, for a short while customers will go where it’s cheaper, but in the long term, it’s better for the supplier and the consumer to avoid the war.

Ignoring that advice, the large supermarkets in Talpiot have stupidly decided to try to wipe each other out.

Years ago, Rami Levy was one of the first supermarket to seriously introduce “Predatory Pricing” into Jerusalem with his far below cost prices on Coca Cola.

Coca Cola even sued him, and lost. And Rami Levy continues this successful practice until today.

And Rami Levy grew and grew and became a successful and competitive (some might say unfairly competitive) chain.

I guess he grew so big that the big chains are now reacting to him (actually they began reacting to him when they opened up new branches near his stores).

So, this war began with chickens.

Rami Levy already offered discounts on chickens (by a few shekels) if you made a big enough purchase (as did other chains). But then one of the other chains around the corner from Rami Levy started to offer chickens for a few shekels, so Rami Levy responded and reduced his prices, and so began the downward spiral.

Rami Levy now offers chickens at around a shekel a kilo, while his big chain neighbors are giving them away for free. (I’m expecting them to pay us to take them away any time now).

I heard someone comment, that these chickens didn’t go to the slaughterhouse expecting to be sold for a shekel.

But the war hasn’t ended there.

Now milk products have entered the fray. A container that used to cost around 7-8 shekels is now down to a shekel or 2 and dropping faster than the US dollar.

This can’t end well.

No matter how big they are, there is a limit to how much these chains can afford to lose, and it is a serious question as to who will blink first – if at all.

I needn’t mention what it is doing to the local butcher shops and small supermarkets.

If one (or more) of the supermarkets collapses from this price war, then consumers in Israel (not just Jerusalem) will be in big trouble as one of the few truly free and competitive markets in Israel will be gone, and prices will immediately hit the sky.

2 comments:

Rafi G said...

I can;t even imagine going to the store to take advantage of the sale. it must be a madhouse with screaming and pushing throngs of people... the supply is probably completely snapped up within minutes of being put out

Batya said...

I don't get to those stores. We patronize the local chain*. It's clean and convenient. Actually, as soon as I hang out the wash, I'll shop.

*the owner of our super/grocery was asked to take over the ones in two other yishuvim.

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