What is Shufersal Ltd. (TASE:SAE), Israel's largest supermarket chain planning to do with the New-Pharm chain of pharmacies that it has acquired? "Globes" reveals Shuferal's strategic plan and options. The main thing that Shufersal is focusing on is creating differentiation for New-Pharm that will give buyers a shopping experience, similar to the one they get at New-Pharm's major competitor - Super-Pharm.
The chain's official launch will take place only in the second half of the year in order to generate competition in the pharmacy market. Simultaneously with building the new brand to replace the name New-Pharm, Shufersal will have to deal with competition in the three main categories in which it operates: toiletries, cosmetics, and pharmacies.
The first challenge, which Shufersal is already addressing, is the agreements with the health funds. Sources inform "Globes" that Shufersal is currently in the midst of expanding the existing agreements with the major health funds, and in order to better study this activity, it has hired former Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) head of OTC and consumer goods and former Maccabi Care CEO Madona Hovel, who is naturally familiar with this problem, as an external consultant for pharmacies development. New-Pharm currently has no agreement with the major health funds in all of its branches, which naturally drives customers into the hands of its competitor, Super-Pharm, and the pharmacies of the large health funds, which offer customers a discount on the prescription drugs. Shufersal is taking steps to redress what it regards as this distortion.
Improvement in toiletries and cosmetics
Another relatively new sphere for Shufersal is cosmetics, with an emphasis on selective cosmetics (prestige brands). Sources inform "Globes" that Shufersal is considering the establishment of stands for personal care and nail polish in its main branches according to the model of international chains like British pharmacy chain Boots and French cosmetics chain Sephora.
The size of the selective cosmetics market in Israel, including perfume, makeup, and care products of known brands regarded as prestigious that are not sold at other retain chains is NIS 1.7 billion. Competition in this category is not only against Super-Pharm, but also against cosmetics brands operating in special stores for the brand, such as MAC and Bobbi Brown (which recently began cooperating in sales at Super-Pharm); chains like Hamashbir 365 Holdings Ltd. (TASE:MSAH) (New-Pharm's previous home); and April, and perhaps more than any of them, duty free stores.
Market sources estimate that 30% of selective cosmetics sales to Israeli citizens take place through duty free stores (approximately NIS 400 million. Another indication of the power of duty free in this category is the legal actions being conducted by the pharmacy chains against duty free, including a petition against the service that allows products to be ordered online and collected at the airport at the time of a flight. Shufersal formerly operated in this category only on a limited and partial scale. Before holidays, Shufersal conducted parallel imports of some prestige perfumes and sold them at some of its large branches at special sales stalls, so while it has conducted some activity in this area, it is not an experienced player in it.
Today, there are both cosmetics and toiletries brands that are launched exclusively at Super-Pharm, and are offered for sale at competing chains only later. Shufersal will also have to differentiate itself in this way.
Toiletries are already a strong category at Shufersal branches, which competes in this with both Super-Pharm and other supermarket chains, such as Victory Supermarket Chain Ltd./ (TASE: VCTR), Rami Levy Chain Stores Hashikma Marketing 2006 Ltd. (TASE:RMLI), Yeinot Bittan, Hatzi Hinam, and others in these categories. Some of the competitors have their own private brands, such as Super-Pharm's Life brand, Rami Levy's private brand, and Hatzi Hinam's private branch of cleaning products - Perfect.
"In the second half of 2018, we will rebrand and establish the hierarchy of this chain's private brand. We'll create something new and up-to-date," Shufersal CEO Itzhak Aberkohen recently said, commenting on the question of a private brand. Shufersal already has a private brand that accounted for 23% of its sales in 2017 - NIS 2.4 billion, making it the fifth largest "supplier." Shufersal is expected to look now for potential suppliers. Incidentally, with all due respect to Shufersal's power, if it wants to create an exclusive private brand for New-Pharm, it will find it much more difficult to work with high-quality suppliers, due to the volume of sales to which it must commit. On the other hand, if it foregoes an exclusive private brand for the chain, it will not create differentiation from the merchandise sold at Shufersal.
In addition, New-Pharm is considering the establishment of an eyeglasses department providing optician services, in addition to selling sunglasses and eyeglasses made by international brands. In this framework, cooperation with the large importers and their representatives in Israel, whom New-Pharm recently contacted, is being considered. Shufersal previously attempted to enter the optician field, but was not successful, while Super-Pharm's business in eyeglasses and its lens sales business are growing.
Another measure will already be visible at New-Pharm branches in the coming weeks - an expansion of the food shelves in the chain, which will obviously benefit for Shufersal's trade terms. In order to attract customers, however, New-Pharm will need far more than that.
Published by Globes [online], Israel Business News - www.globes-online.com - on March 18, 2018
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