Israel invites US retail giant Costco to make foray into local food market

Finance Minister Smotrich suggests move could be ‘mutually beneficial’ for chain and consumers, who’d see a reduction in the cost of living; letter ridiculed for poor English

Sharon Wrobel is a tech reporter for The Times of Israel.

Costco Warehouse in Pittsburgh, Feb. 2, 2023. (AP Photo/Gene J. Puskar)
Costco Warehouse in Pittsburgh, Feb. 2, 2023. (AP Photo/Gene J. Puskar)

Bezalel Smotrich is trying to lure Costco Wholesale Corp. to make a foray into the Israeli market, as the finance minister seeks to fuel competition in Israel’s highly concentrated retail food market in an effort to bring down the cost of living.

In a letter last week addressed to the US retail giant’s chairman Hamilton James and CEO Craig Jelinek, Smotrich laid out the government’s desire to bring down prices by “inviting leading, large global players with an international presence similar to your company to enter our consumer market.”

“We view that as a mutually beneficial opportunity for both your company, which will gain a presence in a new attractive market, and for the people of Israel who will enjoy a reduction in the cost of living through increased competition,” Smotrich wrote in the letter.

He suggested that James and Jelinek meet him on his next visit to the US.

The letter was widely ridiculed on social media for its awkward phrasing and unnecessary spacing, which seemed to indicate that it was not drafted or proofread by a native English speaker.

One Israeli Twitter user said she had asked ChatGPT to produce a similar letter and that the artificial intelligence-run chatbot had produced a far more coherent draft, which she posted alongside Smotrich’s.

Israel’s cost of living is one of the highest among countries in the OECD, which has been generally attributed to a lack of competition among local importers and manufacturers. The top three local supermarket chains account for over half of the food retail market, limiting competition and putting upward pressure on prices. Meanwhile, import tariffs, value-added tax costs and kosher restrictions have been keeping out international retail chains.

With annual sales of $222.7 billion in 2022, Costco is a membership-only chain of stores managing 848 retail sites around the world, with 584 in the US and Puerto Rico, 107 in Canada, and 40 in Mexico. The retail chain also has a presence in Japan, the UK, Spain, South Korea, Vietnam, and Australia, and operates e-commerce websites. The consumer giant employs 304,000 people worldwide, serving 120.9 million membership cardholders and 66.9 million households, according to its website.

“We do see a recent trend of international retailers entering the Israeli market as some barriers to food imports from abroad have been eased,” Chen Herzog, chief economist at BDO Israel accounting firm, told The Times of Israel. “The purchasing power and technology used by big global retailers for logistics and in the area of online sales where Israel has been lagging behind could lead to a potential shift in the market and more competitive prices.”

In December, Israel’s largest supermarket chain Shufersal inked an initial deal to set up a chain of stores in the country for the Dutch-owned international supermarket SPAR, vowing to bring down rising food prices. The move comes as Shufersal is facing increasing competition with the entry of French supermarket chain Carrefour and 7-Eleven in Israel. Carrefour and 7-Eleven are set to open hundreds of stores between them in the next few years.

Costco vows to “carry quality, brand-name merchandise at substantially lower prices than are typically found at conventional wholesale or retail sources.”

Chen noted, “In Israel though, the cost of real estate and other costs such as the VAT on fruit and vegetables means that big retailers such as Costco may not be able to offer the same competitive prices than in other places.”

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