Israel’s largest supermarket chain Shufersal announced on Sunday that it has signed an agreement to set up a chain of Dutch-owned international supermarket SPAR stores and import SPAR-branded products at an investment of NIS 28 million ($7.6 million).
The agreement comes a little more than two months after a memorandum of understanding was signed for Shufersal to open at least 10 SPAR stores in Israel over the next three years, as well as import and sell SPAR products exclusively in its stores as part of an effort to boost competition and bring down rising food prices.
Under the terms of the agreement, Shufersal will become a shareholder in a newly created joint corporation controlled by Israeli businessman Amit Zeev that will enter into a franchise agreement to operate stores under the SPAR brand. Shuferal will hold 19.9% stake in the joint company and Zeev the remainder 80.1%.
Shufersal’s NIS 28 million capital injection, which is subject to milestone payments, will serve partly as an investment and partly as an owner’s loan. The agreement still awaits the approval of the Competition Authority. The jointly owned company will be entitled to exclusively import and market the more than 10,000 products sold under the SPAR brand as well as purchase logistics services. The Dutch-owned chain has 13,623 stores and operates in 48 countries around the world.
“The agreement we signed is another layer in Shufersal’s activity to reduce the cost of living in Israel, by introducing a wide range of products at international standards and marketed at fair prices, in order to increase competition in the food and consumer goods market,” Shufersal CEO Uri Watermann said in a statement.
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, which is intended to fuel competition in Israel’s highly concentrated food retail market. In February, Finance Minister Bezalel Smotrich also invited US retail giant Costco Wholesale Corp. to make a foray into the Israeli market.
The top three supermarket chains account for over half of the Israeli food retail market, limiting competition and putting upward pressure on prices.
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, who are therefore able to raise prices, as well as import restrictions that keep out international firms.
“The signing of the agreement is a significant milestone in the arrival of SPAR in Israel, which will bring with it international standards, freshness, innovation and an abundance of products in a wide range of segments, which will enable competition for the heart and pocket of the Israeli consumer,” said Zeev, who will serve as CEO of the joint company.
Israel’s inflation rate accelerated to 5.4 percent in January over the previous 12 months, the highest level since 2008, while local food retailers have been hiking food prices, drawing consumer outrage and calls for boycotts.
Food prices in Israel have risen 50% over the past two decades and are 25% to 80% above the OECD average, with dairy products, soft drinks, and grain-based products particularly expensive (as of 2017 data, according to the OECD).