Too-deep discounts get Rami Levy an iPhone import deal

There’s a new iPhone and iPad dealer in town. Earlier this week, the Rami Levy chain, famous for using chicken as a loss-leader to get customers in the door, reportedly signed a sales agreement with Apple worldwide, and will become an official Israeli importer of i-devices. Levy also plans to sell the devices for significantly less than Apple’s other Israeli vendors, iDigital and Partner (Orange).

The only problem: The price Levy will be charging for the “official” iPhone is higher than the price the discount chain was selling them for last week, when Levy was selling them “unofficially.”

Apple has a reputation as a company that keeps a close eye on just about every aspect of the user experience, such as setting stringent requirements for apps to be “admitted” into its App Store, and creating a “closed garden” user experience that brooks no adjustments to its operating systems.

It also turns out that Apple is on top of the prices its devices are being sold for, and in the case of Levy, the parent company apparently intervened in order to ensure that Apple products were sold for the “right” amount of money — to the extent that Apple allegedly “sicked” the Israel Tax Authority on Rami Levy to investigate whether the company was fudging on the import duties it was supposed to pay on iPhones and iPads.

The story began about a month ago, when Rami Levy communications began selling iPhones to customers of its cellphone service. In the wake of the recent liberalization of the cellphone market in Israel, which allowed alternative service providers to compete with the “traditional” Big Three companies (Orange, Cellcom, and Pelephone) a number of alternative service providers have sprung up, promising significant discounts. The most famous of these is Golan Communications, which began a price war in the cellphone service market. Currently, Golan’s most expensive plan is NIS 99 per month, a far cry from the NIS 300 or more that most Israelis were paying on average just a few years ago. As a result of the competition, the veteran companies have been forced to lower prices to previously unimaginable levels as well.

Rami Levy Communications began operations in December 2011 as a “virtual carrier” (marketing services using the existing cellphone infrastructure), with the idea of offering discount “cash and carry” cellphone service. Instead of offering “packages” that give better terms for customers that commit to staying with the company for a certain amount of time, Levy offered a prepaid monthly plan that essentially only charged for that actual airtime customers used. (Since then, it has expanded its offerings, and now has an NIS 88 per month “all you can eat” deal.) At first, Levy did not offer phones for sale, but has since opened a phone store, selling various models — and most recently iPhones – to customers.

Levy built its reputation on discounting. Before Passover two years ago, the chain took the unprecedented step of offering chicken, a staple on holiday tables, for the ridiculously low price of one shekel per kilo, undercutting the competition by 2000% (the average price for whole chicken then was over NIS 20 per kilo). Levy’s move essentially started a nationwide price war on chicken and other food items, and today many chains discount chicken significantly as a “loss leader” to get people in the store.

Levy sought to bring its discounting philosophy to the sale of cellphones, and found a “gray market” source abroad from which to import iPhones. Although cheaper than Apple’s pricing guidelines, the gray market phones are in their original packaging and carry Apple’s worldwide warranty. The move gave Levy a better price than it could have gotten from Apple, enabling it to undercut the official importers by some NIS 800 on a number of iPhone models.

The discounting was done without fanfare, but word got out – apparently to Apple, which, according to sources quoted in the Hebrew press, contacted Levy at the prompting of iDigital and Partner. Coincidentally (or not), the Israel Tax Authority contacted the company as well, in order to determine if Rami Levy Communications was paying proper import duty on the devices.

According to Apple, the sources said, there had to be something wrong: it costs NIS 2,400 to get an iPhone out of the factory and into Israel, and that’s before handling, marketing, and other costs, indicating that Rami Levy was underpaying the customs due. But the price cuts were coming out of its end, not the government’s, Rami Levy Communications said in a statement. Its plan was to sell the devices for just 5% more than cost, allowing them to offer a far lower price than the competition — as opposed to the 10% to 35% markup its competitors tack on to the import and duty price.

All’s well that ends well; this week, according to reports, Apple and Rami Levy signed a deal, making the discount supermarket chain the third official Apple importer in Israel. According to Levy officials, Apple proposed the arrangement, apparently in order to give it more leverage over Levy’s pricing policies. As a result, Levy will sell the iPhone 5 in stores for NIS 3,390, instead of the NIS 3,690 iDigital and Partner price.

That’s a good deal – but not as good as the NIS 3,190 that Levy was charging for the devices before it became an official Apple dealer. Similar discounts will be available on other iPhone models and on iPads. For those seeking an even bigger bargain, Levy is selling off its old stock of super-discounted iPhone 5s, to make room for the merely-discounted ones – so customers looking for a real cheap iPhone 5 still have an opportunity to get one at Levy’s website.