Shufersal retail food chain Sees 68% Surge in Q2 2023 Operating Profit Despite Sales Dip

Shufersal, a prominent player in the food retail sector, reported a remarkable 68% surge in operating profit for the second quarter of 2023 when compared to the same period in 2022. The figure stood at a staggering NIS 89 million. Despite this noteworthy profitability upswing, Yitzhak Abarkhan, the Chairman of Shufersal, has emphasized that the company is far from content. Sources indicate that the retail giant is embarking on another sweeping efficiency program, poised to significantly impact its financial landscape throughout 2024 and 2025.

The driving force behind this financial leap was the culmination of Shufersal's recent efficiency initiative. A discernible drop of 4% was witnessed in sales, marketing, management, and general expenses during Q2 2023 when compared to the corresponding period in 2022. This reduction, amounting to NIS 831 million, is anticipated to yield savings of NIS 100 million by the end of 2023. Noteworthy elements of the initiative encompassed the closure of 30 unprofitable branches, the shutdown of five manual delivery hubs, and a reduction of the company's headquarters workforce by 10%.

However, Shufersal's online sales weren't as fortunate, plummeting by 8% in the second quarter of 2023 to NIS 585 million. This marks the lowest point since the inception of the COVID-19 pandemic in early 2020. Uri Waterman, the CEO of Shufersal, has attributed 60% of this drastic decline to a deliberate strategic decision to discontinue the sale of loss-inducing electronic products. This move coincided with the closure of manual collection centers and the transition to an automated shipping center in Modi'in, which handled around 3,000 daily deliveries, equivalent to 40% of its maximum capacity.

Despite this setback in online sales, Shufersal managed to maintain consistent performance in same-store sales. In the second quarter of 2023, online sales contributed to 17.1% of the total turnover, a slight dip from the 18.6% recorded in the corresponding period of 2022 and the 19.3% in Q1 2023. Shufersal attributes this decrease to the diminishing impact of the pandemic and the mounting competition posed by emerging players like Volt and Yango. These entrants have started to chip away at Shufersal's market dominance, exerting a noticeable dampening effect on the profitability of its newly-established shipping center in Modi'in.

This strategic shipping center, a substantial investment of NIS 700 million, along with the forwarding center in Kadima, is expected to incur losses during its inaugural year of operation. This is primarily due to projected operating expenses of NIS 70 million annually, which includes depreciation expenses amounting to NIS 40 million per year. According to Waterman and Abarkhan, the anticipated turnaround will occur around mid-2024 when the automated dispatch center in Modi'in reaches its full operational capacity.

In an attempt to counterbalance this, Shufersal has witnessed an uptick in the operational income of "Shufersal for Business," a segment catering to the institutional sector encompassing restaurants, corporate entities, factories, grocery stores, and local communities like kibbutzim and moshavim through its trio of Cash & Carry outlets. Abarkhan estimates that Shufersal for Business will eventually yield a markedly higher operating profitability in comparison to the company's discount store segment.