fbpx

Keep it Cheap

They started out selling milk and bread out of a truck. Who would have thought the company that sprang up from that early-morning venture would net them 140 million shekel? But Aryeh Baum has no desire to retire. Instead, he’s creating more and more stores for budget-conscious shoppers to fill up their carts and get out in a hurry.

Aryeh Baum, joint owner of the Osher Ad chain and a trailblazer in Israel’s retail supermarket industry, asks to see the list of questions. He reads rapidly: “‘What’s my background?’ Not interesting. ‘How did I go from being an avreich in Ashdod to the owner of a huge supermarket chain?’ Not interesting. ‘What did I do before that?’ Not interesting. So tell me again, why did you want to interview me?”

Baum — enthusing, evading, explaining, smoking, drinking coffee, accelerating from zero to a hundred in a fraction of a second — is the visionary half of the two-man team that changed the way chareidim (and all other budget-conscious families) shop. He praises his partner, Avrum Moishe Margulis, as the one who focuses on the day-to-day details of the business. “He’s one of those men of action who knows how to turn the wildest dreams into reality. He’s a cannonball,” Baum effuses of his partner and long-time friend.

That’s the combination that got them started one day in 1995. Baum, then a 26-year-old Gerrer kollel yungerman living in Ashdod, turned to his beis medrash colleague, 25-year-old Avrum Moishe, with an idea: “What do you say we open up a little business, selling bread and milk early in the mornings — making life easier for our neighbors and making some cash on the side?”

Baum envisioned the truck; Margulis ordered it. The next morning, Margulis rose at five to accept the order of bread and milk and the sale began.

Baum and Margulis continued to operate their joint venture, but Reb Aryeh — who easily talks about his ADHD diagnosis and how he manages it — soon realized that the technical end wasn’t his forte. When he worked the cash register, he could never remember how much milk cost or how much to charge for the bread. “Ask your mother how much milk costs,” he said to one girl. “Tell me, how much did you pay Avrum Moishe yesterday for the bread?” he tried to verify with another customer.

“Aryeh,” friends tell him, “Take a little Ritalin and you’ll settle down.” Thanks but no thanks, he says. “Why should I take it? It destroys my creativity and limits my imagination.”

He’s still not good with prices or other small, annoying details, but that hasn’t stopped him from creating a multimillion dollar business. “Even when I’m in an Osher Ad store, I’m never sure what’s a cucumber and what’s a zucchini,” he admits.

Back to the bread-and-milk sale, which soon morphed into a neighborhood mini-market, followed by a grocery in nearby Kiryat Malachi — which sucked in their investment and left the young avreichim in the red.

“When you fail, there are two options,” says Baum “The first is to throw up your hands in despair and close shop. But then you waste your ‘tuition’ –—your payment in the university of life. And so we chose the second option, to analyze and understand what had happened, why we’d gone under, and try again. We thought we’d failed because we were located in an industrial zone instead of in the city center, although today I know that that analysis was flawed. Many of our Osher Ad stores are outside residential areas and are successful. The real problem was that we didn’t understand the business. We didn’t really know what we were doing, how to look at income and expenses, how to price properly and to take into account operating expenses.”

Actually, they began to figure that out when they noticed a branch of Club Market, smack in the middle of town on prime property, limping along, always empty. “So I said to myself, If it’s not working for me and it’s not working for them, then at least let’s do it together,” Baum relates. He got into his “kollel” car and drove up to Haifa to meet with the chain’s owners — polite, well-mannered businessmen who couldn’t quite figure out how to deal with the young, imaginative Gerrer chassid who had landed upon them with some vague idea of a joint venture.

“They made it clear that they had dozens of branches around the country and they had no interest in my proposal to solve their problems in one failing branch in Kiryat Malachi. But then they remembered that they had long wanted to break into the chareidi market. They looked at me, thought it over, and then said, ‘You know, we’ve always wanted to target the chareidi population. Maybe we can do that together with you?’ ”

And so Glatt Market, a subsidiary of Club Market, was born. Baum and Margulis were the managers (they had no ownership shares), with Baum in charge of dreams and Margulis in charge of realizing them.

“And then we began to learn,” Baum recalls. “We spent hours sitting in the Club Market offices, grilling financial managers and strategists over every detail. We asked and asked. We listened. We did research. We read a lot. We received a treasure that is hard to quantify — the accumulated experience of a veteran company that we would never have gotten on our own.”

 

Not Dead Yet

At some point, the Club Market chain changed owners, and the new bosses, who had paid a fortune for the acquisition, wanted to earn back their investment from the profitable branches. “They wanted to maximize short-term profits without looking ahead,” says Baum, remembering how Club Market replaced many of their managers, including deputy CFO Yehuda Laniado, who warned the new owners that their approach would lead them to bankruptcy. (When Baum and Margulis struck out on their own, they hired him back. Today Laniado is CEO of Osher Ad’s 13 branches.)

“The new management didn’t like us too much either,” Baum says. “They wanted to earn as much as possible as quickly as possible. ‘Nice that you’re profiting,’ they told us, ‘but you can make more. Raise prices.’ ” But the two successful chassidim refused to be pawns for a new management’s quick profits, and threatened to go home — until they were given an offer that tempted them to stay: a 50-percent partnership in the stores that would operate under the Zol Po name. Zol Po (“if it’s not zol, it’s not po”) soon became a brand of its own — where families could fill up their wagons with large quantities of cheap basic items.

And then… Club Market collapsed in a complicated, messy, brutal tangle that sucked in hundreds of suppliers and other entities related to the business. That meant Zol Po, the young chareidi subsidiary of Club Market, was in big trouble too. It was hugely successful on its own, but in the storm of the parent company’s collapse, suppliers stopped deliveries to the subsidiary as well. Baum and Margulis, who owned 50 percent of Zol Po, were trapped.

“The legal team appointed to liquidate Club Market advised us to declare bankruptcy as well,” he recalls. “Bankruptcy on luxury terms, bankruptcy of a profitable company. ‘You’ll get all proceedings against you frozen and you’ll be able to catch your breaths,’ the chief counsel said, hoping to console me. ‘Aryeh, this is war, and in war there are casualties. You’re already dead.’ ”

But Aryeh Baum had no intention of declaring bankruptcy, or of dying.

Meanwhile, Club Market was put up for sale by the liquidators, but Zol Po, the profitable part of the business, was really the only thing potential buyers were interested in. Club Market was a failing business, but the negotiators made it clear that any deal was a package deal (if the 50 percent of Zol Po wasn’t included, who would want to buy Club Market?).

Baum and Margulis tried to persuade the liquidators to sell Zol Po separately. Supersol was interested in that, and if they would buy out the 50 percent that belonged to Club Market, Baum and Margulis would be able, together with them, to continue to manage Zol Po. But the liquidators remained firm: Club and Zol Po don’t get split.

And then Baum and Margulis did something gutsy, blindsiding the lawyers. They met privately with Supersol and offered the chain to buy half of their half of Zol Po. “We signed a handwritten agreement on a napkin,” Baum says. But now that Supersol owned a quarter chunk of Zol Po, anti-trust regulations prevented any other large chain from buying Club Market because that would mean they’d be partnering with Supersol, creating an illegal supermarket monopoly. Club Market’s legal team was furious; now they were forced to separate Zol Po from the package. “The same lawyer who tried to console me before came storming into my office fuming, but I looked at him and said sympathetically, ‘This is war, and in war there are casualties.’ ”

In the end though, everyone benefited, because Supersol itself decided to buy out Club Market. And, impressed as they were with Zol Po’s success and owning half of it, decided to open their own Zol Po stores without their chareidi partners. But Baum didn’t want them to ruin the brand, and so he and Margulis switched the name of their nine warehouse stores to Alef. Baum and Margulis were happy with their two-year long partnership with Supersol; yet when new management decided to buy Alef out, the two partners couldn’t turn down the offer: 140 million shekel, on condition that they stay out of the market for 12 months.

With all that money in the bank, why didn’t Baum and Margulis just pack up and retire? “It’s interesting,” says Baum, “You’re not working anymore to earn a living. You work because you have a burning desire to create, to do, to move things, to change things. This desire didn’t let us just go home. And aside from all that, our business was also a life experience, like a club. It wasn’t just us, it was also all our people who have been with us throughout.” In fact, the partners held onto 20 of their top employees, paying their salaries for a year until they were allowed back into the market.

“There were no hard feelings,” says Baum. “By that point Supersol didn’t want us. Our people have managerial independence, and business like Supersol can’t possibly employ such an independent group.”

 

For Whatever It’s Worth

Baum and Margulis didn’t waste any time. The day their year was up, they opened their first branch of Osher Ad in Migdal Haemek. Today, there are 13 branches of Osher Ad around the country, which all work under the same basic philosophy that made Glatt Mart so successful.

And, says Baum, the chain isn’t only for chareidi consumers, even though their typically large families and strained income give them a reputation as shrewd shoppers. Chareidi identification is really double-edged, he explains. On one hand, it means cheap. On the other hand, it means poor.

“But the chareidim are much more economically savvy than the secular public,” he notes.

Still, the team wanted to keep their reputation neutral, to attract all types with one thing in common — a love of budget, streamlined shopping. So when they chose the name “Osher Ad,” their intention was to keep it neutral, but make people feel like it was a good place to be [the name could be loosely translated as “happiness unlimited”]. “People said to us, ‘what are you opening, a shidduch service?’ ”

But what, exactly, is their secret? What do two chassidic avreichim know that all the other discount chain managers don’t?

“It’s no secret,” Baum explains. “First of all, of course, are the prices: they’re the same in the store as when you get home.” Baum is referring to a trick many stores use to entice customers, offering the first two items for a shekel even if you pay four shekel for the third and fourth. “True, in the store you saw something about the item being limited to two per customer and you need four of them… But a shekel is exciting, and who has the energy to make calculations and compare? Yet when you get home you realize you’ve paid ten shekels for those four items. By us, let’s say, each item cost two shekels. You knew you paid eight shekels in the store, and the price didn’t change once you got home.”

In the Osher Ad stores, the aisles are twice as wide as standard, the shelves twice as deep, there aren’t a slew of brands on display, and there are no “impulse” purchase displays next to the registers — not chewing gum, pens, batteries, or candies. Yet all this would seem to not to invite large profits.

“Okay,” Baum leans back in his chair, ready to give a lesson in budget supermarket economics. “What happens in a retail chain is that everything is related in one way or another to operating costs. So my starting point has to be, how do I reduce operating costs, and not, how do I sell more. We have these wide isles between the shelves, so the merchandise can be loaded easily and quickly, and the deep shelves mean a large quantity can be loaded at once, cutting back on re-stockers. Also, it lets people see what’s on the shelves quickly, without getting overwhelmed. Our stores have always opened at ten, and not at seven, which saves three hours of operation and gives the forklift operators a chance to work without getting in the way of early customers.”

Baum says there are no deliveries for the same reason. “Deliveries mean operating costs and a huge headache. It takes time for the cashier to prepare the page with personal details, for the Sudanese worker to go bring another box, for them to find the stickers.” He prefers one customer who comes by car and buys three full carts, than ten smaller customers who come on foot to buy bread and milk and clutter the lines. That’s why many of the stores are specifically not in residential areas. He prefers that customers take their shopping list, find what they need quickly, pay and leave. There are no products dangling in front of customers’ eyes at the checkout, or loudspeakers announcing a special sale in the store. Baum doesn’t want to make his money on impulse buyers. He says he prefers shoppers like himself — impatient and in a hurry.

“I have no patience in general. That’s why everything in our stores is planned so that someone who wants to finish things one two three can do it. Ultimately, the customers enjoy it. Our target customer base is not just from the chareidi sector, but for everyone who wants to save money — and most of these people want to save time as well.”

Over the last few years it seems like the Israeli consumer has caught on. The “cottage cheese” revolution in the summer of 2011, for example, managed to bring down dairy prices. “In the beginning it was very effective,” Baum agrees. “The protest sharpened the Israeli consumer instincts and significantly put the brakes on price hikes. But it doesn’t always work — take the ‘Milky’ protest, for example [“Milky” is a pudding dessert with a layer of whipped cream on top]. That’s not a protest against the high cost of living. It’s a protest against the high cost of whipped cream.”

Baum pulls out a Milky, yummy chocolate flavor with a thick whipped cream topping. “How much is this worth?” he asks.

Eighty seven agurot?

“No.”

“Three shekel eighty?”

“No. I’ll tell you how much this Milky is worth. Exactly, and I mean exactly, how much you are willing to pay for it. Not a single penny more. If it goes up one cent more than you’re willing to pay, then you don’t buy it and the manufacturers will be forced to take down the prices.

“This new social revolution that’s been using Milky as its banner product is missing the point. Let’s say that I want to launch a social revolution against the price of gold. What is that supposed to express, that gold is so expensive? I’ll walk in the street and scream that they should bring down the price of precious metals. What will everyone tell me? ‘If you don’t want to pay the price, don’t buy the product. You can live without it.’

“And I say, you can live without Milky. I do. I think it’s overpriced and it’s not good for my cholesterol. But the problem is that no one is willing to give up on his Milky and instead throws the problem at the Knesset.”

Baum laments that Israeli consumer society doesn’t know how to give up what’s not necessary. They want their Milky, but they want it cheap. His solution to battle the high cost of living? Don’t buy anything that “feels” expensive.

 

Forcing the Market

“People here have to decide what kind of economic policies they really want. In the meantime, we’re theoretically a free market, but practically, we’re still Bolsheviks. It’s comfortable for the government to be depicted as though it protects the poor from the rich, but the policy makers would like the public not to remember that for every shekel paid for a product, 70 agurot go to taxes. Seventy percent is the accumulated taxation from the moment the product was created until it reaches the shelves.”

Baum says that if taxes went down, the weaker sectors would be strengthened by the force of the market, not government handouts

“Here’s an example,” he says. “A small manufacturer sat with us; we wanted to help him grow, to profit more. We examined his income and expenses, and discovered that if he buys another machine and adds another hundred meters of space to the factory, he’ll be able to triple production without adding costs — in other words, more profit for him and cheaper prices for the consumer. ‘A new machine?’ he asked me. ‘I have to import it. You know what I have to go through in the Standards’ Institute for a new machine? They’ll make me crazy. Add another 100 meters to the factory? It will take a year for the municipality to approve it. I also need engineering approvals and fire safety permits. That will take another two years. Leave me alone.’

“Big factories have expansion options, and legal teams to deal with all the bureaucratic details. But the small ones are stifled by the requirements. Listen, I have no problem with these requirements. Fire safety is crucial. But it’s sad that a small businessman who wants to expand has to wait years for all those approvals, with one being contingent on the others.”

Reb Aryeh and Reb Avrum Moishe — known for their charitable donations and campaigns to feed many needy people — focused on one area where they were able to use their clout to influence market forces and bring prices down. They targeted gluten-free products to help celiac sufferers be able afford their specialty foods.

“We wanted to change the market. To do something relevant to people’s lives.

“The prices of gluten-free products until now were very high, because the market is small and production is minimal. So the prices stay high which means people buy less, and the cycle continues.”

Baum and Margulis decided to try to break the pattern. Suddenly, families with a celiac member were shocked to discover packages of pitas that always cost them NIS 21 were selling in Osher Ad for NIS 4.90. Likewise, a two-pound box of Osem Lachmit gluten-free crackers dropped from NIS 40 to NIS 12. But to their surprise, instead of getting a lot of hearty pats on the back, the price plunge made people suspicious — and angry.

“I met a friend who has a daughter with celiac; she was diagnosed five and half years ago,” Baum relates. “And he said to me, ‘Wow, I must be a first-class idiot! For five years I’ve been paying NIS 21 for pitas, and you’re selling them to me for NIS 5! Where was I?’ I calmed him down and told him that he has no reason to feel hoodwinked. No one was robbing him. Costs are high, and that was the real market price. Right now I’m not making a penny off this, but my goal is to get gluten-free sales to spike, which in the long run will bring down per-unit production costs.”

Osher Ad’s slogan, “No trickim, no shtickim,” plus the shopping tips in advertisements and throughout the store — “only shop with a list;” “if you forget something, don’t come back or you’ll buy more on impulse;” and “shop when you’re short on time so you’ll get out faster” — might seem counterintuitive for a business that wants your purchases, but it’s really Baum’s own life philosophy.

Baum was born in Bnei Brak, moved with his family to the US and lived in New York from age eight to 16, and then moved back, this time to the “Rova Zayin” neighborhood in Ashdod where a strong Gerrer community had taken root. That’s where he became friends with Margulis. And today, despite the fact that he regularly bumps elbows with some of the most powerful men in the market, he still sees himself as just another chassidic avreich.

“I don’t feel part of their club,” he says. “I’ve never really felt a part of them. Even when I do business together with CEOs of the largest companies in Israel, we don’t socialize frivolously. My club is my chassidishe chevreh. That’s where I belong.”

(Originally featured in Mishpacha, Issue 552)

Oops! We could not locate your form.