Moshe Redman is the CEO of Anyverse, a lecturer and international expert in innovation and technology
In recent days it has been reported that the group Fox Is in advanced negotiations for the Israeli franchise of the British cafe-restaurant chain Pret a Manger – a move that if implemented will become Fox’s first activity in the catering industry (in the last two years there has been talk that they will bring Shake Shack, but it seems the matter has not yet matured).
It is difficult to understand the rationale behind the move. Seemingly, entering the catering industry is a form of risk diversification, but in practice, it is a lack of focus that can get complicated. The Fox Group, for all its brands and assets, has many more growth engines in the foreseeable future out of the classic retail areas, before it enters the catering industry – a very difficult market, with problematic profitability and not-so-simple competition.
Take for example the BBB Group, which includes the BBB, Moses and Burgers brands, and is considered efficient, profitable and successful. In January 2021, Moti Ben Moshe’s Dor Alon Group acquired about 50% of the group for NIS 75 million. In other words, a chain of 100 successful branches, with sales of hundreds of millions of shekels, is worth 150 million shekels. Suppose there was a kind of “Corona laying”, and the correct value is NIS 200 million – it is still not clear how such a magnitude will add significantly to the Fox Group, which is traded today at a value of more than NIS 6 billion.
In general, entering an area that does not have a clear relative advantage (except perhaps rental discounts for restaurants that will open in malls) or size advantage (in some cases the size can actually be a disadvantage), is an entry that can be dangerous – with all my appreciation for Fox management, led by Harel Wiesel, Which has made a force in recent years.
So is catering really the growth engine that Fox needs? Are there no other sources of growth? The answer is that there is, and quite a few. Although Fox has jumped almost 2.5 times in value since the start of the corona, and at its peak even reached an unprecedented value of NIS 8 billion, it has several more rabbits up its sleeve that can produce more significant value from entry to catering.
1 Expansion of Terminal X
In my opinion, Terminal X Is the online player that knows how to provide the best shopping experience, in a gap with all the other big competitors (the only ones that might come close to it are Shufersal and Super Pharm). However, it seems to have reached a kind of barrier in its ability to realize the potential of fashion in the Israeli market.
Why? Because there are international brands like Zara, which does not sell in Terminal X (and probably never will), H&M which is probably in the same situation, European competitors that sell relatively high volumes to Israelis like Asus and Next, and most of all, there is the Chinese monster Shein. All of these will make it difficult for Terminal X to expand significantly in the field of fashion in the country, certainly on a scale that will be significant for a group like Fox, which sells billions of shekels a year.
However, Terminal X has built something unique in its ability to provide an excellent online shopping, service, logistics and marketing experience, so it can “repay the check” even in non-fashion areas. For example, by opening a website for the world of children and toys (let’s say they call it Terminal K), another website for the worlds of gadgets and electronics (let’s say they call it Terminal E), for home design (Terminal H) and so on.
In my opinion, it is critical that these sites be separate – to provide differentiation and a unique experience, in order to compete with alternatives from abroad in these areas (Amazon, Ali Express, etc.). In the competition for several items and supply, no Israeli company has much chance.
It is worth noting that Terminal X has announced that it also plans to go to other countries such as Greece and Spain – but the challenge there will be very difficult, due to the lack of advantage for the size it has in Israel, and the fierce competition. At least in the coming years, Terminal’s growth potential is first and foremost in the country.
2 Customer Club Extraction
Fox has the largest retail customer club in Israel (Dream Card, which has about 2 million members), but in my opinion it does not realize its potential. It is true that there is a mechanism for accumulating points, and that in recent years there is an option for a credit card (in collaboration with MAX), but that is more or less the end of it.
To date Fox has not created enough advanced systems for real-time advertising. For example – a customer purchased at the group’s X store, and will immediately receive value offers for store Y in the same mall, with a specific custom product or a discount on a particular category. This is a significant economic advantage, given that in a large part of the malls they have 10-15 stores and more.
What’s more, think about the amount of information a Fox group can learn about a club member from the various visits and products he purchases at the group brands and sites – marital status, size, children’s ages, preferences, sector, gender, place of residence, socioeconomic status and more. Such information can of course be used for internal purposes, but also form the basis of an advertising platform that other companies will advertise through (for example, companies like Strauss, Tnuva and Osem would be happy to work with Fox’s segmented information, not Shufersal’s for example).
3 Areas of Children and Fitness
It’s true that Fox is the owner of Shilab and the stock jumbo chain, but in my opinion the group lacks a side of toys (a kind of competitor to Toys R Us or the Red Pirate). It may also be worthwhile for it to combine a network of video game and gaming complexes – they will enjoy the benefit of the rent, get excellent conditions on the equipment itself, and be able to route traffic out of the mall as mentioned, they have a variety of stores in most malls).
Another market that could be interesting for the group is the fitness market, a dormant market in Israel commercially but very active from a consumer point of view. If Fox acquires a network of gyms, such as Holmes Place, which is traded at a value of only NIS 350 million, it will be able to do wonders with it, both in improving and expanding its activities, in the required connection to the worlds of clothing and equipment with Pot Locker, Nike and Dream Sports, and possibly in production or Import of sports-tech solutions like Mirror or Peloton.
4 Expansion in the international market
Fox is a franchisee of Nike and Pot Locker in Canada and some European countries, and there is no reason why it should not take advantage of its knowledge, the excellent staffs it has built there and the connections to be a franchisee of other brands in those target countries. If Fox has built a method that allows it to do it well and profit from it, it’s a great channel that can be further developed for it for other international brands as well.
In addition to these points, Fox can also better realize its real estate potential with a sort of mini-mall of the group brands, and I can think of at least a few more moves before entering catering. Anyway, the four growth engines I mentioned here are the main ones, and they are Those that will justify the insane value that Fox has already reached – and maybe even help it grow to a value of NIS 10 billion and more.
Full disclosure: Terminal X, Tnuva, Strauss, MAX and H&M were previously customers of Moshe Redman as a project developer and generator of innovation. Everything stated in this column is based solely on his opinion and experience and on the basis of visible public information.