Business Model Innovation: Reinventing the Supermarket

By Shlomo Maital

Iri Shahar

   An Israeli entrepreneur named Iri Shahar has taught us a valuable lesson in creativity and innovation. 

   Formerly CEO of a chain of retail stores, known as Fishman Group,  he has just opened a new supermarket chain called Ehad (One) with a simple basic premise:  No-name (non-branded) products, and only one non-brand for each product.  One type of Cola (not Coke).  One type of cottage cheese  (NIS 4.90, about 20 per cent less than branded cottage).  Many products in the Ehad stores are 10 to 20 per cent cheaper than competing stores.  At a time when Israelis are struggling with the high cost of living (higher in Israel by some 15 per cent than in the OECD average, according to the OECD),  Ehad serves an important social purpose.  I am certain this is Shahar’s goal – to make the cost of living lower for Israelis, while at the same implementing a new sustainable business model that generates enough profit to keep the business going and thriving.

  Competitor Rami Levy, who some years ago opened a low-cost supermarket chain, pooh-poohs Ehad, saying that Israeli mothers will not give up their children’s favourite brand name products.  It will be interesting to see if he is right.  I don’t think so.  I am frequently annoyed, doing the weekly family grocery shop, by the blizzard of types of cereal, shelves and shelves of it,  most of it the same (Cheerios are Cheerios, after all), at a variety of prices, some of them atrocious, confusing the buyer.  

   What do we learn from Shahar?   

 *  First,  the most powerful innovation is not just in tweaking products or services, but in altering a business model or business design – how the product is sold, when, why, and to whom.  Shahar’s stores have only 1,000 products, compared with 15,000 for the average supermarket. 

* Second, Simplify!    Subtraction is a more powerful innovation tool than addition.

 *  Third, it is a legitimate innovation to take an idea that succeeded elsewhere (Germany has Aldi and Lidi chains, that have spread worldwide) and apply it in your country.  Indeed, this is great innovation, because a business concept proven elsewhere will likely succeed at home.

   And by the way – Shahar pays good wages.  He pays cashiers 25 per cent more than minimum wage and stockers, 40 per cent over minimum wage.  “We want them to stay with us for a long time,” he notes. 

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