April 21, 2005
Prices Too Low to Be Kosher
Big chains battle corner markets for Jewish customers.
Illyse Zesch likes to start her Passover shopping early. So it isn't surprising that, two weeks before the holiday, she made a trip with her fiancé -- Rabbi Steve Conn of Santa Clarita's Temple Beth Shalom -- to the Kosher Club on Pico near La Brea, the largest kosher market in Los Angeles.
Among other things, the couple bought several bottles of kosher wine, some fresh lox, a variety of cheeses and a package of frozen gefilte fish. What they didn't buy, however, was also noteworthy: no cake mix, macaroons, matzah or Passover candies.
"Those things we're not getting here," said Zesch, a 39-year-old attorney, "because we can get them cheaper at Ralphs or Albertsons."
It happens every year, said Daryl Schwarz -- who opened this 100 percent-kosher market in 1989 -- only lately it's been getting worse. Large supermarket and discount chains are able to undersell kosher specialty markets on the very products that, traditionally, have been the Jewish stores' lifeblood. The chains can offer lower prices because they get volume discounts from kosher distributors. Or they can decide to forgo profit entirely on small-ticket kosher items, using below-cost discounts as a lure for shoppers, expected to buy more. Making money off kosher items is not essential to Ralphs; to Schwarz and other kosher merchants it's a matter of survival.
Kosher products make up an astonishing percentage of the nation's grocery bill -- about $180 billion of a $500 billion total -- though many consumers probably have no idea they are buying kosher. One supplier alone, Empire Kosher Poultry, processes 100,000 kosher birds (chickens and turkeys) per day for U.S. consumption. The kosher products industry is growing at a fairly steady rate of about 15 percent a year, said Menachem Lubinsky, editor of Kosher Today, an industry newsletter, with about 70 percent of the sales taking place through supermarkets or large chains. Competition from those chains, Lubinsky said, "is an issue that is now common in many different cities. The smaller markets, in a way, have to reinvent themselves to compete."
Schwarz, of the Kosher Club, estimates that there are 20 to 30 small, independent kosher markets in greater Los Angeles. He believes that the number has shrunk slightly over the last five years, although he could identify only one market that had specifically shut down. Still, he insisted, the markets have had to scramble to survive.
Schwarz, for instance, has been forced to reshuffle his product mix by dropping or reducing the stock of items that customers are more likely to buy at lower prices elsewhere. One result is that some of his most loyal patrons are sometimes inconvenienced. But Schwarz has an even greater worry. "If the trend continues," he said, "it will put the kosher markets out of business."
He offers examples to illustrate his point. Coca-Cola Bottling Co. of Southern California, he said, produces a certified kosher-for-Passover version of its soft drink, made with sugar instead of corn syrup. But, based on volume and various other marketing considerations, the product is offered at a major discount to big grocery chains. Which is why in this Passover season, Schwarz contends, Kosher Club customers can choose between buying kosher Coke from him at $1.29 a bottle or walking across the street to Ralphs where the price is just 99 cents.
"How can I compete with that?" Schwarz lamented.
Bob Phillips, a spokesman for Coca-Cola in Los Angeles, said pricing depends on an array of factors including volume, advertising, display, brand recognition and positioning. "We sell to about 225 outlets, including small, medium and large ones," Phillips said, "and we are glad to do so. There is lots of availability."
Schwarz also noted that he pays $11 a pound for handmade shmura matzah; customers can buy it at Ralphs for just $9 a pound. "They lose money on it," he said of his across-the-street competitor. "They use it as loss leader to get kosher customers into the store."
Last year, according to the Jewish grocer, the resulting shuffling of products ended up causing major headaches for Passover procrastinators after, anticipating a drop in demand for their own more expensive matzah, Schwarz and other kosher merchants significantly decreased their orders from distributors. But Ralphs -- perhaps underestimating the same demand -- ran out of shmura matzah two weeks before Passover. So observant Los Angeles Jews had to spend extravagant last-minute sums shipping the specialty item in by Federal Express from New York.
And finally, Schwarz says, comes the case of the chicken. Kosher Club buys it from Empire Kosher Poultry of Mifflintown, Pa., the largest purveyor of kosher poultry in the nation. And the store sells it too, at $9.99 for a large bag of breasts. The only problem is that Costco, buoyed by lower prices based on high volume and willing to sell the product at near cost, offers the identical bag of chicken for $6.99, the same price Schwarz pays to get it.
A large chain can get a better deal from suppliers said Elie Rosenfeld, an Empire spokesman. Beyond that, he said, the manufacturer bears little responsibility for what happens to its chicken at the store. "The profit margin and revenue stream that determines what a Costco or Albertsons charges," he said, "is not something we can control. Running a larger operation allows them to price things the way they feel comfortable, whereas smaller markets need to create the margins they need."
The bottom line, he said, is that "if Costco wants to put our product at a certain price, there's not much we can do about it."
Unlike Schwarz, however, the chicken purveyor isn't overly concerned. "I don't think the little markets are in trouble at all," Rosenfeld said. "They have done an excellent job of serving the consumer market and there is always going to be a place for them.... There's a difference between going into a neighborhood grocery that offers more personal-type attention, and going into a larger store like Costco or Albertsons that serves the community in a different way."
Yet there's little doubt, industry insiders attest, that big chains are going after kosher consumers in big ways. A prime example is Ralphs markets, which has about 250 stores in Southern California. "We've been offering kosher items since 1986," spokesman Terry O'Neil said, "and over the last several years the company has really expanded its offerings outside just those stores that serve Jewish neighborhoods. What we've found is that a lot of people who are not Jewish, for health or other reasons, are choosing to eat kosher."
O'Neil declined to attach a dollar value to these sales, but the company, whose kosher offerings are overseen by several rabbis, has greatly increased the number of approved items it carries. During Passover and other holiday seasons, Ralphs stores stock literally thousands of such items.
"Our kosher customers," O'Neil said, "are among our top customers in loyalty. We have studies showing that they spend significantly more than our other customers."
Which is why Ralphs goes to such lengths to attract them. Among other things, O'Neil said, the company organizes several rabbi-led tours of selected facilities in the weeks preceding Passover. The tours are promoted in flyers placed in the stores as well as by mailings to 20,000 kosher customers and by advertisements in the Jewish press. The 15 tours this year each attracted 50-150 people, compared to 20-30 last year.
"This year," O'Neil said, "has seen, by far, the most successful kosher tours and we've expanded them to more stores than ever before."
And what about the fate of the smaller kosher market?
"I won't comment on the competition," O'Neil said without apology, "but I will tell you that it is our intention to be the supermarket of choice for the diversity that is Southern California. Whether that is the kosher customer or our Hispanic customers or our African American customers, we strive to have something in our supermarkets for everyone."
All of which offends the sensibilities of some kosher merchants.
"The community should not rely on companies outside the community that aren't committed," said David Eskenazi, manager at the Kosher Club. "If you put all the kosher butchers out of business because they can't compete with Ralphs, what do you do when Ralphs changes its policy, because it decides that it's more interested in the Hispanic community?"
Carmela Geil, the Kosher Club's controller added: "They can never do it as well as we can because we have the background. They're very commercial, but it's not the real McCoy."
Many customers patronize the chains and the kosher markets, seeing value in each. Karen Avrech, of Los Angeles, said she'd just dropped $200 at Ralphs for a sundry of Passover items. But she completed her shopping at Kosher Club, Avrech said, because "they have a big selection" including some items she could find nowhere else. "Most people have to go to Trader Joe's, Whole Foods, Ralphs and the kosher markets," she said. "It's not just one-stop shopping."
Added Zesch, Rabbi Conn's fiancé: "You have to mix and match."
Then came Jon Hambourger, surely God's gift to a place like Kosher Club. "We do most of our shopping here," the Los Angeles resident said, "because they have a good selection and good meat at good prices."
But couldn't he do better at Ralphs?
Hambourger wouldn't know, he admitted, "Because I haven't been in a supermarket in years. My perspective is that, as a community, we have an obligation to support Jewish merchants."
His bottom line?
"Even if it means paying more," he said, "I'd prefer shopping here."