07 July 2004

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Facing up to the challenge

With a supermarket price war in full swing, Philip Borg, the owner of Tower Supermarket - who heads a recently formed group of eight supermarkets with the intention of taking on the challenge poised by foreign competitors - talks to Sandro Mangion

The group of eight supermarkets that have teamed up in order to be in a position to face the new challenges brought about by EU membership is opting to wait and see which way things will go before deciding whether to start importing goods themselves. If they take the plunge, they would be scrapping the current system whereby supermarkets purchase all their products from Maltese importers.
The supermarkets – Tower Supermarket Complex of Sliema, Shoppers of Mellieha, Park Towers of St Julian's and Fgura, Trolees of Qawra, Shopwise Discount Store of Qormi, Carters of Paola and Lasco of Zejtun – are concerned over the yet unknown intentions of SISA, the giant Italian chain of supermarkets that has recently set up in Malta.
They are afraid that SISA Malta Ltd are not ruling out the idea of importing most of its products and hence be in a position to slash prices substantially. SISA Malta is already directly importing products of its own brand, but the SISA goods make up a small percentage of the total range.
In just a few months SISA Malta Ltd has taken over three supermarkets. It has already opened two branches, one in St Julian's and the other in Sliema. The third outlet, in Tarxien, is expected to open its doors next month.
Recently SISA distributed an 8-page leaflet, publicising very good offers on about 50 products. Of these, 13 are part of its own brand. The eight supermarkets’ immediate answer was a similar brochure to announce their own offers, some of which were even more advantageous than SISA's.
"Sisa have decided to introduce their own range of products, which has so far been unknown to the Maltese public," Philip Borg, the owner of Tower Supermarket Complex and spokesman for the team of eight supermarkets says. "We too have unadvertised brands that can easily compete with the SISA products if marketed well enough. So the fact that another supermarket is reducing its prices does not worry us at all. We are used to competition, and throughout the years, we have not only survived, but also grown."
So the arrival of SISA in itself has not sounded any alarm bells for the eight supermarkets. It has affected them like any other competitor would have done, according to Mr Borg. They are dealing with SISA as simply the latest newcomer on the scene. True, this is not the first time that they have faced competition from new supermarkets, and it will definitely not be the last. Naturally, every new supermarket that opens up bites a share off the already existing competitors' clientele, and triggers off a healthy price war.
What is worrying the eight supermarkets is that SISA might be planning to start importing many more of its branded products, hence further reducing its costs by pushing the Maltese importers out of the picture. Mr Borg points out that abroad it is SISA's practice to import directly. It is still unclear what SISA Malta Ltd. has in mind. The Malta Financial and Business Times’s request to interview the company's managing director, Simon Mifsud, was turned down. Commenting to MaltaToday in a story published on June 30, Mr Mifsud had said that SISA Malta Ltd is only importing its own branded products and other products which are not available locally through the importing network. He has, however, divulged nothing about his company’s intentions for the future. And that has left the eight supermarkets in a situation where the best thing to do is to adopt a wait and see attitude.
Mr Borg makes it clear that the supermarkets that have ganged up consider themselves as retailers, not importers. It is their intention to maintain the current system, unless the market itself forces them to change track. They are leaving nothing up to fate. They believe that, by teaming up, they are in a better position to assess the market and anticipate any future challenges in order to gear up to be able to face them.
If SISA's arrival is a taste of things to come, then one such challenge could well be the opening of more foreign supermarket chains. After May 1, the prospects of more foreign-owned supermarkets coming to Malta have grown. The eight supermarkets want to make sure that they are prepared for this eventuality.
"In today's changed reality, when all trade barriers between Malta and the other EU member states have been dismantled, business demands consolidation," Mr Borg remarked. "We have understood that there is strength in unity. We're quite small when compared to our counterparts in Europe, so each one of us will benefit from this joint venture."
Asked whether a merger is on their cards, Mr Borg replied that they are keeping all options open. He stressed, however, that contrary to certain reports that have appeared in the press, no deal has been struck with Italian supermarket chain Auchan yet. There have been contacts between the two sides, but there is still nothing concrete. Again, it all depends on the outcome of the current situation.
Mr Borg remains optimistic. He argues that, even though competition has grown over the past years, with supermarkets mushrooming in all parts of the Maltese islands, many supermarkets like theirs have managed to go on increasing their market share. With such successful stories behind them, what reason is there to be afraid of the future?
The eight supermarkets are determined not only to ensure that they maintain their position in the new business environment, but also to go on expanding. In fact, they have two major projects in the pipeline. Park Towers will open up a new supermarket in Santa Venera while Tower Supermarkets will soon start building a new outlet in Naxxar. Not only are they not worried about being pushed out of business by the foreign-owned chains, but they are planning to employ more Maltese workers.
"We have always been geared for change," says Mr Borg. "We knew that there would inevitably be some drastic changes after May 1. The country's progress cannot be stopped. You have to take it in your stride and restructure."
While supermarkets are engaged in their price wars and strategies of survival, the consumers are still all smiles as the prices of certain foreign foodstuffs decreased as a result of EU membership. With the removal of protective levies, some foreign products such as pasta, wine, biscuits, long life milk, sauces and beer have become cheaper than their Maltese counterparts. The price of certain foreign wines, for instance, has gone down by as much as Lm1.50 or Lm2 per bottle. Mr Borg has noticed that, because of these reduced prices, the trend is for customers to go for the cheaper, foreign products. At times, the good feeling about making a bargain pushes the consumer to buy more items than they actually need.
It is a fact, however, that it has become tougher for the Maltese product to compete.
“Unfortunately, the Maltese tend to prefer foreign items to Maltese ones," said Mr Borg. “Yet, the quality of Maltese products matches and sometimes supersedes that of the foreign ones. We have to keep in mind that this is a transitional, experimental phase. As the dust settles down, the consumers will stop being influenced by price alone and will start looking for quality. In several cases, the Maltese product beats the foreign one hands down."

Copyright © Newsworks Ltd. Malta.
Editor: Saviour Balzan
The Malta Financial & Business Times, Newsworks Ltd, Vjal ir-Rihan, San Gwann
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