A Castro store in Germany. The clothing chain has opened 26 stores outside of Israel.Who would have thought that the products abroad most associated with Israel would have ever evolved from Jaffa oranges and Uzis to computer chips and ICQ? Evidently, it’s the same people who think that one day in the not too distant future, the country might be best known for coffee, chocolate, jewelry and soap.
Over the last few years, another side of the Israeli entrepreneurial spirit has started being exposed to retail markets in North America, Europe and Asia, as dozens of successful homegrown food, fashion and cosmetic businesses have gradually ensconced themselves in major urban markets amid the mall perennials.
Local consumers may take their Aroma coffee, Max Brenner chocolate and Sabon soap for granted, but those successful retail establishments, along with even higher profile companies like Castro fashions and Michal Negrin jewelry, are also beginning to have an impact on the American shopping landscape.
Expansion is a natural step
With a finite market base at home, looking abroad for expansion is a natural step, according to veteran business analyst and journalist Joel Bainerman.
“This trend has come about because of the success of some Israeli retail companies at building chains in Israel. They saturate the market here and go abroad,” he said.
Aroma is one good example. The café and eatery, founded by brothers Yariv and Sahar Sheffa in 1994, features different blends of quality beans for espressos, cappuccinos and regular brewed coffee, as well as a varied menu of sandwiches, salads and snacks. You can’t walk a block these days without running into one of their cafes, or one of the many imitators that have sprung up, like Café Hillel, Cupp a Joe or Arcaffe.
“We have 81 branches throughout the country,” said the company’s marketing director, Noam Berman, proudly.
Aroma branched out into North America beginning in the summer of 2006 with its flagship international store in Manhattan, which was followed by another opening in Toronto last year.
The right concept
“We think we have the right concept – healthy food, all of which is prepared on the premises, including all breads and baked goods. We’re very satisfied with the business we’ve been doing in New York and Toronto,” said Berman, who added that both the frozen dough and the beans are shipped from Israel to the US, so as not to tinker with the chain’s recipe for success.
It was only in April 2003 that America’s premiere coffee concept, Starbucks, was forced to close all of the six cafes it had opened here due to a lack of popularity. Like Europeans, Israelis like their coffee stronger and more tasteful, and Berman is hoping Aroma can help shift American taste buds as well.
“This year, we plan to open two more locations, one in NY and one in Toronto. We’re also going to penetrate the European market with branches in Cyprus and in Romania,” he said.
While Aroma has taken the slow and steady path to expansion abroad, other local businesses are more aggressive in their approach. What unites the varying approaches, says Bainerman, is what he calls the Israeli “innovative, amazing, entrepreneurial spirit” which enables them to delve into untested waters without a safety net.
“I have no doubt that the majority of businesses are expanding on their own capital – they’re not getting financing abroad, which is risky. But then again, most are slowly opening stores and paying rent. After a year if it’s not successful, you can leave, so it’s not that risky,” he said.
Among the flourishing exports are fashion designer Castro which boasts 26 branches abroad, including shops in Germany, Switzerland, Thailand and Russia; Fox Clothes, which opened 114 new branches abroad in 2006, half of them in China, 21 in Thailand, 19 in Panama, five in Romania, three in Italy, three in Singapore and three in Bulgaria; and Michal Negrin fashion jewelry.
Israel’s romantic jeweler
Negrin, called Israel’s “romantic jeweler,” finds expansion abroad to be a highly profitable risk. The Negrin boutiques, which feature the brand’s over-the-top jewelry, extraordinary gift items, fashion items and stylish home décor, are currently found – in addition to their 19 locations here – in 53 places throughout the world including New York, Las Vegas, Miami, Sydney, Tokyo, Madrid, Paris and Prague.
In addition, the company sells its products in such leading department stores worldwide as Neiman Marcus, Bloomingdale’s, Printemps (France), Mitsukushi (Japan) and Selfridges (UK).
According to Limor Shlain, the company’s vice president of marketing, the strategic plan is to open five to seven shops per year, up to 100 in total.
“We first got the idea of expanding abroad in 1996 when a couple from Japan stopped at our flagship store in Tel Aviv,” said Shlain, at the Negrin corporate offices in Tel Aviv. “They were so enthusiastic about the merchandise and asked permission to sell it back in Japan. Since then, there are now 13 points of sale there as well as one in Taiwan and one in Singapore, which this couple still holds the franchises for.
“We began selling Michal Negrin products in the US in 2001, in the Showroom in New York. Then stores like Neiman Marcus, Bloomingdale’s and Saks Fifth Avenue began picking up our merchandise. Finally, in 2003, we opened up our first concept store in Manhattan. We find it’s the best way to tell our story. We have the same store design in every location all over the world, that’s the beauty of it.”
According to Shlain, despite the abundance of fashion jewelry retail options available to shoppers, Michal Negrin has found a comfortable niche that appeals to a more discerning consumer.
“Michal brings something different to fashion jewelry, something in the colors and the mix of materials she uses. She’s got an extraordinary ability to see details. Our merchandise is geared toward the high end – everything is handmade, and we produce everything in Israel. Every piece is done personally, and in a gentle manner by craftsmen who care about their work,” she said.
The same could be said for two other local specialty entries into the world retail market – Max Brenner chocolates and Sabon soaps.
The Max Brenner franchises began with a tiny chocolate boutique in Rehovot in 1996 called “Handmade chocolate by Max Brenner,” opened by chocolate chef Oded Brenner. With an identifiable logo and slogan – “Chocolate by the bald man” – Max Brenner chocolate bars became a popular novelty, especially at its bustling Tel Aviv port location.
An initial attempt at international expansion failed, but in 2001, the company was bought by giant food manufacturer Strauss-Elite, and recent years have seen successful openings in Australia (11 locations), one in the Philippines, one in Singapore and two in New York. Its Union Square location, a $2 million investment measuring 446 square meters, is able to seat up to 150 patrons.
New York City has also served as the American testing ground for Sabon (Hebrew for soap), a Tel Aviv-based retailer of bath soaps that are made at a moshav in the North.
Its full name is Sabon Shel Pa’am – “Old-Fashioned Soap,” a brainchild of young entrepreneurs Avi Piatok and Sigal Kotler Levi who initially mixed, molded and chilled the olive and coconut oil-based bars from their small moshav apartment. Opening their first Tel Aviv store in the late ’90s, they’ve expanded to 31 shops in upscale shopping districts. Sabon’s first US store opened in 2003, and today, with more than a dozen American locations, including Los Angeles, Boston and Chicago, Sabon plans to open 100 more retail outlets within the next five years. With its $6 and up bars of soap and other premium products like lemon-basil “sorbet gel” lotion and patchouli-vanilla-lavender bath foam, Sabon is proving that Americans will pay for the right to smell clean.
While a shopper can patronize Sabon without realizing the name’s Hebrew origins, the issue of how closely these young retail businesses decide to be identified with Israel is a sensitive subject. Some of them prefer not to publicize their state of origin, and went as far as declining to be interviewed for this story.
“It’s not a factor, but we don’t hide it,” said Aroma’s Berman. “We don’t market Aroma as being Israeli, we don’t want just Israelis to be coming.”
Michal Negrin’s Shlain agrees that her company’s country of origin should not come into play in the retail arena.
“It’s clear that it’s an Israeli designer, and there are some customers like Jewish organizations and supporters of Israel that come to us because they know we’re an Israeli company, but most people come to us for the quality,” she said.
According to analyst Bainerman, Israeli retailers are too sensitive to the issue.
“I don’t think it matters in retail if you’re identified as Israeli. At least in Central and Eastern Europe, something Israeli is considered American and thus a higher quality.
“Israelis underestimate that people abroad generally have a good impression of Israel. I think that businesses that don’t want to be identified as ‘Israeli’ are just being immature. If the product is good, then they’re going to do well. There aren’t many consumers who would go, ‘If it’s Israeli, then I’m not going to shop there.'”
Looking at the budding success of Israeli retail in the international arena, it’s hard to argue with that assessment.
Reprinted courtesy of The Jerusalem Post.