‘Dollar’ coffee shops a positive change for Israelis

For a modern happy meal, many Israelis these days are forsaking golden arches and looking to a chain of coffee shops where mere pocket change can buy a sandwich and a hafuch (Israeli cappuccino).

It turns out that the Israeli franchise Cofix offers more than the promise that every item — soups, juices, sandwiches, deserts and TV dinners — will be priced at 5 shekels each (currently about $1.30); it offers hope that Israelis don’t have to feel short-changed, literally.

Rising prices in Israel — from groceries to housing — made headlines in 2011 during the “cottage cheese protest,” spurred by a social media call to boycott the dairy product when it reached 8 sheckels per 8.5-ounce tub. People took to the streets to protest the high cost of living in the Jewish state; cover stories were written, government committees were created. 

But Avi Katz, who considers himself a social entrepreneur as much as a businessman, decided to take the matter into his own hands. He developed Cofix based on a concept of a “dollar” coffee shop that he conjured back in 2002 when he stopped at a convenience store at a major highway intersection.

“At that time, driving from Ashdod to Netanya, you couldn’t buy anything anywhere, just there,” Katz recalled. “I went out with my partner to the convenience store. We bought two coffees, cake, gum — we brought only 50 sheckels (about $13.25 today) with us; we didn’t carry our wallet. We had to go back to bring 12 sheckels ($3). An elevator technician was parked next to us. He said: ‘Crazy! You’re also bringing more cash?’ I said: ‘If I have a Mercedes and own 40 stores and this hurts — what does he feel?’ ”

It took 10 years for Katz’s idea to come to fruition — and it was long after this king of discounts brought the concept of a retail dollar store to Israel in the 1990s, catering to the influx of Russian immigrants who sought to make a home quickly and affordably. He sold toys, school supplies and knickknacks at competitive prices with the Kfar Sha’ashuyim toy store chain, which he subsequently sold. 

“My business philosophy was to identify a need — not to see an interesting business idea and do it, but to identify a need and apply that interesting idea to it,” Katz said, a knitted kippah topping his tall frame during an interview at his Petah Tikva office where he runs Keren Hagshamah, an investment firm catering to middle-class Israelis.

His daughter, Hagit Shinover, Cofix’s vice president of purchasing, left a career in cosmetics retail to work with him. Together, they convinced hesitant suppliers to package cafe items in such a way that they could still make a profit at 5 sheckels. 

“There’s the idea and there’s the execution,” Katz said. “The execution is accomplished first and foremost by presenting attractive, good, quality products at the right price. If you don’t have that, the idea won’t work.”

Today, several copycats exist across the country, forcing the cost of hafuch down even at major cafe chains. Cofix menus are constantly updated with seasonal items. Dim sum, Greek salad, quinoa and cranberry salad, and vegetarian shwarma (since Cofix is dairy kosher) recently joined the compact shelves filled with focaccias, tuna and cheese sandwiches, sodas and freshly squeezed orange juice. Cofix Bar is a “deluxe” version serving beer, wine and liquor shots in addition to everything else. 

Last year, following the success of Cofix, came Super Cofix, an everything-for-5-shekels supermarket, selling everything from brand-name cold cuts to produce to, of course, cottage cheese. It’s like a 99-cent store (or $1.30, depending on the exchange rate), but with carefully curated items, sold in an urban chic space that is meant to create a sophisticated consumer experience.

“There is a whole sector of the population — about 30 percent of the market — that can’t use the tools the market gives to lower prices,” Katz said, explaining the reasoning behind Super Cofix. “That’s singles, senior citizens and young couples. They don’t need buy-one-get-one-free. They don’t need to buy in bulk.”

Katz grew up knowing financial hardship. His father died when he was 7, leaving his mother to manage her ultra-Orthodox Bnei Brak household. After discovering secular novels, Katz left the Charedi fold, served in the Israel Defense Forces and went on to raise a family of seven in a religious Zionist household; love of the “common people” drives his work, and customers feel that.

“Cofix made Israel a much more livable country,” said Eliezer Simonovsky of Jerusalem, a 25-year-old immigrant and student from Queens, N.Y., and a Cofix regular, in response to a Facebook post soliciting opinions on Cofix. “First off, it makes a cheap option for a snack or a drink. Even better for me is the Cofix Bars. Alcohol in Israel is very expensive, and with Cofix my friends and I can take a few shots before going out to the pubs. This saves me tons of money.”

Chaya Tal, a student and educator who lives in Gush Etzion, also weighed in. “It has turned into my almost one-and-only alternative for fast food. I mean coffee, tea, baked goods. I’m very glad it opened the market for similar initiatives like [copycat] Cofizz, and I believe this woman, or whoever did it, did a big chessed [act of kindness] to the public.”

$1 coffee chain taps into Israeli anger over high cost of living

With a $1 cup of coffee, Avi Katz is starting to do something Israelis have been demanding for years and politicians have failed to achieve – lower the cost of living.

In 2011, hundreds of thousands of Israelis took to the streets to protest against the high cost of essentials such as food and housing. That led to promises ahead of the 2013 election to cut prices, but progress has been slow, even if the government is now allowing more imports to spur competition.

Israeli food prices rose 39 percent more than the consumer price index between 2003-2014, according to the central bank.

“You brought new people into the Knesset (parliament) and people think they will change the country,” said Katz. “But the new government was a disappointment and then came Cofix.”

In late 2013, Katz launched Cofix, an increasingly popular coffee and snack chain modelled on dollar stores in the United States that has grown to 80 outlets across Israel, mainly on busy streets in urban centres.

The concept is simple: coffee and snacks such as sandwiches and quiche for five shekels ($1.30) each. Until Cofix came along, Israeli coffee shops routinely charged $3-$4 for a coffee and $5-$10 for a sandwich.

“Everyone knew you can buy coffee for five shekels. When you buy in large quantities, it's cheap,” said Katz, who heads private investment fund Hagshama.

Still, he wasn't sure the concept would work as it needed each store to sell at least 1,000 items a day to break even.

Katz said Cofix stores, which only provide take-away goods, sell around 2,000 a day, with customers buying on average two items each. Such instant success led to copy-cat shops, while more established chains were forced to slash prices.

“It's impossible to have a good idea without competition,” Katz told Reuters, saying the group would expand to 120 outlets this year.

In mid-June, Cofix went public by buying shell company Agri Invest and merging its operations into it. Revenue in 2015 is expected to near 200 million shekels. Katz said the company would have made a profit last year if it hadn't been for investment in a new low-cost supermarket concept.

Still, its shares have shed 7 percent since going public, suggesting some investors remain to be convinced, though the stock has risen 15 percent in the past two sessions.

In recent months, Katz has expanded into the supermarket business with Super Cofix, a mini-market that sells items for no more than 5 shekels. He plans three more stores this year.

Katz hopes to expand his low-cost coffee shops to London and Moscow but nothing is imminent. A copycat coffee shop, Caffix, recently opened in London where items sell for 1 pound ($1.56).

Introducing Israel’s cheapest caffeine fix

This story originally appeared on themedialine.org.

A retro storefront greets the excited customers as they wait in line. The workers inside the small shop work at a feverish pace. A few sitting at a white table on high chairs outside the store examine those waiting with satisfaction. This is Cofix, the new sensation of the world of coffee, where only coins are needed for one simple reason: everything you could want is here for the low price of 5 shekels (less than $1.50).

“I just heard about it a few days ago, and yesterday someone recommended it to me. They said, ‘You have to go, you have to go! It's really good coffee, and it's only 5 shekels!’” said customer Yaara, who didn’t give her last name.

Since the grand opening of its store in Tel Aviv two weeks ago, Cofix has made waves in the Israeli coffee world. With a menu packed full of sandwiches, pastries and coffee, each for 5 shekels, Cofix is poised to change how Israelis treat (and buy) one of their favorite pastimes.

“When we thought about the idea of the stores, we thought, ‘It’s coffee for everyone,’” Hagit Sinover, a co-founder of Cofix, told The Media Line. “We don’t have [just] grown-ups, or children; we have all the ages.”

The success of Cofix relies solely on its low prices – the primary motivator for customers. A small cup of coffee at other chains, such as Café Aroma or Landwer Coffee, costs at least double, and sometimes even triple the price at Cofix. In a recent article in the Israeli press, executives from some of the major Israeli chains were said to have decided not to reduce their prices in the face of Cofix' fixed-price menu. The discussions, which appear to be extensive, have led some to wonder whether or not the major coffee companies are too cozy with one another and have engaged in price fixing.

In 2010, major chains in Israel increased the cost of their coffee in response to a rise in coffee bean prices. Yet since 2011, the price of coffee has fallen by 40 percent, according to the World Bank, while the major coffee shops have continued to make their customers pay a high premium for a cup of joe.

“The prices in Israel are very, very expensive,” Chen Katz said. “I am a student and the salary that we get at our jobs is very low. So if we can get a coffee or something to eat for 5 shekel it’s the best for us, especially for the students, the soldiers, the ones who don’t get a lot of money.”

While Cofix caters to those looking for good quality products on the cheap, it is also attractive to those on the go. Compared with Aroma and Landwer, which have extensive seating areas, Cofix offers its customers just a few small tables on the sidewalk.

“It doesn’t cater to families that want to sit,” said Audrea Turgeman, “but I think it’s great for people that just want to grab something and go.”

While those on the move and looking for a cheap deal jumped at the idea of Cofix, others were simply intrigued by the store’s concept.

“I was very curious, it’s a new thing,” said customer David Flatau. “I think it has not only the coffee, the image or the idea here, which made me come here. Also, the coffee is fabulous. It’s very tasty and I was enjoying it very much.”

Sinover says that Cofix will open two more stores this month in Tel Aviv. After these locations have been established, and if they prove to be successful, the company will continue to open stores, with the goal of having 300 franchised Cofix shops dotting Israel over the next three years.

With a rapid expansion appearing imminent, both Cofix and its customers are looking toward a more affordable future.

“I’m impressed, I’m happy for them, and I’m happy for us,” Flatau said. “And I think this is a sign, a sign for all of what is happening in the country and I hope that it will do more.”

Managers at nearby Aroma and Landwer coffee shops refused to be interviewed for this story.