Tel Aviv, Israel
Thursday, August 27th, 1998 http://adamkhan.net/rambles/shiny-bright-toadstool
sIt on my shiny bright toadstool in the big white room. You can guess it’s on the side of a hill because all the windows are on just one wall. You’d also be forgiven for thinking we’re aboard a ship, because all that’s visible out the windows is sea and horizon.
In fact I’m at the Hayarkon Street branch of McDonald’s in Tel Aviv. Decorated with stylized idealized pictures of restaurants circa 1950’s America, it captures that spirit more than any other outlet I’ve seen (and I used to occasionally frequent the rock’n‘roll McDonald’s in Chicago).
The Economist’s Big Mac index offers “a light-hearted guide to whether currencies are at their ‘correct’ levels … based on the theory of purchasing-power parity (PPP)—the notion that an identical basket of traded goods should cost the same in all countries.” In Israel, a Big Mac costs $3.52, making it the second-most expensive McDonald’s in the world. To match the US price of $2.63 per Big Mac, the shekel should be trading at 4.88 shekels to the dollar, not the current 3.70. Therefore, The Economist concludes, the shekel is 32% overvalued.
In Israel’s case, though, burgernomics don’t necessarily work because other factors contributing to the 30%-odd surcharge are quite significant.
Israel is small, too small for many American retail franchises to bother thinking much about. As such, outlets here are mostly owned by locals who have purchase the franchise rights. With shallower pockets than the franchise owners, these local entrepreneurs must recoup their investments more quickly. One way to do so is to charge customers more, and this they have done without hesitation. But eating out in Israel is expensive anyway, so the inflated prices are not completely out of line with what Israelis expect to pay. A shwarma in a pita, for instance, costs about the same as a Big Mac. A coffee in a café costs about $2.15, making the larger (and often better) coffee from Dunkin Donuts cheap even at $1.60 for a medium cup (there is no Large).
Entrepreneurs have also followed the pattern of limiting their initial forays to high-profile outlets in prosperous parts of the country, namely Tel-Aviv and Jerusalem and some of their better suburbs. Much of the population only sees the golden arches on television and when it goes on outings to the big city. As such, the Big Mac is still a prestige product in Israel, and deserves a little premium.
These are sound economic reasons for Israel’s expensive Big Mac, but there is another, more mystical one: the high value placed here on the American burger itself. Unlike in many other countries, American franchises are viewed in Israel not as crass unwelcome encroachments upon national culture, but as delights, as lifelines, as reassurance to Israelis that they belong.
The Supersol supermarket chain recently introduced the Shoprite brand. Instead of being promoted as cheap substitutes for truly branded goods, the Shoprite line is displayed as a prestigious collection at the front of the store. The Israeli cosmetics company Hlavlin recently bought the rights to use MTV’s logo for its new line of shampoo named after MTV’s Loveline show; the Israeli consumer is not to know that the product is entirely local.
While socially and culturally a little sad, such adulation for America’s crumbs is wise politically and economically. Like tinkering with fighter planes, those Israeli businesspeople who have adapted American brands for Israeli markets must first sit at the feet of their chosen American commerce gurus and truly learn the original business models. Once they’ve done that– and they’re doing it right now – what’s to stop the traffic going both ways? Won’t Israelis harness the huge American market for their own good brands, such as Burger Ranch and Tivol? Indeed, this is already happening in the computer software business, where many Israeli concerns disguise themselves as American companies and actually sell what they build.
As the franchises owners recoup their investments, they will invest in new outlets, permeating the country, until at last these franchises will have the same populist status they do in the US. Indeed, for the first time, the new line of Shoprite goods have been introduced at prices that undercut local goods. Very slowly, Israel is seeing the glimmerings of consumerism.
It will only get better, for while Americans can only get American products, Israeli supermarkets also contain products from nearby Europe. I buy spaghetti, parmegsan and ladyfingers from Italy, all of which are superior to their American counterparts. Moreover, if the Israeli economy continues to move towards computer software, its per capita economy will be higher than that of any country where citizens work for a living. When that happens, a Big Mac will be cheap even if it does cost $3.52 – which it won’t.
Another advantage of the situation, perhaps less momentous, is that American franchise outlets here are exceptionally fine. The food is fresh, the staff are motivated, and the locales are tops. Dizengoff Center is one of the world’s funkiest malls; dogs and smoking are allowed here but all handbags are checked — a bomb exploded in 1995, killing passersby. The Center’s McDonald’s is located on the bridge over the street. You have to walk through it in order to get from the Lev Cinema box office to most of its screens. (There, that’s an idea Americans could copy.)
And nearby, at the Dizengoff Fountain, is the genuine urban article, massively air-conditioned, clean and fresh, but somehow sustaining that aura of degeneracy that makes it so pleasant to sit at a table near a window in a McDonald’s and watch the combination of pretty people and bums outside. Unlike most Israeli establishments, nobody is in any hurry to get rid of you when you’re finished eating and just want to sit back and take in the city.
The third branch is the fantasy McDonald’s where I sat on a shiny red toadstool in the first paragraph. Located overlooking the Mediterranean promenade and open very late, its patrons are mostly young Israelis out having fun in Daddy’s car in a land that freedom-encroaching legislation, such as not smoking in restaurants, forgot.