Coop joins European distributor alliance

Keystone

Switzerland's second-biggest distributor, Coop, has teamed up with four other European retailers to launch a Brussels-based buying group called Coopernic.

Besides putting together assortments of private label and budget products, the alliance will negotiate with suppliers, which should drive down prices.

Coop joined Belgium’s Colruyt, France’s Leclerc, Italy’s Conad and German distributor Rewe in the new Coopernic group on Thursday.

Together, their annual sales are worth around SFr150 billion ($114 billion) or ten per cent of the European supermarket pie.

But individually, each member lacks the clout to get the best deal from its suppliers. According to Coopernic, three to four companies supply 80 per cent of the products sold in most supermarkets.

The new alliance will be the second-biggest retailers’ group behind Swiss-based European Marketing Distribution.

Coop will hold two seats on the alliance’s ten-member board, which will be presided over by Frenchman Michel-Edouard Leclerc.

Competition

Until now Coop has been protected from international competition by Switzerland’s borders, but with tariffs being progressively dropped the retailer says that pricing in the food sector is becoming more competitive.

It is also facing the arrival of German so-called hard discounters Aldi and Lidl, who sell a limited selection of products at low prices.

“This has led to a substantial correction and a general decline in the cost of a grocery basket,” said James Bacos, a retail analyst at Mercer Management Consulting in Germany.

“This has been good for the Swiss consumer but has also cut margins for the supermarkets.”

To overcome the competition, Coop is betting on Coopernic to negotiate lower prices for the products it buys, save on logistics costs and cut out the middlemen it says drive up costs.

“Coop has made a very smart move in an extremely competitive market,” Bacos told swissinfo. “By pooling their purchasing power they have made a quantum leap in the leverage they can exert with respect to their pricing discussions with manufacturers.”

Swiss market

The distributor also expects to overcome one of its major handicaps until now: the small size of the Swiss market.

“Swiss retailers have historically been asked to pay more for products than many retailers in other European countries,” said Bacos. “In the past, this was less of a problem because the Swiss market was more stable and profitable than neighbouring countries.”

According to Coop CEO Hansueli Loosli, who attended the launch of Coopernic in Brussels, Swiss retailers pay up to 35 per cent more for products than the counterparts over the border.

Coop says ultimately consumers will be the winners with more attractive products on shelves at lower prices. “I am convinced that we can drop brand name prices soon between five and ten per cent,” Loosli told swissinfo.

Migros, Switzerland’s biggest retailer, has gone down another path. Since late last year, it has chosen parallel imports to drive down prices.

Migros started purchasing cheese and confectionery in Germany, bypassing official distributors in Switzerland.

However purchases abroad of products protected by a patent are usually not authorised and the retailer has asked the country’s competition watchdog to consider whether some Swiss suppliers are abusing their dominant position.

swissinfo

In brief

Coop and Migros, Switzerland’s two biggest retailers, are both cooperatives divided up into regions.

Coop only operates within Switzerland, while Migros has opened stores in neighbouring countries near the border, although this only represents a small share of it annual sales.

Coop has traditionally sold brand name products, and has only moved lately towards distributing Coop-branded and budget-priced items.

Migros has traditionally depended on its own products for the bulk of its sales, but in recent years has begun selling other brands as well as budget items.

Key facts

Coopernic:
Five retailers.
17,208 points of sale throughout Europe.
7,495 other independent sellers.
Around SFr150 billion in annual sales.
10 per cent of the European market.
Present in 17 countries.
Coop retail sales in 2004: SFr13.1 billion.
Migros retail sales in 2004: SFr17.25 billion.