Retail scene changes as Coop overtakes Migros

Well articulated: Coop has become Switzerland's biggest retailer Keystone

Switzerland’s supermarket landscape is shifting, with Coop nudging ahead of its only rival Migros for the first time. But what does this mean for consumers?

Retail experts discuss the main challenges for Swiss supermarkets expanding abroad and explain not only why Swiss consumers have to pay more than their neighbours but also why the “thrifty is nifty” mentality in Germany hasn’t taken off in Switzerland.

Last week Coop, which together with Migros accounts for about 70 per cent of the market share for food and drinks in Switzerland, announced it had bought out transGourmet, a European wholesaler, for an undisclosed sum.

As a result, the Coop Group’s turnover jumped some SFr8 billion ($8.25 billion) to just under SFr27 billion, almost SFr2 billion more than Migros (see box).

“People eat everywhere!” said Coop CEO Hansueli Loosli, eying the rapidly growing purchasing power of eastern Europe, where transGourmet is active.

Loosli, who stands down in the spring to become head of telecoms provider Swisscom, said there was a pent-up demand in the eastern bloc states which promised high growth.

Wholesale expansion

But stepping into foreign markets also contains risks. Migros tried it in the 1990s and got burnt, losing SFr300 million in Austria.

“The important thing to bear in mind is that neither Coop nor Migros wants to expand abroad as supermarkets,” Damian Künzi, an analyst at Credit Suisse, told swissinfo.ch.

“The transGourmet deal is a wholesale expansion. Migros has a few branches just the other side of the border but it has no intention of expanding – it would much rather push the export of products from its industrial plants, such as coffee capsules.”

For his part, Migros boss Herbert Bolliger said last week they were following “a different, successful growth strategy”.

“Is it in the interest of consumers and members of the cooperative that we make huge acquisitions in the food sector that tie up a massive amount of capital?” he wondered.

Challenging conditions

Künzi said there were two main challenges for retailers thinking of expanding abroad.

“First, you have to know the local market and consumers very well and you obviously need the corresponding experience. It’s not enough to simply move a tried-and-tested concept from the domestic market to a foreign one,” he said.

“Second, foreign markets are also saturated – an exception being those in eastern Europe – and seriously competitive.”

He said the saturation of the Swiss food market was “certainly the most important reason why local providers want to get involved in foreign markets”.

But despite this saturation, Swiss retailing withstood the toughest recession since the 1970s well.

According to a survey by Swiss bank UBS, two main factors boosted the sector in 2009. After a round of generous pay rises, coupled with price deflation, the purchasing power of many households increased. Also, with net immigration rising again by some 70,000 people, the potential customer base for retail traders continued to expand.

Is the price right?

That said, food in Switzerland remains around 45 per cent more expensive than the average in the rest of western Europe, according to the UBS survey.

Künzi points out that this disparity is less eye-watering when one compares Switzerland with its four neighbours: prices are on average 11 per cent higher in the Swiss retail trade as a whole and 19 per cent higher for food than in Germany, France, Italy and Austria, he said.

The main reason for this is not a lack of competition – “this increased significantly following the arrival of the German discounters” – but the small size of the market (lower purchasing volumes), market foreclosure for agricultural products (customs duty and quotas) and technical barriers to trade (declaration requirements).

Discounters

The arrival of the German budget retailers Aldi and Lidl – in 2005 and 2009 respectively – “shook up” the Swiss food business, as Künzi put it.

“Even the announcement that they would be coming had a big effect. Coop and Migros reacted by introducing cheap and premium lines and carried out spectacular acquisitions: Denner for Migros and the Carrefour premises for Coop,” he said.

“There was a greater focus than before on prices. The price gap between Swiss and foreign food prices has actually been tightening thanks to competition from the discounters.”

Dimitri Wittwer, a marketing expert at Bern University, agreed. “There was certainly a strong effect on local retailers such as Coop and Migros and an even stronger one on smaller retailers,” he told swissinfo.ch.

“But in fact Migros and Coop didn’t have to lower their prices – instead they introduced these cheaper brands, which were then in direct competition with Aldi and Lidl.”

Another interesting aspect for Wittwer is that the German mentality of “stinginess is cool” (Geiz ist geil) – the slogan for a 2003 campaign by a German electronics chain that captured the national zeitgeist – doesn’t work as well in Switzerland.

“Consumer behaviour in Switzerland is different from that in Germany,” he said. “People here will happily pay a bit more for bio-labels or for better quality.”

Migros/Coop

Group turnover: SFr24.95 billion/SFr26.72 billion*
Turnover at own outlets: SFr15.36 billion/SFr13.07 billion
Number of outlets: 604/816
Operating profit (Ebit): SFr1.15 billion/SFr0.61 billion
Group profit: SFr850 million/SFr430 million*
Employees: 83,000/74,800

*including transGourmet

(Source: NZZ am Sonntag)

TransGourmet

Since 2005 transGourmet had been a 50-50 joint venture between Coop and German trade and tourism company Rewe.

Details of the acquisition weren’t revealed, but experts estimate the price at SFr800 million. In 2009 transGourmet reported turnover of €5.8 billion (SFr8 billion), up €3.6 billion on 2008.

TransGourmet is Europe’s second-largest cash-and-carry and food service company – behind German company Metro – and is active in Switzerland, France, Germany, Poland, Romania and Russia. It delivers to restaurants, canteens, retirement homes and hospitals.

With the acquisition, Coop is taking on almost 22,000 new workers and now has some 75,000 people on its payroll. TransGourmet’s headquarters are expected to move to Switzerland from Neu-Isenburg near Frankfurt. 1,800 people already work for transGourmet in Switzerland.

Coop said Rewe would remain in charge of transGourmet’s delivery of goods and central accounting in Germany.

The supermarket scene

In 2009 German discount chain Lidl entered an already fiercely competitive Swiss groceries market, with rival Aldi competing with market leaders Coop and Migros and Swiss discounter Denner (owned by Migros).

Migros and Coop have between them around a third of the retail market share, which rises to 70% in the food and drinks sector.

Aldi touched down in Switzerland in October 2005 and had some 80 Swiss stores by the end of 2008 – a market share of roughly 1%.

By the end of 2010 both Aldi and Lidl chains are expected to operate 220 stores, seizing 5% market share, according to research by Credit Suisse bank.

The arrival of German rivals also sparked a consolidation of the supermarket retail sector in Switzerland. In 2007, Migros got the green light to take over Denner while Coop targeted the stores left behind by the departing Carrefour and electronics chain Fust.