Migros gets green light to buy discount chain

Keystone

Switzerland’s largest supermarket group, Migros, can complete its acquisition of discount chain Denner but only if it meets strict anti-competition conditions.

Both accepted the shackles imposed by the Federal Competition Commission but criticised the seven-year compliance period. The merger further consolidates a market recently infiltrated by German rivals.

Migros will now purchase 70 per cent of Denner’s shares with the remainder being retained by the family of the discount chain’s CEO, Philippe Gaydoul.

When the deal was announced in January, industry observers praised the deal as a perfect fit for both parties as it married the size of Migros with Denner’s alcohol and cigarette products. Migros sells neither, because its founder said they were a threat to the family.

Under the terms of the decision announced by the competition watchdog on Tuesday, Denner must operate independently for seven years or until German discounters Aldi and Lidl have opened 250 stores in Switzerland.

Migros had hoped that Denner could profit from its powerful negotiating position when buying goods, but it must continue to purchase from suppliers separately from the country’s biggest retailer and stick with its own product range.

In addition, Migros has been banned from opening any more of its M-Budget discount stores for the next three years.

Germans coming

“I am happy that the Competition Commission has allowed the deal to go ahead and I can accept the conditions they have imposed. But I have a problem with the time we have to abide by this ruling,” Migros boss Herbert Bolliger told swissinfo.

“A lot can happen in the market in seven years particularly when you consider the rapid expansion plans of Aldi and Lidl.”

Bolliger believes the two German discounters could command revenues of SFr2.2 billion ($1.81 billion) in Switzerland by the time the restrictions expire. He added that Migros is merely following a European trend of large supermarket groups entering the discount market.

Denner’s Gaydoul admitted the restraints went against his personal free market philosophy, but said both parties had to live with them to get the deal done.

“At the end of the day the consumers and, naturally, our employees will be the winners from our alliance,” he added.

Consolidation process

The retail supermarket industry in Switzerland has undergone rapid consolidation in recent years. Between them, Migros and Switzerland’s second largest retail group Coop possess nearly a third of the market share.

Last month Coop said it would buy 12 large supermarkets from French giant Carrefour, also attracting the attention of the competition authorities, while Denner acquired rival discount chain Pick Pay in 2005.

However, experts believe the arrival of German rivals will stimulate competition and bring down notoriously high prices in Switzerland.

The largest Swiss trade union, Unia, said that all employees at the merged company should be awarded the same collective contract as Migros workers currently enjoy.

“It is important that employees can profit from these current mega-deals in addition to the companies and the customers,” Unia said in a statement.

swissinfo, Matthew Allen with agencies

Key facts

Migros is a cooperative society, divided into 10 regions, with about 12 million members.
The group sells no alcohol or cigarettes, but some of the retailers acquired or set up by the group continue to provide these products, including Globus and Migrol, as well as the online shopping service LeShop.
The two supermarket giants, Migros and Coop, dominate the Swiss retail industry with 30 per cent market share.
For the food and drinks sector alone – excluding independent distributors – their market share jumps to 70 per cent.
The Swiss retail sector generates SFr75 billion of added value, or 16 per cent of Gross Domestic Product.

Recent takeovers

In 1995 Globus bought stores from Jelmoli before being swallowed by Migros two years later.

Coop launched a successful takeover of discount chains Waro in 2002 and EPA in 2004.

Denner acquired rival discount chain Pick Pay and will now be taken over by Migros after receiving regulatory approval.

Coop raided the Jelmoli group for electronic retail chain Fust in May and announced last month its intention to take over Carrefour’s Swiss interests. These deals are also being examined by the competition authorities.