July 13, 2009

Migros worried by Lidl in Switzerland

Herbert Bolliger, CEO Migros (photo: Christian Aeberhard)
Herbert Bolliger: "We'll never sell below cost price"
Poor old Switzerland!

It could all have been such a happy little paradise for those who want to enjoy their gold bullion discreetly and securely.

But, however, those horrid German discounters have set up shop and are making the place affordable for Joe Average.

Is nothing sacred anymore? One bastion is crumbling after another: first it was banking secrecy and now retailing.

Once upon a time, life was so cosy for Migros and Coop Schweiz in Swiss retailing, and the good Swiss burghers were obliged to pay their prices.

But now German discounters are spreading throughout the country and ruining the party. Who let the alley cats out and set them among the pigeons?

Since Aldi's arrival in October 2005 Switzerland's retail elite has oscillated between demonstrative nonchalance and periodic fits of blue funk when it comes to dealing with hard discounters from over the border.

The latest show of nerves comes from Migros CEO Herbert Bolliger.

Market leader in decline

The market leader with annual revenues of 21.5bn Swiss francs ($14.2bn) has just reduced guidance for 2009. Growth will be halved to 1 per cent.

Bolliger gives a number of reasons for this decline. These include a significant fall in the export of Migros own label products, furniture and clothing sales as well as generally lower prices.

However, Bolliger also accuses German hard discounter Lidl of price dumping fresh produce.

Considering that Lidl has only opened 20 stores since its arrival in the alpine republic in March, this is a bit like Goliath getting hot under the collar of his tunic when David is still an embryo.

Aldi's headstart

Even Aldi Suisse, with just under 100 stores and estimated annual revenues of 900m Swiss francs ($594m), is five times as big as Lidl Schweiz.

But, at the end of the day, Bolliger is probably right to want to scotch the snake as quickly as possible.  France's retail oligopoly paid a high price for underestimating German hard discounters after Aldi arrived in 1988.

And didn't that admirer of Switzerland, Victor Hugo, once proclaim: "There is nothing as powerful as an idea whose time has come"?

Related article in German: Lebensmittel Zeitung, no. 28, 10.07.2009, by Hans-Jürgen Schulz

Comments for this article are closed.

  1. Tom
    Created 5 August, 2009 11:36 | Permanent link

    Welcome Aldi/Lidl!

    It was about time that the these discounters entered the bastion of Switzerland. Why? Swiss consumers were sick of sitting in a traffic jam each weekend going to Germany for shopping at Aldi & Co.

    Suisse consumers were sick of getting ripped off by the local cartel retailers Migros and Coop.

    Swiss consumers were sick off subsidizing a local farmer who could afford a Mercedes by selling milk from just 15 cows.

    Swiss consumers enjoy shopping at Aldi and Lidl, because they get product at a fair value. They enjoy shopping at Aldi, because parking is for free, the supermarket building is modern and bright, the assortment well-organized and there is no waiting at the cashier zone.

    For too long Migros and Coop enjoyed their comfort and sleepiness sitting on fat margins. Competition is healthy and was desperately needed for Switzerland.

    Did you know that Aldi rarely changes its suppliers? Some relationships have lasted for more than 30 years already.

    Did you know that Aldi employees are the most loyal among all retail employees? Income, work environment and career oportunities therefore cannot be too bad.

    So, let's not worry too much. Let's welcome these new players in Switzerland. They took a heavy risk and really deserve a fair chance.

  2. Created 5 August, 2009 13:33 | Permanent link

    Couldn't agree more. Hard discounters make a significant contribution to reducing price inflation. Therefore, it is hard to understand why Swiss politicians are so grudging towards them. Do they not want their own voters to have the option of more advantageously-priced food?

    If one wants to save more as an individual, one can reduce one's food bill quite considerably by shopping at hard discounters.

    As, even in highly-developed countries such as Switzerland, food still represents a relatively large proportion of one's monthly household budget, the decision to shop at a hard discounter can increase one's monthly net income quite substantially.

    Try going to your boss in these difficult recessionary times and asking for a 5, 10 or 15 per cent wage rise! Very difficult to do when compared with simply changing one's shopping habits.

    Also thoroughly agree with you regarding your comment on Aldi's relationships with employees and suppliers. Although Aldi is not exactly "union-minded" it pays, contrary to the rumours spread abroad in some countries, above-average wages for the sector.

    When negotiating with its suppliers Aldi is extremely tough, but they don't go in for the unnecessarily destructive headbanging sessions which, sadly, are still all too frequent during the annual range reviews in Germany.

    At the end of the day, Aldi buyers remain amenable to logic (e.g. significant increases in the input prices for raw materials on global markets).

    What is even more impressive: they do not let suppliers become too dependent. This is remarkable because all too often in the past retailers world-wide have found it difficult to resist the temptation to allow smaller suppliers to become dependent on them only to put the screws on later for better terms & conditions.

    Finally, if Aldi were merely cheap & nasty, they wouldn't be so successful. Their product quality is excellent within their limited, but increasing range and within the price band they operate in.

    All this said, Migros and Coop Suisse are wonderful operations, and it is a pleasure to shop in their stores when on a visit Switzerland. It would be great to have them in the Rewe-dominated Frankfurt area.

    At the end of the day, however, whether it's Migros & Coop Suisse in Germany or German discounters in Switzerland, the whole thing should be about choice for the consumer.

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