German discounters put the heat on Swiss grocers

The Swiss grocery market is showing signs of heating up this year. Market leader Migros is reacting to falling sales in 2009 and has gone on the offensive against its main competitors, Co-op and German hard discounters, by implementing measures to strengthen its leadership. Migros is still the undisputed market leader in Switzerland but the gap between Migros and arch-rival Co-op is shrinking.

The Swiss have a high standard of living and consumer spending is strong. They are very conscious of quality and appreciate friendly staff and broad product ranges. This led the market to believe that the German discounters would not stand much of a chance there. Many retailers expected that, after initial enthusiasm for low prices had waned, Swiss consumers would return to full-range retailers. However, this has not proved to be the case so far and the market leaders have been forced into action.

The rising power of German discounters Aldi (which entered the Swiss marketplace in 2005) and Lidl (March 2009) has forced Migros and Co-op into a tough price war. Migros is under particular threat, as its customers are particularly price-conscious and most likely to turn to the discounters. This has enabled Co-op to narrow the gap between them. The steady drift of Migros’ customers to the discounters is obvious through the drop in sales at its economy private label, M-Budget in 2009. Sales of this particular range were expected to rise during the crisis, but they dropped 3%.

In order to strengthen its position against Co-op, Migros listed more leading brands in January 2010. A big differentiator has been Migros’ very high share of private labels, accounting for about 90% of its product range.

It therefore came as a surprise when it introduced top brands such as Thomy, Nescafé, Coca-Cola and Pampers. But Migros emphasised that the new branded products would not replace existing Migros private labels. Extending the range will be the exception in Migros’ strategy, because it wants to keep the price advantage it achieves with strong private brands.

Migros chief Herbert Bolliger is clearly concerned about Aldi and Lidl. He is obviously nervous, too, about the past fiscal year and just before the year’s end he was unusually critical of his German competitors. “The owners of Aldi and Lidl are getting richer and richer, putting the producers under pressure by permanently reducing prices,” he complained.