Price war threatens pillar of Swiss industry

Consumers benefit from retailer price wars Keystone

The retail trade is a driving force for the Swiss economy, accounting for 16 per cent of gross domestic product (GDP), according to an industry study.

The Swiss retail industry represents an annual SFr75 billion ($61.5 billion) of added value and accounts for every fifth job. It also plays an important social role, says the economics research group BAK Basel Economics.

The report was commissioned on behalf of a retailers’ association for the six major Swiss retailers: Migros, Coop, Manor, Denner, Charles Vögele and Valora.

This rosy industry picture comes at a time when experts are warning about the dangerous impact of retailer price wars on the Swiss economy.

Escalating price wars and confused consumer strategies have been highlighted in a report into Swiss consumer trends by St Gallen University, also released this week.

Downward spiral

Retail price wars in Switzerland have intensified over the past few years and look like escalating with the forthcoming arrival of German discounter Lidl.

According to research into consumer trends published on Tuesday by St Gallen University, retail prices in Switzerland fell by 1-1.5 per cent last year.

But Professor Thomas Rudolph, author of the St Gallen University report, believes that price wars could be a threat to the Swiss economy.

“Over the next ten years prices are likely to continue to fall by 20 per cent to reach the levels seen in France and Germany,” he explained. “Although this appears to be in the consumer’s interest, falling prices have a direct impact on added value and jobs.”

Rudolph believes that the retailers need to do their homework if they want to escape this “downward spiral”, especially in the current positive business climate.

He added that although consumers’ needs are becoming increasingly difficult to interpret, retailers’ strategies, with both low-quality and high-end products, tend to disorient customers.

The university research also showed that price was not always the first factor when making a purchase. Eight out of ten consumers feel that the quality and innovative nature of a product are more important than the cost.

Job source

The retail industry is a major source of jobs in Switzerland, employing 881,000 people – 21 per cent of Switzerland’s overall workforce.

The sector represents 11.3 per cent of part-time work and 200,000 (13 per cent) of the private sector jobs for female employees.

It also hires an above-average number of foreigners and people with limited skills.

The sector stands out as a major provider of training, accounting for 14 per cent of all apprenticeships in Switzerland.

swissinfo with agencies

In brief

Swiss retail prices are considerably higher than in the rest of Europe. For years the Swiss have been crossing over into neighbouring countries to do their shopping.

Competition has hardened in the Swiss retail sector, especially with the arrival of German so-called hard discounter Aldi and it is expected to further intensify when Lidl also crosses the border from Germany.

This price war will have a major impact on retailers’ margins, as suppliers – especially in agriculture – enjoy protected prices.

The shaving of profit margins will directly affect added value and jobs.

Key facts

The two retail 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 retail sector generates SFr75 billion of added value, or 16 per cent of GDP.
Retailers employ 881,000 people, who earn an average of SFr49,000 a year. The percentage of women, part-time workers and trainees in the retail sector is very high.