Migros shrugs off consumer spending slump - just

Related tags Cent Retailing Department store

Swiss co-operative retailer Migros has ended 2003 with a slight
increase in sales compared to the previous year, with low levels of
consumer spending taking a major toll on its performance. But with
the increase coming only as a result of a restatement of the
previous year's total, the underlying performance was sluggish at
best, buoyed mainly by the food retail business, writes Chris
Jones.

Turnover of just over SF20 billion was just 1 per cent ahead of the previous year's figure, but this figure was flattered by the reduction in the previous year's turnover by SF368 million due to the restatement of the accounts from one of Migros' divisions, travel agency Hotelplan.

Without this effect, sales would have been flat at best, with little or no growth in petrol sales or from Hotelplan and a poor performance in particular from the Globus department store unit dragging down results for the second year in succession.

There were some high spots to the year, however, in particular from the 10 regional Migros co-operative retail groups - the group's supermarket business. Sales from this unit were ahead by 1.6 per cent at SF14.4 billion, including the five stores the group operates in France and Germany.

The focus on organic and ethical products - long seen by the group as both a reflection of its co-operative roots and a lucrative driver of growth - continued to bear fruit in 2003, with sales of these foods rising by 1.3 per cent to SF1.76 billion, confirming Migros' status as the largest retailer of such products in Switzerland.

But with ethical and organic food products unlikely to be among the cheapest on the shelf, the effects of Switzerland's difficult economic conditions were clearly felt - in 2002, sales of these products rose by more than 13 per cent, ten times last year's growth.

Other non-food retail units also performed well, with the Gastronomie Migros restuarnat business, the group's sportswear and bookstore outlets all performing well in the tough conditions. Ongoing restructuring at the department store business - crippling in the short term but necessary for long-term growth, according to the company - meant that overall retail sales by the Migros group were ahead just 0.3 per cent at SF16.8 billion.

As for Migros Industrie, the unit which co-ordinates production facilities in a number of food sectors as diverse as meat products and confectionery, sales here showed a healthy 4.5 per cent improvement to SF4.2 billion, with an increasing share of sales coming from exports (SF213 million, up 23 per cent).

But if group sales growth was minimal, there was certainly more to cheer about in terms of profits, with operating income up by 7.3 per cent at SF484 million as the company continued to benefit from higher margins and lower costs.

Migros recently became the biggest online food retailer in Switzerland through its joint venture with LeShop, and is likely to focus its efforts on promoting this business in the current year. Offering a complete range of branded and own label products (unlike most of Migros's tores, which have only a few branded products available) the online unit is clearly seen as an important part of the retailer's business going forward.

Sales this year are likely to be around SF30 million (compared to SF6 million for Migros and SF13 million for LeShop in 2002), but profitability is likely to take a little longer to achieve - probably not until 2006, according to LeShop. Nonetheless, given the underdeveloped nature of the market, and the major head start Migros has over its rivals, the Internet is likely to be a good source of revenue for the co-operative, with the total online retail market (food and non-food) estimated to be worth some SF360 million - still only 1 per cent of the total retail market.

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