Swiss retailers adopt UK strategy to beat discounters

By Anita Awbi

- Last updated on GMT

Related tags: Aldi, Wal-mart

The imminent assault on the over-priced Swiss grocery market by
discount retailers Aldi and Lidl has prompted supermarkets to mimic
UK-style price wars to marginalise the threat.

The move comes in response to news that Aldi, Europe's leading discount retailer, is opening four supermarkets this week.

Switzerland's two top supermarket chains Coop and Migros have now launched cut-price product ranges in a bid to emulate the successful approach taken some years ago by leading UK retailers Tesco and Asda.

But Aldi, the world's number nine food retailer worth €35.9 billion, still hopes to gain a foothold using price as the main driver to attract consumers.

The discount chain beat rivals Lidl, worth €32.6bn, which also plans to open a string of budget supermarkets in Switzerland.

As these hard discounters steadily expand to become a force in European retailing, many renowned supermarket chains are forced to compete on price - and this concept is new to Swiss retailers who pride themselves on quality.

But Richard Perks, director of market research group Mintel, believes Swiss food retailers have nothing to fear, in the short term at least.

He cites a number of barriers to entry that could hold off an outright discount supermarket invasion in Switzerland.

The rigidity of the highly regulated employment market and huge land costs are major factors restricting Aldi's expansion - as the retailer strives to keep costs to a minimum to maximise profit margins.

And much of the discounters' success relies on encouraging consumers into more sophisticated 'two basket' shopping habits and tempting them away from higher-priced quality retailers like Migros and Coop.

"If you look at Aldi and Lidl's general customer base, you can see they actually attract a more savvy shopper - those who will stock up on discounted lines from the discounters and visit other supermarkets for quality goods,"​ Perks explained.

"But in Switzerland I would expect Aldi and Lidl to capture a low single-figure percentage of the market in due course - the quality and diversity of the retailers is very high there,"​ he added.

Meanwhile Swiss supermarkets are employing strategies the British food retailers used to fend off impending competition in the late 1990s.

In the UK Tesco and Asda responded to Aldi and Lidl's expansion policies by introducing a variety of cheaper private labels to court discount shoppers - and this policy has not gone unnoticed by other European retailers.

Now the UK's three main discount chains - Aldi, Netto and Lidl - take just over 5 per cent of the market share, according to TNS figures.

"UK retailers did very well, and used very pro-active methods when they faced competition from discounters in the late 1990s,"​ said Louise Spillard, international business manager at the UK's Institute of Grocery Distribution (IGD).

"Many European operators have looked at UK strategies and taken that on board."

And data analysts at Verdict predict that discounters will take a similar market share in Switzerland as that achieved in the UK.

"Basically, when discounters came into the UK it was very much about price, so the response from Tesco and Asda was to introduce lower priced ranges,"​ said analyst Gavin Rothwell.

"And because the discounters strategy is always based on price, the UK supermarket's strategy enabled them to protect themselves well."

So Coop and Migros' current approach should see off any serious competition as Aldi and Lidl have a hard time convincing customers to change their habits.

Related topics: Market Trends

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