Profit in the 21st Century. Exemplified by the Orange Giant Migros

Dossier / Travail , 2021 , 9 Pages , Note: 2.0

Gestion d'entreprise - Direction d'entreprise, Management, Organisation

Global retail business is known for rough competition, low salaries, bad working conditions and big players. Two of these big players, Aldi and Lidl, entered the Swiss market in the last two decades, but Migros and Coop notably still made up about 77% of the retail market share in 2018.They though lost more market share over time when the food market is considered independently. The author of this paper was interested how Migros and Coop with the legal form of cooperatives behave in this competitive market.

The methodology of this research was limited by the availability of data (and the scope of the work). For Aldi and Lidl for example, the two main capitalist competitors of Migros, there is basically no data available; except for minimum wages where they are leading in Switzerland.

This research only delivers pieces to the role of profit for Migros. It focuses on the head organisation, while the 10 regional cooperatives can attribute a different role to profit. It considers what priority Migros attributes to different revenue and cost factors, where qualitative or quantitative data are available. It additionally includes some major critiques of Migros.

Profit in 21st century - the orange giant (Migros)

Introduction

In Switzerland it is said that one is either a Migros or Coop “kid”. Typically, most Swiss grew up with the products of one or the other, reflecting the dominance the cooperative duopoly exercised in the Swiss grocery retail market for decades. Migros' assortment consisted almost exclusively of their own brands, often imitations, with much lower prices for a long time, while Coop's assortment included major brands. Only later, the former discounter¹ Migros introduced brands and the assortments of the two competitors converged over the years, following each other's product launches.

Global retail business is known for rough competition, low salaries, bad working conditions and big players. Two of these big players, Aldi and Lidl, entered the Swiss market in the last two decades but Migros (incl. 8% Denner) and Coop notably still made up about 77% of the retail market share in 2018.² They though lost more market share over time when the food market is considered independently (~57% excl. Denner in 2017).³

I was interested how Migros and Coop with the legal form of cooperatives behave in this competitive market. Due to non-existing literature and less data on Coop and the limited scope of this end of semester course research, I decided to focus on Migros, the biggest private employer in Switzerland. Most literature on Migros is either about its extraordinary founder⁴ who transferred ownership of his very successful corporation to the customers when he transformed it into a cooperative in 1940/41; or about ecological sustainability issues. The only Migros-specific work relevant for this research is a student paper (Schweizer 2005) about the old debate, whether Migros should change its legal form into a corporation in order to increase its efficiency (mainly in the administration/governance).

The methodology of this research was limited by the availability of data (and the scope of the work). For Aldi and Lidl for example, the two main capitalist competitors of Migros, there is basically no data available; except for minimum wages where they are leading in Switzerland.

This research only delivers pieces to the role of profit for Migros. It focuses on the head organisation, while the 10 regional cooperatives can attribute a different role to profit. It considers what priority Migros attributes to different revenue and cost factors, where qualitative or quantitative data are available. It additionally includes some major critiques of Migros.

Overview Migros “Group”

The Migros-Genossenschafts-Bund (MGB; appr. Migros cooperative alliance) consists of 10 legally independent regional cooperatives that cover all cantons and include 3 supermarkets in France close to Geneva. All the major store brands, Migros Restaurants, Take Aways, Club schools, Fitness and Golf Parks as well as the Migros culture percent (% of turnover) reside in these cooperatives. The acquired leshop, now Migros Online, biggest Swiss online shop Digitec-Galaxus (70% Migros) and Denner, together with other branches as diverse as Medbase and Migrosbank, the M-industries (own necessities brand suppliers), various foundations and the pension fund are subsidiaries of the MGB, the head organisation of the 10 cooperatives.

Margins & governance

The amount of profit according to Migros statements is secondary. As a (diversified) cooperative, Migros does not publish ratios such as return on investment, equity or assets. In order to compare it to major global capitalists and for a Swiss comparison (where data is available), I undertook some own calculations and established the following table, where the main Swiss food retailers are in bold.

Abbildung in dieser Leseprobe nicht enthalten

1 Compound annual growth rate *Revenue includes wholesale and retail sales

e = estimate **without financial services (ROA: [profit group/EBIT group * EBIT without financial services]/assets without financial services)

Sources: Deloitte, Global Powers of Retailing 2021; ROA&TA: O'Sullivan, Mary (2019); Swiss companies: own calculations based on annual reports (Coop & Migros only ROA&TA)

As one would expect with cooperatives who retain and reinvest their profits, Coop & Migros' net profit margins, returns on assets and asset turns are significantly lower, first when compared to the major global players, and secondly when compared to the only mentionable capitalist local player where data are available (Volg). Coop, after a merger of 14 cooperatives in 2001⁵, with a more central and less federalistic governance and organisation (1 cooperative with 6 regions) exhibits higher margins/ratios than Migros, but is in many ways comparable to Migros (similarities>differences).

The governance of the MGB is complicated, to say the least. Armin Jans (2016) when talking about large Swiss cooperatives such as Migros, Coop and Raiffeisen stated that: “With regard to participation in decision-making of the small owners and employees they differ little from capitalist enterprises”.⁶ In contract to the findings in the table above, he counts these cooperatives to the capitalist sector, because they would differ little from their capitalist competitors in how they act in the market. Regarding participation, Armin Jans is right concerning employees since only 2 out of 23 board members are representatives of the employees.⁷ For the members, by the way meanwhile 2.3 million and more than one quarter of the Swiss population, we need to differentiate between the cooperations and the head organisation MGB (in the graph called union); for the latter Armin Jans' statement might be adequate, since the way from the members to the top management is so long that one can hardly speak of an indirect democracy. The regional cooperatives, which according to Anna Schweizer (2005) “are practically autonomous”,⁸ however, can be called “democratic”.

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Compensation & working conditions

Because retail is a low wage sector and Migros as the biggest private Swiss employer and a cooperative bears special responsibility, wages are of major interest. Due to a lack of reliable data, we can unfortunately only investigate minimum wages. This is unfortunate, since minimum wages are only relevant where applied (probably minority of employees), do not take into account intra­country regional purchasing power differences and other benefits from which employees profit. Nevertheless, minimum wages dominate the debates in the media and provide an impression of how a firm values its lowest paid employees in direct monetary terms. Minimum wages are also the only available reliable quantitative data to compare Migros and Coop with the three discounters Denner, Aldi and Lidl. The five already made up more than 70% of Swiss food retail in 2017⁹ and clearly dominate the (sub)urban areas.

They also lead the minimum salaries in the labor intense low salary retail sector, whereas Migros (incl. Denner) and Coop were clearly behind Aldi and Lidl, but before the rest of the Swiss competitors.¹⁰ In 2018, the minimum salaries seemed the higher, the larger the company (see graph below), with the exception of Spar, the Swiss daughter of the Southafrican group (not the Austrian). The weakness of such a minimum wage comparison is clearly illustrated when considered that the purchasing power of 20 CHF in rural areas, where e.g. Landi AG (belongs to Fenaco cooperative) or Volg are mainly active, is way higher than 22 or 23 CHF in Geneva or Zurich.

Anmerkung der Redaktion: Dieses Bild wurde aus urheberrechtlichen Grunden entfernt.

Abbildung in dieser Leseprobe nicht enthalten

Since 2018, Lidl, Aldi and Coop have raised their minimum salaries, while Migros (incl. Denner) left them unchanged.¹¹. But other variables are relevant, too. Migros e.g. always refers to its over-average rents or maternity and paternity leave compensation. However, if Migros does not lift the monthly minimum wage to CHF 4'000.-, its social image (e.g. handicapped staff, no alcohol & tobacco) might suffer, even though the highest salary with CHF 909'000 (~ 18x minimum wage) in 2020 was very moderate when accounted for Migros' size and compared to other Swiss companies. In summer 2013, I as a temporary employee by the way earned CHF 20.85/hour (plus vacation, holiday & 13th salary compensation) at Migros.¹²

[...]

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¹ Migros started as a mobile discounter on trucks with the goal to provide cheap food in a totally different time when farming was highly profitable during the 2nd World War and cartels dominated the Swiss grocery market.

² Statista 2021. Schweiz - Marktanteile der fuhrenden Unternehmen im Detailhandel 2018 | Statista

³ Migros (excl. Denner!) and Coop appr. 57% in 2017, appr. 68% in 2000, see Credit Suisse retail outlook 2019, p.15

⁴ Entrepreneur, politician (and more) Gottlieb Duttweiler

⁵ Die Republik (Simon Schmid, Michael Soukup, Yves Bachmann), 23.01.2019. Der blockierte Riese - Republik

⁶ Jans, Armin (2016), “Der nicht-kapitalistische Sektor in der Schweiz”, published in “Social Aspects of Economic Activity” of the WSB University in Poznan's Research Journal, Vol. 68, No. 3, p. 195/196

⁷ Jans, Armin (2016), “Der nicht-kapitalistische Sektor in der Schweiz”, published in “Social Aspects of Economic Activity” of the WSB University in Poznan's Research Journal, Vol. 68, No. 3, p. 195/196

⁸ Schweizer, Anna (2005). “Why have Migros not gone public yet?”, McDonough School of Busin., Georgetown University, p. 11

⁹ Credit Suisse retail outlook 2019, p.15

¹⁰ Syna press release, 29.11.2017. Detailhandel: Nach wie vor zu tiefe Lohne im Verkauf - Aktuell (syna.ch)

¹¹ Blick, 07.02.2021. Wettlauf um Mindestlohn: Deutsche Discounter hangen Migros und Coop ab (blick.ch)

¹² Which was good money for me, since I still lived with my parents. The difficulty was more to find a student job. This one opportunity was thanks to my sister, who worked for Migros at the time. The year after, I asked to work there again, but they

• Université: University of Geneva (Paul Bairoch Institute of Economic History)
• Note: 2.0
• Auteur: Jan Gygax (Auteur)
• Année de publication: 2021
• Pages: 9
• N° de catalogue: V1044729
• ISBN (ebook): 9783346469786
• Langue: anglais
• mots-clé: Migros, Genossenschaft, Mindestlöhne Migros Coop Denner Aldi Lidl, net profit margin, return on assets, asset turns, stakeholders