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Crisis at the largest retailer.  Migros hardly makes any money in the supermarket business.

Crisis at the largest retailer. Migros hardly makes any money in the supermarket business.

It is said that a decentralized organizational structure is bad for the core business.

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In the core business, department stores, things are not going well in Migros. Many of the 10 regional co-ops are in the red zone – or close to it.

Last Monday, Migros president Fabrice Zumbrunen surprised everyone. The Neuchâtel retailer will be leaving next spring.

But the unexpected departure should not remain Migros’ only turmoil. Show it at least Research by the Sunday newspaper.

Two out of ten regional cooperatives still generate significant profits

The newspaper writes that one of the main reasons for Zumbrunnen’s departure is poor business in supermarkets. At headquarters in Zurich, there are concerns that Migros will have to file red numbers in its core business for the 2022 fiscal year.

It will be a few weeks before the deal is struck, but research shows that in supermarkets operated by ten regional co-ops, sales have fallen so sharply this year that profits have also shrunk dramatically. Everywhere sales are lower than the previous year’s sales.

At least three cooperatives – Zurich, Ticino and Valais – are currently in poor condition. After the big dip in profits, Basel barely missed the deficit limit. Geneva and Neuenburg/Freiburg write little profit due to their exchange offices.

The strong Aare cooperative (Bern, Solothurn, Aargau) is clearly unexpected. But this is only thanks to the sale of real estate and investments. Of the ten regional co-operatives, it is clear that only two, namely Eastern Switzerland and Lucerne, fall into the profit area.

Above all, the auxiliary companies keep Migros

In any case, the overall picture is bleak: Operating EBITDA on intangible assets such as patents, trademarks, contracts or customer relationships has shrunk 40 percent at the 10 cooperatives so far this year. If you take into account the many special effects, the minus is about 60 percent.

Ironically, Migros earns almost nothing in her core business with supermarkets. In the current year, this service has been kept afloat thanks to those companies that are not under the control of regional cooperatives but to the head office in Zurich.

For example, the tourism company Hotelplan has made a solid profit for the first time in years, Migros Bank is recording good business development, Migrol gas stations are in black due to higher petrol and diesel prices. The newly established health sector is also doing well, thanks in particular to the increasing demand in dental centers.

In general, the losses in the supermarkets of the ten cooperatives were offset by higher sales in the travel, health and gas station businesses. This means that Migros Group as a whole will most likely announce higher sales in 2022. However, according to reliable information, the net profit will be much lower, according to the Sunday newspaper.

Coop is doing better and it is centrally managed

Homemade problems are mainly responsible for stagnation in sales and profits. First of all: Unlike its competitor Coop, Migros operates many large, centrally located branches. This is a critical drawback because consumers’ work and shopping behavior has changed after the pandemic.

Plus, the big weekly shopping time is over. Instead, many customers make spontaneous small purchases several times a week – this does not require large branches, but requires small branches near where they live and work.

The second big problem is the cumbersome architecture of Migros. While Coop is centrally controlled from Basel, regional cooperatives have the final say in Migros. Each provides its own administrative apparatus, buys to a large extent its own products, designs its own domain and decides independently about its branch network.

Zumbrunnen surrendered to the self-interest of the branches

Zumbrunnen tried in vain to turn the tide in the faltering supermarket business. He suggested that the ten regional firms join forces in purchasing, product range, and management. This could potentially save on purchasing costs, but regional managers have battled not being empowered.

With the “Puma” project, Zumbrunnen wanted cooperatives to work more closely together in logistics. “It didn’t happen, the project fell apart,” says one Migros expert.

Another source close to Migros’ senior management was quoted by the Sunday newspaper as saying: “Zombrunn knew very well that he had no chance of asserting himself against powerful regional lords, which is why he decided to take this step.” This was confirmed by research by Tamedia, where Zumbrunnen gave in because regional cooperatives put their own interests first rather than working together.

Whether Zumbrunnen’s successor will be able to bring the co-ops closer together remains to be seen next spring.