Does Aldi’s entry on the swiss market represent a real threat for the current grocery market leaders?

The german deep discounter Aldi, after expanding in 15 countries has entered the swiss market in 2005. Now, they only have 58 stores on the swiss territory but are planning to expand to all the country. The swiss market is actually controlled at 70 percent by two discounters Migros and COOP. The swiss grocery market is a mature market and the only way to gain market share is by winning it from the competition, so do the two current swiss leaders have to worry about Aldi’s expansion?

Aldi is a deep discounter which has presence in about 15 countries and revenues of about 29.3 billion euros (about 45 billion dollars). Everything at Aldi is made to keep the costs as low as possible, that’s their basic concept. They mostly have private labels with a very limited number of national brands and make no effort on packaging and in-store display as all the products are presented on the palettes.

The number of SKUs available at Aldi is also limited, the maximum SKUs carried per unit are 800 which limits the selection but allows aldi to have smaller shops than the other supermarkets carrying the same amount of products. These stores are usually between 800 and 1000 square meters and are often located near shopping centers and malls where retail units of this size are common.

Aldi’s target market was, at the beginning, families with low income and large households but their popularity expanded to all kind of households because of the good quality of their product despite the low price.

Aldi’s main competitors in Switzerland bet on a completely different RVP. Migros, the number one in the country, bases it more on experience and convenience. The Migros shops offer a great display and offers product tasting. They offer in nearly all the shops fresh bakery, a deli and a food take-away service. Most of the shops are located either in the center of the cities or villages or in suburban shopping centers. There are 3 kinds of shops at Migros, targeted for different locations M (smaller stores with limited number of SKUs), MM, MMM(suburbian malls, really big stores) Their selection is limited as like Aldi, Migros carries a lot of private labels and unbranded products and have a very limited number of national brands. The fact of having lots of private labels and unbranded products allows Migros to have low prices for Switzerland but don’t have Aldi’s bargaining power with the suppliers making their costs probably higher than their German competitor.

The other big competitor for Aldi in the swiss market is COOP which RVP is based more on selection as they offer a lot of national brands and also some private labels and some COOP branded products. COOP is present in outer city malls and has smaller convenience stores in the cities and gas stations. Due to the presence of national brands in their assortment shopping at COOP is in average a bit more expensive than Migros.

Since Aldi entered the Swiss market, both Migros and COOP, reacted differently. Migros expanded the M-budget line (see article of February 18) while COOP launched a similar line of products named “Prix Garantie”. Both companies also reduced their prices. According to LSA, both companies reduces their prices (Migros: -25.8% COOP:-31.7%). Migros also acquired “Denner” a swiss discounter.

In conclusion, I think Aldi is in a good position in Switzerland for a few reasons: the first one is that they take advantage of a social situation which sees the creation of a poorer middle class because of the increase in the cost of living in Switzerland and the high costs of the real estate in some parts of the country which creates a class of people who are more price seekers than in the past. They also don’t have to fight a potential “fear” of private labels or unbranded products as Migros has always had this kind of assortment but the M-budget brand is really trusted in Switzerland and known for the good quality of their products. I think Aldi can become the 3^rd power on the market but will not be able to compete for the 2 first places.