Question: How was 2021 and the COVID-19 pandemic for Migros?
Matthew Wunderlin: As with all supermarkets in Europe, our turnover has grown significantly. The increase in Switzerland was probably even slightly larger than in most other countries. Swiss consumers usually do a lot of shopping abroad, especially in Germany, France, Austria and Italy, due to the higher prices in Switzerland. But during the pandemic, the borders with our neighbors were closed for long periods of time, so people did more of their shopping with us. We have also seen a greater shift from larger stores outside the cities to small and medium-sized stores in residential areas. Many customers also sharpened their cooking skills, so we sold a lot of ingredients to make bread or bake cake.
In January, we saw this COVID-19 effect begin to disappear, even before the government lifted all COVID-related restrictions. In-store food sales are again close to prepandemic levels. We observe the same in our non-food formats, which are now more or less back to 2019 levels.
Question: Have you also observed a shift to online, and is it lasting?
Matthew Wunderlin: Yes. We already started accelerating our investment in e-groceries before the pandemic, but the pandemic helped us align everyone in the company behind that strategy. Our online sales increased by another 25 percent in 2021 in addition to an already strong 2020. We could have grown even more if we had the capacity. Every square meter of warehouse space we added has turned into revenue, but regulations in Switzerland make it difficult to build new warehouses. For now, we’re bridging part of the gap with shoplifting, but it’s expensive. Online is a priority for us, and we will continue to invest in it after COVID-19. We have clear evidence that e-groceries are here to stay. Unlike in-store sales, online revenue did not decline after the restrictions were lifted.
Question: What is your perspective on immediate delivery?
Matthew Wunderlin: I do not think it is viable in Switzerland due to the low population density and the high labor costs. It may work in large, densely populated urban areas — in Berlin or New York — but even Zurich is probably not large enough to sustain it. If you ask people what you need to cover the cost, we find that the demand is not that high. Currently we offer free same day delivery and delivery within 30 minutes at a fee of 5 Swiss francs. We are of course aware that many start-ups have much more aggressive proposals, but we do not think their models are economically viable in Switzerland in the long run.
In our experience, what consumers really care about is knowing when their delivery will arrive so they can make plans to stay home. A two-hour window is too long. This is the problem we now have to solve for our customers. That said, we monitor the evolving delivery landscape very closely. Migros are present all over Switzerland, and if we see immediate delivery becoming relevant in Switzerland, we will be able to act quickly.
Question: Sustainability is another important global trend. What is your opinion on that?
Matthew Wunderlin: Sustainability is becoming increasingly important, but we are not just jumping on a trend; sustainability is in our DNA, and we’re always been very proactive about it. We not only reduce our carbon footprint, but we also empower buyers and producers to reduce their own. We see it as our job to change consumption habits. One of several important elements in the long run is to reduce the amount of animal products. The challenge is to provide consumers with attractive alternatives. We focus on two areas: milk alternatives and meat alternatives.
Milk alternatives are already well established. Oatmeal, rice milk, almond milk, soy-based yoghurt – you name it, we have it in stock. This is no longer a hipster phenomenon. Plant-based milk alternatives have come into the mainstream, even in rural areas. Switzerland is not as advanced as, for example, Sweden, where half of the dairy section of many supermarkets is already full of milk alternatives, but we get there. In many stores, we are adding or reallocating alternatives for cooler spaces to meet the growing demand. Milk-free cheese is not as popular as plant-based milk and yogurt, but it also grows. And recently we launched the first vegan boiled egg.
We also invest significantly in meat alternatives. Meat alternatives are more challenging, but we have to find them because meat, especially beef, is such a big driver of CO2 emissions. However, despite the growing carbon awareness, consumers love meat, and they will not stop buying it unless we give them good alternatives. You need to get the flavor and sensory properties right, and you need to keep additives in check.
Question: You say you see it as your job to change consumption habits. It’s very strong wording.
Matthew Wunderlin: As I mentioned, sustainability is in our DNA. We have an obligation to society to combat climate change and reach zero emissions in the next 30 years, and we find that buyers share our mission. They already bring their own bags for fresh produce, but they realize it’s not enough, and they want to do more. Our job is to give them sustainable options. The great thing is that we are in a better position to drive change than many of our competitors because we have such a large share of private labels in our range. We also manufacture a large portion of our private labels in our own manufacturing unit. This gives us much greater control over farming and processing than most ordinary retailers. We work closely with our suppliers to promote sustainable practices throughout the value chain, and we are also looking at new players for innovations, especially with regard to plant-based substitutes for cheese, meat and fish.
In our stores we continue to increase shelf space for plant-based products across categories, and we were one of the first groceries worldwide to introduce comprehensive CO2 labeling. Online, each product is already marked with a CO2 rating, and we’re putting these labels on packages as well. By the end of 2023, all products will have CO2, animal welfare and Nutri-Score ratings on the package. We want to make it easy for buyers to do the right thing. If we do not do it as a retailer, who should?
Question: Do you not get repulsion from farmers and producers?
Matthew Wunderlin: Not as much as you would think. They are in the same boat as everyone else. Meat consumption has been declining in Switzerland for years. This is not something that Migros invented, and it is not caused by the coronavirus, although the pandemic may have accelerated it. It’s a long-term trend; farmers understand that they need to adapt to thrive. If we design the transition responsibly, with a clear vision, and give it time, everyone wins. Again, as an integrated player we work closely with our farmers. We support them, for example, in their efforts to shift their focus from the production of meat and milk to the cultivation of ingredients for milk and meat alternatives, such as oats and peas.
Question: We talked about e-groceries and sustainability. What are some of the other shopping trends you observe in Switzerland?
Matthew Wunderlin: The range in the mid-price range is shrinking, and we are reducing our range in that area. Instead, we work harder to develop the top and bottom end. Price sensitivity remains high, and it now covers the entire range, driven in part by the fact that discount retailers have expanded their offerings beyond the entry level. They may not be strong in plant-based alternatives yet, but they now have quite a large organic supply, and they are competitively priced.
As another trend, we observe that people want to shop closer to their homes, which is why we are adding smaller and medium-sized stores with smaller assortments in or near residential areas. More broadly, we have a vision to get people out of our stores as quickly as possible. I know this sounds counter-intuitive. Everyone is talking about the in-store experience, and non-food players are likely to roll their eyes when they read it, but we believe people have better things to do than go grocery shopping. We want to make it as convenient and as fast as possible for them to get the groceries they need. If the layout is good and the range is well structured, buyers will keep coming back. We are currently working on a new store concept to further improve on this.
Question: How does inflation as a trend affect you?
Matthew Wunderlin: Fortunately, inflation today is not as high in Switzerland as in other European countries. We also get requests from producers for higher prices. But prices in Switzerland are already high compared to other markets, and we recently joined a buying alliance. This enables us to keep price inflation lower than the rest of Europe. Yet we are also affected by higher purchase prices and have to selectively adjust consumer prices.