2017 in Brief

Cooperative Retailing

In 2017, sales of the ten Migros Cooperatives in Switzerland and abroad fell to CHF 15.6 billion. This is attributable in particular to the deflation of -0.4% across the Migros product ranges and the shift from in-store to online retailing.

In 2017, Cooperative Retailing was dominated by a competitive market environment, average deflation of -2.7% in the specialist markets and -0.2% in the supermarkets and hypermarkets, as well as an increasing shift from in-store to online retailing. Shopping tourism to bordering countries, the volume of which is estimated to be about CHF 11 billion, also had a negative impact. In Switzerland and abroad, the ten regional Cooperatives generated sales of CHF 15.6 billion (-0.5%). Footfall remained stable, with 344.9 million till receipts.

Supermarket and hypermarket sales in Switzerland came in at CHF 11.6 billion (-0.8%). Abroad, the ten regional Cooperatives generated sales of CHF 1.2 billion, representing an increase of 2.6% or CHF 31 million. With sales of CHF 1.1 billion (+CHF 40 million), Tegut was the main contributor to this growth. Sales at Migros France were down by 6.4% to CHF 122 million.

The five Migros specialist markets Micasa, SportXX, Melectronics, Do it + Garden and OBI generated sales of CHF 1.6 billion (+0.9%) in 2017. Adjusted for deflation of -2.7%, this figure is up 3.6% in real terms in comparison with the previous year. The online shops of the specialist markets reported growth of 25.0% to CHF 65 million.

At CHF 676 million, sales at Migros Catering were 0.9% lower than in the previous year. The new catering formats, such as Chickeria (+69.4%) and community catering (+3%), continued to perform well.

At the end of 2017, Migros' sales network comprised a total of 701 locations, 16 more than in the previous year. The total sales area for the supermarkets, specialist markets and catering services increased by 4'715 m2 to 1'402'169 m2 (+0.3%).

Sales of sustainable products up considerably

Sales of sustainable and regional Migros products saw above-average growth. Customers bought CHF 3.0 billion worth of products with ecological and/or social added value (+3.8%) and CHF 960 million (+2%) worth of products bearing the label "Aus der Region. Für die Region" (From the region. For the region). At a total of CHF 4.0 billion, sales of products carrying sustainable/regional labels and the health label "aha!" (CHF 87 million) were up by 3.3% on the previous year.

As part of the Generation M sustainability programme, launched in 2012, Migros has made a total of 67 binding promises to tomorrow's generation. By the end of 2017, 41 promises had already been fulfilled.

Commerce

In 2017, the Migros retail companies focused on meeting changing customer requirements both in-store and online. In a challenging market environment, the Commerce Department increased its sales by 3.9% to CHF 7.8 billion.

The priority for the business operations in 2017 was to focus consistently on meeting customer requirements across all sales channels. The companies Denner, migrolino, Migrol, Digitec Galaxus, m-way, Le Shop and Ex Libris pursued specific initiatives to boost their market position in the highly competitive retail sector.

Globus and Depot have launched projects to increase long-term efficiency. Interio has been positioned more clearly in the market in relation to Micasa, and potential synergies between the two retail brands have been exploited.

At the same time, new owners were found for Probikeshop, OWiba (Office World, iba and Tramondi Büro) and Sharoo.

Enhancement of market position

Despite strong competition, Denner enhanced its market position as Switzerland's leading discounter with a 3.1% increase in sales. A 4.7% increase in footfall provided further evidence that significantly more customers are shopping at Denner. This was due in particular to the modernisation work performed on a further 194 branches and partner stores. Two more branches were added to Denner's extensive network of sites, taking the total to 811.

migrolino remained on a growth course. By the end of 2017, 311 stores were open to customers (previous year: 307). The company again saw a considerable increase in sales, this time by 11.3% to CHF 480 million.

After a decline in the previous year, Migrol recorded a significant increase in sales of 9.3%, facilitated by the positive price development in the petrol station and petroleum market. Migrol was also able to increase its market shares in the fuel business due to slightly higher sales figures, despite the overall market decline. Migrol thereby extended its leading position.

Digitec Galaxus again achieved encouraging double-digit sales growth (19.4%) in the retail segment. The company thus enhanced its leading position in the B2C electronics market (Digitec). The Galaxus platform was further expanded with additional external retailers and a wider product range. With sales of CHF 834 million (+18.5%), Digitec Galaxus consolidated its position as the online market leader in Switzerland.

m-way recorded a 21.8% increase in sales and consolidated its position as the leader of the Swiss e-bike market in 2017.

Market position defended

In the home delivery business, Le Shop recorded an increase in sales of 3.0%. The online supermarket generated sales of CHF 181 million in total. The slight decline of 0.5% was down to the closure of the two Drive pilot locations.

Ex Libris again faced strong consolidation pressure in in-store retailing. The structural shift to ordering and consuming books, media and games online has continued. Although sales from in-store retailing were negatively affected, online sales increased again (+8%). Eleven branches had to be closed at the start of 2018. Overall, despite a noticeable gain in market share, sales decreased by 3% to CHF 109 million.

Implementation of efficiency measures

In 2017, Globus countered the challenging conditions in the fashion market with the launch of a forward strategy marked by the integration of the two brands Schild and Herren Globus, and by consistent digital transformation. By implementing new store concepts and combining in-store and digital channels, Globus is focusing on meeting customer requirements in the premium segment. The company again faced challenges in the form of a strong franc, shopping tourism and competition from online business, all of which resulted in a 2.5% decrease in sales to CHF 857 million.

Interio again felt the effects of the declining overall market, with sales falling by 8.1% to CHF 154 million. In contrast, online business grew by an encouraging 4.6%.

Combined with stronger implementation of efficiency measures, the Depot network of outlets grew to 479 own branches (previous year 452) and 161 locations at wholesale partners. The company generated consolidated sales of CHF 540 million, representing an increase of 7.7%.

Industry & Wholesaling

M-Industry generated sales of CHF 6.5 billion in 2017, representing an increase of 2.1%. The international business grew by a considerable 14.1% to CHF 901 million; business from the Swiss market increased by 0.4% as a result of acquisitions.

In 2017, the international business (exports and overseas locations) grew by CHF 112 million (14.1%) to CHF 901 million. Export sales were up by 10%, driven mainly by the coffee capsules, chocolate, cosmetics and cheese ranges.

Further sales platforms were set up in China, France, Spain and the Netherlands in order to continue to provide the export business with effective support in the future. Under the name "Orange Garten", M-Industry successfully entered the Chinese market. High quality Migros products are sold to Chinese consumers via leading e-commerce providers.

Optimisation of the portfolio

M-Industry optimised its portfolio in the Swiss market (retailing and bulk consumer business). The Cash+Carry Angehrn (CCA) division was sold, but the overall market position was strengthened due to strategic acquisitions in the fresh food areas of fish (Tipesca), baked goods (majority participation in Hug Bäckerei AG) and dairy/cheese specialities (majority stake acquired in Schwyzer Milchhuus AG).

At CHF 4.5 billion, business with the Migros Group remained at the previous year's level. Migros retail revenues were down (due to inflation, among other factors), but business with Denner, migrolino and Le Shop increased.

Growth through newly established businesses

In the bulk consumer business, M-Industry will continue to focus systematically on the delivery sector under the Saviva brand. Past experience has shown that synergies between the pick-up and delivery wholesale businesses are lower than expected.

Newly established businesses such as Apposito (digital business model in the beverage business), Saviva Health Services and the integration of Tipesca (fish) performed well. Despite the departure of CCA on 30 November 2017, sales were up overall on the previous year, increasing by 2.2% to CHF 1.1 billion.

Investments in the Swiss business areas

M-Industry invested about CHF 216 million in Switzerland as a centre of industry in 2017. There was a strong focus on capacity expansion and rationalisation investments. More investment is being made in automation as part of the "Industry 4.0" programme. With the completion of the new building in Gränichen, Jowa has increased its bread production capacity. The modern bakery combines traditional craftsmanship with intelligent technology. The new building also features a high-bay warehouse and a wood-fired heating plant.

The successful commissioning of the two wood-fired heating plants at Jowa in Gränichen and Elsa in Estavayer-le-Lac has made it possible to cut CO2 emissions by 11'000 t per year. This makes an important contribution to implementation of M-Industry's ambitious sustainability goals.

New apprenticeship positions

M-Industry again increased the number of apprenticeship positions in 2017. Currently, 556 apprentices (18 more than in the previous year) are trained in more than 30 different professions. In 2017 M-Industry employed an average of 14'192 people, which is 1'079 more than in the previous year. 1'215 employees worked abroad.

Financial Services

Migros Bank expanded its core business in 2017 and further increased its market shares. At 3.7%, the mortgage volume grew above the market average. The performance of the investment business was also encouraging.

Migros Bank remained on a growth course in 2017. In the investment business, the number of asset management mandates increased by 17.9%. The range of funds was also expanded: Migros Bank now offers both traditional and sustainable investment funds for every investment strategy. It thus has one of the widest and most comprehensive portfolios in Switzerland for sustainable strategy funds. Not least due to the launch of new investment vehicles, the fund volume increased by 19.2% to CHF 2.5 billion. The total of all funds and securities held by customers in Migros Bank custodian accounts rose by 12.9% to CHF 12.3 billion.

Customer deposits also saw an increase. Liabilities arising from customer deposits rose by 1.7% to CHF 33.3 billion. The number of private accounts grew by 8% and pillar 3a retirement accounts by 2.4%.

Cautious lending policy

Customer lending saw an even greater increase than customer deposits. Mortgage lending increased by 3.7% to CHF 35.5 billion. As a result, Migros Bank was Switzerland's fifth largest mortgage lender in the reporting year. In a highly competitive environment, Migros Bank firmly maintained its cautious lending policy. On the balance sheet date, 97.6% of the portfolio of mortgages on residential properties consisted of first priority mortgages.

Receivables from private lending amounted to CHF 1 billion, corresponding to a decrease of -6%. Despite the generally declining market, Migros Bank was still the third largest provider of consumer credit.

Investments business: positive driver

Net interest income increased by 1.2% to CHF 452 million in the reporting year. Commission income improved by as much as 10.4% to CHF 98 million, due in particular to the positive trend in the investment client business. At CHF 34 million, trading income was down slightly (-0.5%). The operating income of Migros Bank rose by 2.9% overall to CHF 592 million.

Despite strong expansion of the core activities, total operating expenses rose by only 0.6% to CHF 280 million; material expenses increased by 3.2% and personnel costs saw a 0.9% decrease. The workforce consisted of 1'319 full-time staff, compared with 1'327 in the previous year.

After being at an encouragingly low level in the previous year (47.2%), the cost/income ratio improved even further to 46.5%. After taking into account depreciation, provisions and losses, operating income and profit amounted to CHF 281 million, representing an increase of 5.7%. After accounting for extraordinary items and taxes, a profit of CHF 223 million was generated, 3.9% more than in the previous year. After the voluntary creation of reserves for general banking risks, this resulted in a decrease of 6.5% to CHF 201 million.

New organisational structure

The new, streamlined organisational structure of Migros Bank came into effect on 1 January 2017. Among other things, the management matrix has been abolished in favour of standardised line and functional management. At the same time, the distinction between management and extended management was waived. One of the aims of the reorganisation was to make the sales management more efficient in order to be able to respond faster to market changes and launch promising innovations more quickly. Another objective was to expand the corporate client and investments business.

Expansion of the cash withdrawal network

The option of free cash withdrawals for customers of Migros Bank was extended to Migrolino petrol station shops and Denner branches in 2017. As a result, cash can now be withdrawn at about 1'800 sales outlets of the Migros Group. Together with the more than 220 cash machines of Migros Bank, this makes up one of the most extensive networks in Switzerland for free cash withdrawals.

Travel

The Hotelplan Group's sales in the 2016/2017 financial year were in line with expectations, and the margins were improved considerably. In a year that proved challenging in an operational sense, the Hotelplan Group generated net sales of CHF 1'212 million.

In 2017, the travel business was again affected by terror attacks and natural disasters. Nevertheless, the Hotelplan Group recorded a 5.5% rise in the number of passengers. However, due to the sale of Hotelplan Italia and the much weaker pound sterling, the Group's net sales were down by 5.6% to CHF 1'212 million for the financial year ending 31 October 2017.

Positive development in Switzerland

The Swiss market leader Hotelplan Suisse, together with the business travel specialist bta first travel, generated net sales of CHF 559 million in the reporting year (invoiced sales CHF 715 million). With a share of 46%, the Swiss subsidiary is Hotelplan Group's largest business unit. Despite terror attacks and natural disasters, such as the earthquakes on Kos and in Bodrum and the hurricanes in the Caribbean and Florida, Hotelplan Suisse (excluding bta first travel) was able to increase its sales (excluding travel.ch) by 1.4%. The tendency to book early, coupled with the sustained enthusiasm for travel, also resulted in a 0.6% increase in the number of passengers to 523'000.

The business travel specialist bta first travel is a successful element of the Hotelplan Group. It was able to expand its customer portfolio in the SME segment in 2017. Invoiced sales in the business travel segment increased by 6.2% to CHF 124 million; this was due partly to the booking portal btaONLINE.

Increase in holiday home bookings

In the newly created Holiday Home Division, comprising the two holiday home agencies Interhome and Inter Chalet, the trend towards vacations in holiday homes and holiday cottages showed no signs of abating. This is reflected in invoiced sales of CHF 332 million, up 3% on the previous year. The synergies between the two agencies affected the result positively, as did the use of various online sales channels.

Good results in the United Kingdom

Calculated in the local currency, the sales of Hotelplan UK were up by 3.2%. Converted into Swiss francs, however, they were down slightly to CHF 319 million. The effects of Brexit are particularly noticeable in the ski area, as this customer segment is price-sensitive and travel abroad has become more expensive due to the weaker pound. The most growth in the UK was recorded by the walking and cycling holiday specialist Inntravel and the soft adventure provider Explore.

Start-up with potential

The booking platform bedfinder is currently still an investment for the Hotelplan Group, but with net sales of CHF 2 million (invoiced sales CHF 14 million), the travel services provider is showing great potential. Travel services can be booked worldwide on its own site bedfinder.com or via Book-on-Google without leaving the Google search platform.

Hotels in the US were offered for the first time in 2016 and Book-on-Google was rolled out in the UK. Additional markets were added in 2017 with Canada, New Zealand, Ireland, Spain, Sweden and Belgium. The platform provides interested partners with additional white-label products, fulfilment services and technological assistance. In addition to the roll-out of bedfinder.com, the hotel search portal Trivago was used as an additional sales channel alongside Book-on-Google.

Shared Services

The Logistics & IT Department – Shared Services – optimised further services along the national and international supply chain in 2017.

Shared Services combines the competence centres of six operationally and strategically independent areas: logistics, IT, transport, engineering, planning/expansion and quality assurance. For all entities of the Migros Group, they provide standardised solutions, where possible, and which are oriented towards overriding objectives and requirements.

Logistics: optimisation & expansion

In the area of logistics, the main focus in 2017 was on improving efficiency along the entire value-added chain. Further processes were optimised at the Migros Distribution Centre in Suhr (Food). Furthermore, a project was launched to provide logistics capacity by 2025.

In addition to ongoing process optimisations, the Migros Distribution Centre in Neuendorf (non and near-food products, textiles and frozen produce) has an on-going expansion project that will increase the level of automation by 2021 and concentrate storage in one location.

Transport: economical & ecological

The changing customer requirements – longer opening hours, cross-channel delivery and online shopping – are calling for new transport solutions. In 2017, Shared Services successfully implemented its efficient and environmentally friendly transport concepts.

• Clever volume bundling and an intelligent combination of all modes of transport (road, rail and intermodal) enable cost-effective, fast and economical transport solutions. In international transport, this was achieved in particular through expansion of the southern port connection. More than 50% of goods from the Far East passed through the Mediterranean ports in 2017.
• Migros also made more use of rail freight again. The number of conveyed rail wagons in domestic traffic rose by 3%, while the number of rail kilometres was up by 7%. Through optimisation in the national distribution centre in Buchs AG, it was possible to increase the annual shipment capacity.
• Efforts in the area of rail innovation were stepped up considerably in 2017, and an innovative information system was introduced to optimise business operations through use of rail.
• Migros agreed an innovation partnership with the Swiss Federal Laboratories for Materials Science and Technology (EMPA) to assess the possibility of achieving the 'two degrees' climate policy target (Paris climate conference) from the perspective of freight transport.
• In addition, Migros supported the national generational project Cargo sous Terrain with a further CHF 100'000 to the newly formed Cargo sous Terrain AG, and is committed to investing a total of CHF 5 million in capital for the project's planning permission phase between 2019 and 2023. Migros is represented on the board of directors of Cargo sous Terrain AG and other committees.

IT: digitalisation & consolidation

In 2017, the main focus in Migros IT Services was again on digitalisation and consolidation, in particular:

• In Migros Cooperative Lucerne, the new POS checkout system Avanta went live in the first pilot branches. A future-oriented and innovative solution that helps to meet the requirements of in-store and online business in an optimum way has thus been implemented.
• SAP F&R (Forecast and Replenishment) was implemented in more than 350 supermarkets. The system enables improved algorithms and individual demand factors for each brand. As a result, stock levels in the branches were improved considerably in 2017, leading to less food waste and inventory gaps.
• The mobile terminals used for inventory management in the Migros stores were also updated. More than 9'000 mobile devices were replaced with robust, state-of-the-art touchscreen computers and mobile printers.
• In the roll-out that has been underway since 2014, about 10'000 standard PC workstations have already been reconfigured in the "orange M" companies. The roll-out to the subsidiaries Aproz and Elsa/Mifroma and to Migros Cooperative Vaud was completed in 2017.

Engineering: resource efficiency

Various construction and conversion projects were planned and implemented throughout the Migros Group in 2017, such as Jowa's new wood-fired heating plant in Gränichen and Digitec Galaxus' extended logistics warehouse in Wohlen. The main focus here was on resource efficiency, in particular in the operation of equipment and buildings.