echo-interview with Hansueli Loosli, Chairman of Coop

elipsLife echo: Do Aldi and Lidl give you sleepless nights?

Hansueli Loosli: I'd be a poor retailer if that were the case! Aldi and Lidl are competitors just like any other. What does worry me are the people that regularly hop across the border to do their shopping.

What kind of numbers are we talking about here?

Not including online purchases and vacation spending, this year will likely see Swiss consumers buying over CHF 12 billion in retail goods alone in stores on the other side of the border. This is the equivalent of around 13% of total retail sales in Switzerland which amount to CHF 90 billion. But it doesn't help to complain about the competition or people crossing the border to go shopping. This is not the solution. The fact of the matter is that this kind of shopping is going to have a sustained impact on Switzerland's retail trade, because rather than being a one-off phenomenon, it has become established practice. The Swiss are willing to travel relatively long distances to do their shopping on the other side of the Rhine. I've been to these destinations and seen vehicles not only from Zurich and Aargau but also from central Switzerland or from Bern.

Why are there such large price differences anyway?

There are justified and unjustified price differences. In part, these have to do with the products that originate in Switzerland, agricultural produce in particular. And it would be difficult to change this situation because compared to other countries, Switzerland's agricultural sector is characterised by small-scale farming. This explains why the difference in basic food prices between Germany and Switzerland is, in some cases, very substantial. For example, a foreign farmer receives 15 to 20 cents per litre of milk he produces compared to double or triple that amount paid to his counterpart in Switzerland. Other important factors are also the markedly higher wage levels, rents, running costs and transport costs in Switzerland, items which can only be partially be offset by higher productivity.

On the other hand, we have the unjustified price differences, generated above all by international suppliers. As a Swiss company, we have to pay higher wholesale prices for goods from abroad. In some instances, these are even higher than German retailers charge their end-consumers. Something's not right here. We can't compensate for this through higher productivity. This is a big challenge but it is one we can rise to.

How will you do that?

By talking to the suppliers in question and explaining our grievance to them. And if necessary, we are also perfectly prepared to take the kind of steps we took in the past with the suppliers of the international magazines. That said, we do believe that our partners will be receptive to our arguments, because if they don't we both have a lot to lose.

What are the biggest logistical challenges Coop are faced with on a day-to-day basis?

The volume of traffic on today's roads with the associated jams, and the ever-increasing share of fresh produce. Today, a good 50% of supermarket sales are attributable to fresh produce. This has consequences for the order-supply process: Today, if our supermarkets order their fresh produce by mid-day, they receive their consignment before 6 am the next morning. The ratio of rail to road transport has also changed as a result. Nowadays we use rail transport to supply our outlets to a far greater extent than 10 years ago. This was why we acquired Railcare AG several years ago. Following the opening of our new distribution centre in Schafisheim in 2016 / 2017, all shipments of frozen goods with destinations more than 90 kilometres away from this centre will be executed via rail. This will enable us to keep our promise to become CO2 neutral by 2023 in all areas we can influence ourselves.

Hundreds of Coop trucks ensure that your goods are distributed to all corners of the country. What effect do the continual traffic jams on Switzerland's roads have on your business?

On the one hand, we're always looking at new concepts and on the other, we have to strengthen our transportation capability. Let me give you an example: We haven't been using trucks on the chronically congested route between Lausanne and Geneva for two years now, but instead have opted for rail transport. Railcare freightliners travel from Lausanne directly to a hub in the centre of Geneva. From there, the containers are loaded directly onto trucks for the last leg of the journey to the supermarkets in Geneva. Thanks to this new concept, we've been able to reduce our fleet of trucks by 20. Having said that, because our trucks are frequently gridlocked, for example at the entrance to the Gubrist Tunnel, it's sometimes quite simply a matter of putting on more transportation muscle, in other words of adding more trucks to ensure the goods are delivered on time.

Coop has been growing strongly for years now. With total retail sales of CHF 17.7 billion and CHF 27.2 billion at Group level, it has now caught up with Migros. Is there still room in Switzerland for further growth?

In Switzerland, we are experiencing two phenomena: Firstly, prices are falling quite sharply, and I don't have to tell you that against this sort of backdrop it's quite a challenge to maintain revenue levels. Secondly, we in the retail trade have benefited in recent years from the influx of migrants. Although we're seeing "emigration" in the form of consumers going to neighboring countries to shop, there are still considerably more people living in Switzerland than there were a decade ago. The bottom line is that the market today is characterized by the crowding-out effect. Coop's growth is to the detriment of other competitors. And when it comes to crossing the border to shop, we all lose out.

Coop has been a cooperative since its founding in 1864 and today counts approximately 2.5 million members. To what extent is its annual profit of CHF 470 million compatible with the company's cooperative philosophy?

Very compatible! A profit of 470 million set against total sales of 27 billion gives us a profit margin of just about 1.75%. Compared to other industries, this is an extremely modest sum. As a profit-oriented limited company, we would need to generate a good deal more of course, also in order to pay out dividends. We invest 80% of our cash flow in improved offerings to customers, whether in the form of upgraded infrastructure and facilities or directly through lower prices for consumers. But Coop, too, has creditors and they have expectations. So it stands to reason that we have to behave and have our performance measured just like any other company. Our advantage as a cooperative is that our profit is not dispersed but flows directly into our equity capital. This way we can ensure our company stays independent and is able to present a healthy balance sheet.

According to recent media reports, Hansueli Loosli has been the man behind Coop's remarkable growth record over the last ten years. Would you care to comment on that?

You don't seriously think that this was just my doing. I'm very fortunate to have over 70,000 great employees around me. I've always taken the view that we need to invest not only in buildings, goods or systems but also in our staff, whether in their training or in wages. Wage development at Coop illustrates my point. In the period from 2001 to 2014, the cost of living in Switzerland rose by 11% but wages went up by 26%. Productivity increased by over 40% at the same time. This shows that success is always about reciprocity. One of the factors behind the progress we achieved was also our decision to reduce the number of 15 cooperatives that still made up Coop in the mid-1990.

What are the ingredients of corporate success in your view?

Well, first of all you need to keep a clear head. Then, and this is especially important in the retail trade, you have to like people because they make all the difference with customers. Even though the retail trade has had to invest strongly in information technology, we're not a high-tech, automated business. The human being is still very much at the centre of everything. After all, we pursue a strategy which is geared solely to meeting the needs of our customers, and one which is not immediately abandoned after the first bump in the road. Improvements are always worth having, but about-turns usually mean mistakes. To keep people on your side, what you need at the end of the day is to maintain a steady course.

Coop has over 77,000 employees, 53,000 of them in Switzerland. Bearing this in mind, how important is Coop's pension fund, CPV, when it comes to corporate decision-making?

Coop has one of the oldest company pension schemes in Switzerland, going back to 1914. The decision to establish the scheme was indeed a far-sighted one, not just because it was about social security in the context of provisioning for old age but also because of the generous arrangements in respect to contribution payments. The company has always paid two-thirds of the total contributions. Not least because of this fact, the pension scheme in this form was always an important component in Coop's overall structure.

Are the CPV benefits important when it comes to recruiting? Or put another way, is an attractive company pension scheme a differentiating factor in relation to the competition, in your opinion?

These benefits are undoubtedly a strong argument, especially when your pension fund is on a financially sound footing. This aspect has definitely become more important than it was ten years ago. Back then, no young person was really interested in the benefits provided by the company's pension scheme. If there were any questions, they mainly focused on the deductions made from your pay packet. The current debate surrounding demographic development or the low interest-rate environment has given the topic of old-age provisioning a new significance.

How would you assess the quality of occupational pension plans in Switzerland?

Old-age provisioning is a far more important topic in Switzerland than elsewhere in the world. Here in Basel, many of our employees cross the border every day to work. And I've noticed time and again that these people attach great importance to the benefits provided by our scheme. When it comes saving for old age, Switzerland is a privileged country. The pension funds are all on a sound footing. Also crucial in this connection, of course, is that both the employees and the company pay into the plan. The longer an employee stays with us, the stronger a healthy pension fund becomes a loyalty factor. We don't advertise the strength of our occupational pension scheme, but it is nevertheless a topic during the interview process.

Pension funds are facing tough times, above all as a result of demographic development and low interest rates. Are they – and indeed all of us – going to be victims of benefits promises that can't be financed?

That's the big question. We can't really influence demographics but we can do something about interest rates. How long are rates going to stay so low? A pension fund has to be geared towards the long-term. Looking at the future, the distribution of responsibility between young and old, between the employed and the retired will be a topic demanding our attention. The coverage ratio will need to be maintained in a way that does not put us in dire straits. So the technical interest rate has to be lowered and the conversion rates need to be adjusted. The challenge will be to find a solution which is socially acceptable both for young people and for those who are just about to retire.

It has been suggested that the additional costs generated by the proposed changes to the retirement and benefits system (AVG 2020) should be financed partly by raising the value- added tax. Is this a sensible solution?

It is certainly an approach which treats both sides - the younger, the older, the employed and the retired in the same way. So from this angle, I would say it's an equitable solution.

What do you think of the idea to raise the pension age for women?

As a matter of principle, I think we all retire too early. The exceptions would be those people who have been in physically demanding jobs such as construction workers or cutters in slaughterhouses. There are many people who can and want to work until they're 67 or 70. At Coop, employees can take early retirement at 58 if they're so inclined, albeit with a reduced pension, or they can retire at the regular age of 63. Many, on the other hand, want to stay until they're 65 or older, if need be with reduced working hours. Experience counts these days. At all events, I would have no issue at all with appointing 55 year-olds.

Cutbacks look to be on the cards if our retirement benefits system is to be maintained. Should retirees also have to make a contribution here, or should already earned pension entitlements remain untouched?

I hardly think that one can cut back the benefit entitlements of people already in retirement. These individuals have all been promised a certain level of entitlement and this promise should be honoured. On the other hand, I do believe we should examine the question you pose for pensioners in the future. One approach to the problem would be to inject more flexibility into the contributions made by the employed and also into the benefits received by the retirees. In respect to the discussion surrounding already existing pension entitlements, one should mention, in all fairness, that people retiring today and tomorrow will be receiving pensions on quite a different level than was the case 15 years ago. With the next generation, we need to do all in our power to ensure our pension fund system remains viable. And here we can all make our own contributions.

If you were able to give the pension funds in Switzerland some advice, what would it be?

We need to ensure the viability of our overall benefits system, both of the AHV and also of the retirement benefits arrangement. These are precious accomplishments. And we also have to find our way back to the so-called contract between the generations, the unwritten solidarity agreement between the young and the old, in other words to a mutually acceptable balance of interests between the young generation and the pensioners. Some might view the pension fund as a kind of enforced savings scheme. But when the time comes for them to receive a pension, they're happy too.