Denner AG

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Denner AG

Grubenstrasse 10
Zürich, CH-8045
Switzerland
Telephone: (41 044) 455 11 11
Fax: (41 044) 461 17 17
Web site: http://www.denner.ch

Private Company
Incorporated: 1935 as Société de Consommation Denner et Cie
Employees: 3,500
Sales: CHF 2.15 billion ($1.76 billion) (2006)
NAIC: 445110 Supermarkets and Other Grocery (Except Convenience) Stores

Denner AG is Switzerland’s third largest supermarket group, and the largest Swiss player focused on the deep discount food market. Denner operates more than 450 branches throughout Switzerland, and also supplies nearly 300 independent “satellite” stores in the country’s rural regions. Together, these operations generated CHF 2.15 billion ($1.76 billion) in sales in 2006. Denner has long positioned itself as a champion of consumer rights in heavily regulated, cartel-dominated Switzerland, and the company claims credit for breaking many of the price fixing and other sales restrictions policies that had long characterized the Swiss retail market. As part of its effort to maintain its low-price, low-cost structure, the company stocks only a limited assortment of chiefly nonperishable food items.

The company also runs regular promotions on nonfood items. While major brands make up some 75 percent of Denner’s product mix, a strong part of the company’s sales comes from its private label assortment under the Denner and other brands. Long controlled by the Schweri/Gaydoul family, Denner brought in a new majority shareholder Migros, in 2007, selling the number one supermarket group in Switzerland a 70 percent stake. In this way, Denner, and Migros, hoped to counter the impending entry of a number of international giants into the full Swiss market, including German discount behemoths Aldi and Lidl. Philippe Gaydoul, grandson of Karl Schweri, the modern Denner’s architect, retains a 30 percent stake in the company, and will serve as chairman of the company into 2010. Denner is expected to remain an independently operating company within the Migros group.

BRINGING DISCOUNT TO SWITZERLAND

Denner was the life’s work of Karl Schweri, whose grandmother opened a small grocer’s shop in Koblenz toward the end of the 20th century. The shop was taken over by Schweri’s mother, and later by Schweri, born in 1917. The younger Schweri quickly displayed his ambitions to develop the business on a larger scale. In order to acquire greater control over purchasing, Schweri became a shareholder in wholesale group Import und Grosshandel (IGA). In this way, Schweri sought to gain a degree of leverage against IGA’s other shareholders, which were also its main suppliers.

In 1946, IGA expanded into the retail sector, buying several companies, including Denner et Cie, Sommer S.A., Consum Bar-Pfister and Cooperative de Grands Magasins. The addition of Denner, in particular, gave IGA control of a company with roots stretching back to 1860. In that year, Heinrich Reiff-Schwarz opened a small grocery and linen shop in Zollikon. Schwarz was later joined by son-in-law Cäser Denner, who became a partner in the business, then known as Consumgesellschaft, in 1881. Denner took over the business by the end of the nineteenth century, renaming it Consumgesellschaft Denner et Cie, and remained at the head of the business until his death in 1935. At that time, Denner reincorporated as a limited liability company, Denner et Cie S.A.

The purchase of Denner by IGA brought Schweri’s conflict with the other shareholders to a head, and in 1946, Schweri was ousted from the company. Schweri aimed to strike back, and over the next several years secretly began buying up shares in IGA. By 1951, Schweri had succeeded in gaining majority control of IGA, and ejected the other shareholders. The stage was now set for Denner’s growth into one of Switzerland’s top retail groups.

The arrival of the modern supermarket format in Switzerland took place in the late 1950s. In response, IGA rolled out its own supermarket, under the Denner banner, in 1962. Opened in Schwamendingen, the new store boasted 570 square meters of selling space and some 5,000 food items. The move into the highervolume supermarket sector inspired Schweri’s next battle. Into the mid-1960s, pricing on food items in Switzerland remained dominated by a cartel of importers and wholesalers of branded foods, called Promarca. Yet Schweri sought to eliminate the middleman and purchase directly from producers. By 1967, Schweri’s efforts had met with success, and the Promarca pricing system was struck down. As a result, Schweri was able to launch a new supermarket format for Switzerland, opening the country’s first Denner discount food store in Zürich that year.

The new Denner formula became a rapid success; by 1968, the company counted 23 discount stores. In that year, IGA built a new distribution center in Altstetten, helping to drive down costs and improve its distribution operations. Schweri then turned his attention to new fronts. In 1968, Schweri was behind the referendum that successfully struck down the Swiss government’s new tobacco tax law, which fixed tobacco prices for a five-year period. Similarly, Denner fought and won against the pricing cartel that had long controlled the country’s spirits sector. In 1973, the company went after the tobacco industry again, taking the tobacco cartel to court in Fribourg in order to gain the right to sell cigarettes at discounted prices. By then, too, Schweri had gone after the banking industry, launching the company’s “own customer accounts.” Under this system, customers were allowed to make deposits with the company, which then guaranteed a 10 percent return over the first year.

In 1969, IGA changed its name to Denner S.A. The company remained under Schweri’s sole control. Over the next decade, Denner continued its growth, expanding its network throughout Switzerland. In support of its expansion. The company opened a second distribution center in Toffen. This was followed by a third distribution facility, opened in Frauenfeld. The new facility also provided support for Denner’s next expansion move, the creation of a “satellite” network. The new network provided Denner’s purchasing and marketing support to the independent grocers and supermarkets in Switzerland’s rural regions. The first of the Denner satellites signed on in 1977, in Endingen. By the turn of the century, Denner counted 280 satellite stores.

ACQUIRING NEW FORMATS IN THE EIGHTIES

The satellite network represented just one of Schweri’s expansion strategies into the 1980s. The company also targeted the extension of its operations beyond the food sector. This led the company into the pharmacy market in 1980, through its purchase of the Merkur AG, which launched the Wallace AG chain of drugstores and pharmacies the following year. In 1984, the company added toy stores through its purchase of the Franz Carl Weber chain, at that time the leader in the Swiss toy store sector. By then, Denner’s annual sales had topped the CHF 1 billion mark.

COMPANY PERSPECTIVES

Denner focuses on a fair competitiveness based on attractive price offerings and in this way contributes on a larger scale to the development of a healthy and competitive retail sector in Switzerland, in the interest and for the benefit of the population.

While the company continued its battle against Switzerland’s pricing cartels, taking on the beer cartel in 1981 and continuing its effort to break the tobacco industry’s pricing monopoly throughout the decade, the company maintained its own steady expansion. The company built a new and larger distribution facility in Schmitten in 1983, replacing the Toffen center. By 1990, the company had added a new facility for Franz Carl Weber, at Spreitenbach, which also became the central distribution facility for fresh products sold in Denner stores.

Denner added a new retail category in 1988, when it opened its first discount optical store in Zürich. The company also ventured into the sales of discount travel packages during this time. Nonetheless, the company’s discount supermarket operations remained the core of the company’s business. Into the new decade, Denner adopted a new strategy of positioning itself as a direct competitor for Switzerland’s two dominant food retail groups, Migros and Coop Suisse. In order to boost its own market share, Denner formed a purchasing and logistics partnership with Hofer & Curtil and Usego-Trimerco, starting from 1990.

The company celebrated the successful conclusion of its long-standing battle against the Swiss tobacco cartel when that group was disbanded in 1992. Amid the economic crisis of the early years of the 1990s, Denner decided to refocus itself as a hard discount specialist. In 1993, therefore, the company sharply reduced its product range, to just 1,000 products. The more limited product range allowed the company to position all of its remaining products at a discount of at least 20 percent compared to its competitors. Denner also boosted its Franz Carl Weber subsidiary, buying infant care specialist Mothercare Switzerland in 1993. That chain of 15 stores was then renamed “babycare.” The move was meant in part to buoy the struggling Franz Carl Weber chain.

NEW OWNERS FOR THE NEW CENTURY

Denner itself grew again in 1994 when it acquired its rival, the Waro supermarket chain, a move more than a decade in the making. Two years later, the company exited the optics market, selling its chain of discount optical stores.

Karl Schweri had in the meantime begun preparing his succession. After trying out a number of chief executives through the decade, including son Nicholas, Schweri surprised the retail industry by choosing grandson Philippe Gaydoul instead. Then just 29, Gaydoul, who had started working for the company at the age of 12, was greeted with some skepticism.

The younger generation soon proved his worth, however, successfully revitalizing Denner’s growth. In 1998, the company made a major acquisition, acquiring 49 Billi Top Discount from Coop. Also in that year, Denner launched a new supermarket format, called Denner Top Superdiscount, and began converting its stores. The new format, with a redeveloped product assortment still limited to just 1,000 food items, offered even higher pricing discounts compared to Migros and Coop. The conversion process included shifting the store mix toward a high concentration of name-brand items. By the completion of the group’s transformation of its network in 2000, name-brand products accounted for some 75 percent of the company’s total. Just two years later, however, Denner redeveloped its store format again, launching a new pilot branch called New Denner.

KEY DATES

1860:: Heinrich Reiff-Schwarz opens a grocery and textiles shop in Zollikon and takes on son-inlaw Cäser Denner as partner in 1881.
1917:: Birth of Karl Schweri, whose family owns grocery store in Koblenz.
1946:: IGA, including Karl Schweri as shareholder, acquires Denner.
1951:: Schweri gains control of IGA.
1962:: IGA opens first Denner supermarket.
1967:: The first Denner discount supermarket opens.
1969:: Company is renamed Denner S.A.
1984:: The Franz Carl Weber toy store chain is acquired.
1993:: Company adopts hard discount formula.
1998:: Philippe Gaydoul, grandson of Karl Schweri, is named company CEO.
2005:: Company acquires 145 Pick n Pay supermarkets (rebranded as Denner) and becomes third largest food retailer in Switzerland.
2007:: Company agrees to sell 70 percent stake to Migros.

Karl Schweri died in 2003 at the age of 81. By then Gaydoul had been making continued progress in repositioning Denner for the new century, selling the group’s 28 Waro stores to Coop that year. Denner began bracing itself for a new era in Swiss retailing, as the country became the target of a growing number of major international players. While the entry of companies such as Carrefour promised to shake up the Swiss retail sector in general, Denner’s most immediate threat came from the decision of German hard discount powerhouses Aldi and Lidl to enter the Swiss market. Both companies were far larger than Denner, and threatened to overwhelm the company. For the time being, however, the German groups contented themselves with a focus on Switzerland’s German-speaking market.

The success of the “New Denner” format led the company to roll out the new identity across its entire network, which by the end of 2004 had grown to 314 branches and 266 satellite stores. The company sales had also been building strongly, growing by an average of 50 percent per year since Gaydoul’s appointment as CEO. By 2004, the company’s sales had topped CHF 1.8 billion.

Denner’s expansion continued through 2005, adding 33 new branches and satellites through the first three-quarters of the year. In November, Denner reached an agreement to acquire 145 Pick n Pay supermarkets from the Germany-based Rewe group. The purchase of the Swiss Pick n Pay network, subsequently rebranded under the Denner name, enabled Denner to break into the position of the number three player in the Swiss retail food market. Nonetheless, the company’s market share remained quite small, at less than 3 percent of the total market.

In 2006, Denner sold its money-losing Franz Carl Weber subsidiary to fast-growing retail toy specialist Ludendo S.A., based in France. The company instead extended its operations into a different direction, opening its first discount wine bar, called D-Vino, in Seefeld at the end of the year.

Denner’s horizon remained clouded, however, by the increasing competition in the Swiss retail food market. Facing more and more competition from an ever-growing array of large-scale international groups, Denner at last saw no other alternative than to ally itself with a larger company. In 2007, the company agreed to allow Migros to purchase a 70 percent stake. Under the agreement, Philippe Gaydoul remained as head of Denner for at least the next three years, while Migros promised to maintain Denner as an independently operating company. The match-up appeared complementary, giving Migros, which typically targeted the high-end food segment, an entry into the hard discount category. Backed by the hugely popular Migros, Denner appeared to have secured its position as Switzerland’s leading discount food retailer for the near future.

M. L. Cohen

PRINCIPAL COMPETITORS

Metro Holding AG; Cooperative Schweiz; Valora Holding AG; Cooperative Mineraloel AG; Carrefour Suisse; SPAR Handels AG Schweiz; Top CC AG; Groupe Magro S.A.