Anyone who’s ever been to Switzerland has at least once thought “Holy cow! This country’s expensive!”. Complaining about prices has become a national sport in Switzerland and anyone who has ever had a friend or family member visit from abroad can attest to how difficult it is to explain to them why they have to pay up to CHF 30 for lunch[1], which is basically 74% higher than in France.
While for some the exorbitant cost of living is justified in regards to the high salaries, others question the extent of the purchasing power on the prices. But do our high salaries fully explain why cost of living is 83,75% higher and rent is 42.04% than in the USA for example?
According to a study published by the Swiss Federal Statistics Office in 2017[2], with an annual gross salary of almost CHF 72’000, Swiss workers have the highest income worldwide. In order to compare different numbers, they need to be converted in terms of purchasing power standard (PPS), which is an artificial currency taking into account the national monetary value and translating that into purchasing power. Putting this number into perspective, the Swiss salary is 12.4 times greater than the Bulgarian annual gross salary, but in terms of PPS, it’s only 3.7 times greater. This indicates that even though the figures originally seem extremely high, when you factor in the cost of living they are significantly lesser.
According to a study conducted a year ago by Deekeling Arndt Advisors for Promarca, Migros and Coop, the two leading retail stores in Switzerland, have declared a gross profit margin of respectively 40.2% and 29.8% in 2015. If these numbers mean nothing to you, compare them to Rewe and Auchan’s gross margin neighboring 25%, Carrefour’s follows with just above 20% and the lowest are Tesco and Morrisons with respectively 5.2% and 3.8%.
Patrick Ducry, vice director of the Commission de la Concurrence, explains that this situation is due to the two main retailers having dominant control over the market[3]. Migros and Coop share almost the entirety of the Swiss food market. Furthermore, when you examine other European countries such as Germany, for example, they are truly engaging in what can only be described as price wars. It seems undeniable that the leading stores in the EU are generally competing against each other. In Switzerland however, Coop and Migros don’t seem to be attacking each other. Patrick Krauskopf, leading expert in competition and antitrust law and deputy Director as well as Chief of International Affairs with the Swiss Competition Commission (COMCO), has even questioned wether we could potentially talk about market manipulation. It seems unlikely to envision any sanctions by COMCO but these gross margins are scandalous and we can at least agree that these companies are taking advantage of the duopoly situation.
The good news is that our complaints have finally been heard and acknowledged and it seems that the Swiss government agrees that our cost of living is a bit excessive, even though our salaries are what they are. The Federal Council has finally decided to help combat increasing prices by implementing new legal measures such as the suppression of custom duties on several industrial goods and the decrease of custom duties on certain agricultural goods produced abroad. The objective is to cut costs by almost CHF 900 million. This will mainly target goods such as cars, bikes, hygiene products and clothes and regarding agricultural goods, bananas and other exotic fruit. These measures will not only benefit consumers, but also enterprises. Reducing import costs will directly help decrease production and reinforce international competitivity. The government also plans on lowering prices by reducing the number of exceptions to the “Cassis de Dijon” principal, allowing products lawfully produced and marketed in the EU to also be sold in Switzerland without restriction.
The impact of these measures on the Confederation’s tax revenues is currently estimated at hundreds of millions of Swiss Francs. But can you really put a price on being able to wash your hair with your favorite shampoo and no extra fees?
Marija Todorovic