Switzerland is expensive, but not for the reasons most think

Anyone who has done a weekly shop in Germany, France, Italy or Austria and compared prices to Switzerland, knows how much more it costs on the Swiss side of the border. The cost difference is sometimes pinned on the higher take-home pay paid to Swiss supermarket workers. Right? Wrong.

Kaufland Germany much cheaper than Switzerland - © Rene Van Den Berg | Dreamstime.com

Kaufland Germany much cheaper than Switzerland – © Rene Van Den Berg | Dreamstime.com

The website barometre des prix allows the public to easily compare the prices of goods at Switzerland’s main retailers with counterparts in Germany, France, Austria and Italy.

Big price differences

A price comparison on a basket of 32 food items shows that shopping at Carrefour in France would be 27% cheaper than at Denner, 31% less than at Coop and 32% cheaper than at Migros. Slightly higher savings of 29%, 33% and 34% respectively, could be made by shopping at Kaufland in Germany. Savings from shopping in Italy and Austria are lower but still meaningful.

A box of Tetley English Breakfast tea bags that costs CHF 2.95 at Migros in Switzerland, costs only CHF 1.28 at Carrefour in France. A Président Camembert, CHF 3.85 at both Coop and Migros will cost only CHF 1.61 in France (click here to price compare other items) Occasionally it swings the other way: a jar of Nutella is cheaper at Denner (CHF 2.49) than at Carrefour (CHF 2.65), but if you happen to buy it at Coop or Migros you will pay dearly: CHF 4.40 – significantly more than at Carrefour.

Granted the list of food products in the basket is not very representative of a typical shopping basket. Fresh meat, fish and vegetables are absent from the list. These things however are some of the most expensive items in Switzerland, so their addition would likely increase the overall cost difference.

Bagging bargains in France - © Julia Kuznetsova | Dreamstime.com

Bagging bargains in France – © Julia Kuznetsova | Dreamstime.com

Electronic equipment on the other hand is generally cheaper in Switzerland. Prices outside Switzerland are 4% to 27% more expensive depending on the retailers compared.

Buying this stuff in Switzerland makes sense - © Rene Van Den Berg | Dreamstime.com

Buying this stuff in Switzerland makes sense – © Rene Van Den Berg | Dreamstime.com

The categories where shopping in Switzerland hits pockets hardest are magazines (65% – 128% more), clothing (35% – 37% more), cosmetics (20% – 69% more), shoes (12% – 16% more), toys (5% – 54% more). Toys and cosmetics at Coop and Manor are particularly expensive, especially when compared to prices in Germany.

Many think there is a logical and easily justifiable reason for these price differences. The website barometre des prix, created by the three Swiss consumer organisations: ACSI – Associazione consumatrici e consumatori della Svizzera italiana, Fédération romande des consommateurs (FRC) and Konsumentenforum pulls together research which undermines three commonly held ones.

Myth 1: Supermarket prices need to be high to cover high Swiss salaries

The numbers do not support this assertion. While supermarket take-home pay is substantially higher in Switzerland than some neighbouring countries, the cost of staff to employers in Switzerland is often lower. Plus Swiss staff are more productive. Combined, these effects make the cost of Swiss staff 4% cheaper than in Germany and 27% lower than in Italy, while those in France and Austria cost only 9% less than in Switzerland.

Italian supermarkets pay dearly for staff - © Claudiu Marius Pascalina | Dreamstime.com

Italian supermarkets pay dearly for staff – © Claudiu Marius Pascalina | Dreamstime.com

Myth 2: High import and duties drive up prices

While some products attract duty, most do not. And many of those that do, have low tariffs or none at all when imported from the EU. For example not all meat is taxed on entry. Refrigerated lamb from an EFTA country attracts no duty. The same lamb imported from New Zealand or Australia would only be taxed at CHF 0.30 per kg. Another example is seafood. Fish from a long list of countries is duty free, and even when taxed, the cost is only CHF 0.04 per kg. But still most seafood is expensive in Switzerland.

There are a few exceptions however. Beef is taxed highly, even beef from EU countries. Duty on some beef products can rise above CHF 20 per kg. Milk (CHF 0.18 per kg), cream and butter (CHF 7.65 per kg), are other products with duty if imported from the EU. Swiss dairy and beef farmers are both heavily subsidised and well shielded from foreign competition by import duties.

Swiss cheese in Germany. It might be cheaper - © Richardjay1141 | Dreamstime.com

Swiss cheese in Germany. It might be cheaper – © Richardjay1141 | Dreamstime.com

On the other hand, most cheeses attract no duty. For example Brie and Camembert imported from France attracts no duty.

If you are curious and interested in seeing the import tariffs on more products, look up the product code here, and enter the code here.

Myth 3: higher Swiss distribution costs justify higher prices

According to the same study, distribution costs are higher in Switzerland by around 2%. Set against generally lower Swiss staff costs this difference should disappear in most cases.

Low Swiss VAT should bring lower prices

For items attracting the top rate of VAT, Switzerland has a cost advantage. For example a pair of shoes would attract 22% VAT in Italy, 20% in France and Austria and 19% in Germany. With a top VAT rate of 8%, Swiss retailers have a clear cost advantage, however this VAT advantage is rarely seen by consumers.

The products compared are the same. There is no quality difference.

The study’s price comparisons are based on a limited list of items, unlikely to represent typical shopping baskets. Those selected are directly comparable however. For example a jar of Nutella is the same in Switzerland as it is in France or Germany. There is no quality difference. Quality differences might exist for produce not covered by the study, like fresh meat and vegetables. Prices differences for these products are often higher.

Elements missing from the study

Like most research this study is incomplete. There is no data comparing other costs of business such as rent and financing costs. Rents could account for some cost differences favouring countries such as Germany, however there is no data to compare. Costs of finance are unlikely to have much impact. Supermarkets, for example, typically run with negative working capital – they bank sales proceeds before they pay suppliers. In any case interest rates are typically lower in Switzerland than in the euro zone, giving Swiss operators an advantage.

One observation that suggests operational cost differences do not account for prices differences is the absence of price differences in electronics goods. Surely electronics retailers have the similar cost bases to food, shoe, clothing, cosmetics and toy retailers?

The study excludes some retailers operating in Switzerland. Obvious ones are Aldi and Lidl.

What is behind the price differences and what can be done?

Some price difference, such as those for beef, are to a large extent driven by trade tariffs. Others are more puzzling. One theory is that they are caused by technical trade barriers. These are requirements to change a product in some specific way for the Swiss market. The Swiss government got started removing these barriers in 1990 and new laws were passed in 2010. The impact of these laws has been disappointing. Switzerland has remained comparatively expensive.

Another theory is that prices are set in line with Swiss consumers’ higher spending power. For this theory to hold, there would need to be some impediment to price competition. Interestingly the price competition that appears absent from the food, clothing, magazines, cosmetics and toy products surveyed, is alive and well for electronic products which are generally cheaper in Switzerland, as differences in VAT would predict.

To provoke price cuts, the three Swiss consumer organisations mentioned above, suggest a strengthening of laws relating to cartels and more parallel importing.

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Comments

  1. says

    Take-home salaries are also not comperable between CH and the other European countries. In rest of Europe, an employee should not pay in private for his obligatory health insurance. This costs approx. 1000 CHF per month to a family of four, excl. franchise and additional health insurances, which often are in Europe included in the normal state benefits!

  2. Srenim says

    30+ years in this lovely Country it is clear that we Consumers lack Legal Protection against price fixing and simply lack of competition. The average swiss indeed lacks the concept of competition hence the Suppliers get away with it. Remember the CHF soaring in value but the gains only slowly benefiting Customers. And the VAT of 8 vs. 20 % is in itself a major benefit guarded by the Suppliers. The Consumer Organisations need to wake up !
    And Custom Protection allows the local products to remain highly priced. Think olive tomatoes. I think Agricultural Subsidies should be in History. Yes, it’s lovely to see the mountain pastures but farming needs to become modernised with much larger farms.

  3. Jeremy says

    The input costs faced by Swiss retailers (and producers) other than direct staff costs are also very high. Insurance, property rent, energy, legal costs, freight etc. can be huge. It all adds up.

    • Le News says

      Hi Jeremy, The consumer rights groups’ analysis computes a 2% higher logistics cost in Switzerland. It doesn’t mention insurance, rent, energy or legal costs though, and as you say this could add up. As mentioned, Switzerland does have some cost advantages, such as lower staff costs and VAT, so there is potential offset. Some Swiss retailers seem to be getting high prices forced on them by wholesalers or the brand owner i.e. there is one wholesale price for one country and a different one for Switzerland. We are looking for research on this. When we find it we will write a piece on it. Many thanks for your comment.

  4. Penelope Haccius says

    >While supermarket take-home pay is substantially higher in Switzerland than some neighbouring countries, the cost of staff to employers in Switzerland is often lower.

    What on earth is meant by this? “The cost of staff to employers” … this needs explaining because it is really incredibly vague!

    • Le News says

      In many countries there is a form of hidden social security charges. In Switzerland this hidden charge is low. In France for example it is high. Taking some approximate numbers (the real rates are different and vary by region) it works like this:

      If a Swiss employer pays someone a salary of 4,000 per month it will cost them 4,350. And the employee will get paid 3,750 before tax. Why? The difference is social security charges or AVS. 250 of these charges are deducted from the employee’s salary (4,000 – 250 = 3,750) and the other “hidden” portion of 350 is paid by the employer unbeknownst to the employee. What is effectively happening here is the employee is getting paid 4,350 but only receiving 3,750. The 4,350 is the cost to the employer, the 3,750 is the employee’s take-home pay and 600 goes in social security payments.

      In France for example, the difference between the cost to employer and take-home pay is much higher. So if an employer paid out 4,350 the employee would only get only 2,700.

      A comparison looks like this:

      Switzerland
      Gross salary -> 4,000
      Take home pay -> 3,750
      Cost to employer -> 4,350
      Social security payments -> 600

      France
      Gross salary -> 3,310
      Take home pay -> 2,700
      Cost to employer -> 4,350
      Social security payments -> 1,650

      So the Swiss worker gets 3,750 and the French one only 2,700. From an employee perspective French employers look stingy and Swiss employers generous, when they are both paying out the same amount i.e. 4,350.

      The OECD considers these payments to be taxation. This OECD chart shows how France has the highest social security payments as a share of GDP. Switzerland is under the OECD average. This OECD report presents a more complete view. The last bars on the bar chart, labelled Employer SSC, are the amounts that are not visible to employees. Some countries, such as New Zealand, don’t have these hidden taxes that are paid by employers.

      Please not that this example is simplified and approximated. The actual rates in France are different and vary based on a list of factors. There are also numerous other staff related costs to consider and compare.

    • says

      They are speaking of the total cost of the Employee: Employee Gross Wage + Employer Social Contributions (which are not included in the wage but which the employer have to pay directly to the state) + Other costs directly related to the employee wage.

      Employer Social Contributions are quite low in Switzerland (Lets say around 8%) while quite high in France (60%). So an employee with base pay of 1000 EUR/month costs more in France than an employee with 1500 EUR/month in Switzerland. That’s just a quick summary as there are other overhead on salaries that needs to be included such as:
      – Cost of payroll and legal department (outsourced or not) varies depending on complication of work regulation.
      – Cost of fireing employees which you must provision for (or at least provision a part of) for countries with restrictive employment laws in case of downsizing (for example in France if you let go an employee with 10 years seniority you must pay him 10 month salary depending on branch regulations. This should be partly provisioned if you are a smart/good/large employer).
      – Other costs such as in France large companies need to give 1% of the sales turnover to workers benefits scheme. Also in France companies must distribute part of the after tax benefits to employees if it exceeds 5% of capital.
      etc…
      Just to say that comparing costs of Labor is way more complicated than simply comparing the base employees Wage.

    • Le News says

      We are contacting experts to gather further information on the subject. There appear to be a number of reasons. As mentioned in the article, some products like beef are expensive because of high import duties. A lack of retail competition appears to be another reason – this is harder to demonstrate though. In addition, some retailers seem to be getting high prices forced on them by wholesalers or the brand owner i.e. there is one wholesale price for one country and a different one for Switzerland. What we liked about the consumer analysis referenced in this article was the way it cleared up some of the misconceptions. When we have more information we will write a follow up piece. That some retailers seem to be getting squeezed by wholesalers and country specific pricing is of particular interest to us.

  5. says

    Every two years, UBS publishes a survey oncost of living world wide. Zurich always has been one of the top-ranking, if not the most expensive city to live, in all the recent surveys. So, comparisions do exist. Food is just one aspect, the same is true probably for all goods and services in this country. And beware, although highly productive, this productivity is in part due to much longer working hours in many branches, which by no means are in accordance with European laws.

  6. Rick Larsen says

    If you look at the prices charged net of VAT, in other words take out what the government gets, the price difference is much much higher again. The difference is going to the shareholders of the Swiss chains…and in use for lobbying the government to keep out competition and stay out of the EU so that competition cannot come in. Hardly one of the most competitive economies, as they like to claim to be.

  7. m says

    I bought an HDMI cable in London for 1 pound. The cheapest cable I could find in Basel was CHF50. How are electronics cheaper in Switzerland?

    Swiss retailers simply take advantage of their customers because the customers buy the products regardless.

  8. Bjoern Rauhut says

    We go to Germany once a months for some shopping and having a pizza (Its 30min from Winterthur). The savings are actually pretty heavy. Also you forgot to mention that you will not pay VAT when shopping in EU and import the stuff to Switzerland…