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Frontpage Divisions Food trade

Food trade

Kesko Food is the leading operator in the Finnish grocery trade. K-retailers, with whom Kesko Food applies the chain business model, are responsible for customer satisfaction at the more than 1,000 K-food stores. Kesko Food manages the K-food store chains, which are K-citymarket, K-supermarket, K-market and K-extra. Kesko Food's main functions include the centralised purchasing of products, selection management, logistics, and the development of chain concepts and the store network. Chain operations ensure the efficiency and competitiveness of business. Kesko Food’s subsidiary Kespro is the leading wholesaler in the Finnish HoReCa business. It offers the best sourcing solutions in the sector for its customers.

K-food stores focus on food and service

Market

The Finnish grocery market totalled some €14.6 billion (incl. VAT) in 2010, representing a growth of 0.3% from 2009. Excluding the impact of VAT, the total Finnish grocery market is estimated to have grown by some 2.5% in 2010 compared with the previous year (statistics by the Finnish Grocery Trade Association and own estimate).

Satisfied customers are a prerequisite of success

K-food stores are visited by 900,000 customers every day. Meeting different customer needs and successful encounters with every customer are a prerequisite of K-food stores' success. Customers' requirements have become increasingly individual. Quality and gourmandise, favourable prices, ease of cooking, responsibility, special diets and healthy eating are emphasised in customers' needs and wishes.

The aim of K-food stores is to take customers' different needs and expectations increasingly into account and consequently strengthen customer relationships.

K-food stores' customer-driven competitive advantages include:

• By far the best fruit and vegetable department, bakery department and service counters offering fresh meat, fish and ready-to-eat meals in the area.
• The widest selections which, in addition to a comprehensive basic selection, include products from local producers, valued by customers of the particular store.
• Nearly 2,000 Pirkka products which combine high quality and permanently low prices. The Pirkka range is undergoing a continuous development. Based on increased customer demand, new Pirkka Organic and Pirkka Fairtrade products are also constantly sought for the range.
• Exiting stores with displays and changing new products, combined with good service. The best food expertise, a versatile supply of recipes, and cooking advice.
• E-commerce and online communications are being actively developed to serve customer needs and make shopping easier.

K-retailers serve customers taking local needs into account

Local K-retailers are responsible for the customer service, competence of personnel, quality, and profitability of business. Making use of customer data, the retailer builds a selection and service that meet customer needs, offering, for example, food from local producers to complement joint selections of the chain.

In order to ensure high quality, K-food stores have a quality enhancement and measuring system. Its objective is to ensure continuous development of the operations of the store and the whole chain to best serve the customers. The system includes measuring customer satisfaction and the store's condition, and assessing price control and management. The best retailing competence is maintained with the help of constant training in cooperation with K-instituutti, the K-Group's training centre.

Efficient cooperation between Kesko Food and the K-food retailer is based on the chain operations defined in the chain agreement. Chain operations ensure customer-orientation, operational efficiency, and the attainment of competitive advantages.

Strong chain concepts

Chain concepts are K-food stores' strength and chain operations are systematically promoted. Kesko Food's chain operations provide K-retailers with a strong basis for sourcing, building selections, marketing and price competition. The aim is to improve the efficiency of the whole supply chain.

K-citymarkets offer their customers the widest selections of groceries and home and speciality goods, a low-priced shopping basket and the best special offers – every day. Their special strengths include fresh bread, meat and fish, fruit and vegetables, diversified food expertise, and eye-catching displays.

There are 69 K-citymarkets in Finland in 51 towns.

K-supermarkets are better than the average food stores, the strength of which is excellent service and wide selections of food items. In addition to the retailer and other staff, customers are also served by over 160 employees with a specialist food manager qualification. These meat and fish experts provide customers with cooking tips and advice. The chain consists of 181 stores.

K-markets are reliable, service-oriented and local neighbourhood stores located near customers. In addition to good basic selections, K-markets offer customers fresh bread straight from the store oven, fresh, high-quality fruit and vegetables, and the best local services. The chain comprises 489 stores.

K-extras are neighbourhood stores which focus on personal service and provide customers with daily essentials. Many K-extra stores also offer additional services, such as the sale of agricultural and builders’ supplies, fuel distribution, lottery and postal services. The chain comprises 163 stores.

There are 1,007 K-food stores in Finland. The K-food store network is the most comprehensive in Finland and 51% of Finns live less than a kilometre away from a K-food store. The neighbourhood store network of K-market and K-extra stores is the most comprehensive in Finland.

K-food store chains have a strong common core

K-food stores' joint basis lies on the common operating systems concerning selections management, chain marketing and displays, the selections of essential products common to all chains, and Pirkka products.

Competitive prices are also a prerequisite for good customer satisfaction. Affordable prices are based on the maximum pricing of joint selections and low-priced Pirkka products as well as the chains' campaigns and store-specific special offers. K-Plussa offers are always at least 10% less than the original price. In addition, the benefit received in the form of K-Plussa points is up to 5%.

In the chain management of K-food stores, customer information is, above all, leveraged in the building of selections, pricing management, chain marketing and planning a store network that meets customer needs.

Competitiveness is reinforced by efficient practices, chain operations and long-term cooperation models with selected partners. Considerable benefits are obtained both in Finland and internationally by combining purchasing volumes. Kesko Food is a member of the international sourcing alliance, Associated Marketing Services (AMS), whose other major members include Ahold, Dansk SG, ICA, Micros and Système U.

Pirkka – High quality,
permanently low prices and responsibility

The Pirkka range of nearly 2,000 products plays an important role in the K-food stores' total selection. Pirkka products combine high quality and low prices. Finnish consumers find the Pirkka brand positive and Pirkka is a highly-rated brand among young people, too. In a nationwide youth survey, respondents considered Pirkka as the friendliest brand of all. Responsibility has also been highlighted in image surveys. According to the sustainability survey commissioned by Helsingin Sanomat, Finnish consumers consider Pirkka as the third most responsible brand. The success of the brand in many consumer surveys is a result of long-term work.

At the end of 2010, there were 1,966 Pirkka products. The range also includes Pirkka Organic and Pirkka Fairtrade products. There are now about 50 Pirkka Organic and nearly 40 Pirkka Fairtrade products.

The quality of Pirkka products is assured by Kesko Food's own Pirkka Product Research Unit, which carefully analyses all new Pirkka products. The research unit's laboratory has the ISO 17025 accreditation, an international recognition of competence. It is the only ISO 17025 accredited laboratory in Finland responsible for the quality assurance of own-brand products in the trading sector.

All Kesko Food's own recipes have been developed and tested by the Pirkka test kitchen, which is part of the research unit. Diverse recipes are published in the Pirkka magazine, on the Pirkka.fi web site, on the K-RuokaPirkka leaflet that is available at all K-food stores, on the TV programme "What are we having today?", and on Pirkka product packaging.

Kespro

Kesko Food's subsidiary Kespro is the leading wholesaler in the Finnish hotel, restaurant and catering (HoReCa) business and acts as a partner for its customer companies and municipalities in Finland. Kespro provides delivery and cash&carry services for its customers in Finland. In 2010, the total HoReCa market in Finland was some €2.5 billion (own estimate).

High customer satisfaction requires continuous development of operations. Kespro helps its customers succeed in their business by offering them the best sourcing solutions in the HoReCa sector.

Kespro's aim is to be the most wanted business partner in the HoReCa sector. The wide, customer-driven product selection comprises food items, alcohol, cookware, tableware and cutlery. Kespro's own Menu range is versatile, high-quality and favourably-priced.

Kespro operates throughout Finland in six sales areas, with six delivery sales units, 16 cash&carry outlets and 520 employees.

Year 2010

The food trade segment's net sales totalled €3,896 million in 2010, up 2.6%. The K-food stores' grocery sales increased by 4.2% (VAT 0%). K-food stores increased their market share in 2010. Sales of Pirkka products grew by 11.2% (VAT 0%).

The operating profit excluding non-recurring items amounted to €160.1 million, an increase of €27.0 million. The improvement in profitability can be attributed to the good development of retail sales and the improved efficiency of sourcing, logistics, and store site and chain operations.

During the year, a new K-citymarket in Iisalmi, seven K-supermarkets, and eight K-markets were opened. The K-supermarket in Kankaanpää was extended and turned into a K-citymarket. Other refurbishments and extensions were also completed.

Objectives and strategic emphases

Kesko Food's key objective is to increase market share in Finland. Essential issues in the strategy are increasing customer satisfaction and profitable growth.

K-food stores cater for customers' various needs and expectations. The aim is to strengthen customer relationships and that way increase the average purchase. Our objectives also include increasing the number of customer relationships. K-food stores' largest customer target group is families with children.

K-food stores offer their customers the best fruit and vegetable department, bakery department and service counters with fresh meat, fish and meals in the area. Kesko Food has started competitive advantage projects in order to strengthen the selections, service and displays of these departments. Key competitive advantages of K-food stores also include the widest selections, Pirkka products, eye-catching displays, and good service.

Affordable selections and the profitability of business are based on the continuous improvement of operational efficiency, efficient chain management, and the active development of the store network.

In the next few years, Kesko Food's key strategic focuses include the strong building and enhancement of the store network. The maintenance of the stores' quality level, the expansion of selections, new service needs and migration require constant development of the network. In the future, considerable capital expenditure will be made in new K-supermarket and K-citymarket stores in particular. Kesko Food aims to open six new K-citymarkets and 35 K-supermarkets in 2011.

Kesko Food will also vigorously enhance its electronic services and explore opportunities for food retailing online. The premise is that the retailing sector and electronic communications should serve customer needs and make shopping easier.

Opportunities for internationalisation are also being actively investigated, with the aim of expanding business to Russia.

 

 

Competitors

• Kesko Food trade, Finland, market share 35% (own estimate)
• Competitors: Prisma, S-market and Alepa/Sale (S Group), Valintatalo, Siwa and Euromarket (Suomen Lähikauppa Oy) and Lidl
• HoReCa, Finland, Kespro
• Competitors: Meiranova Oy, Metro-tukku, Heinon Tukku Oy
  
  

K-Group's food trade, store numbers, and retail and B2B sales
	Number		Sales (VAT 0%) € million
	2010	2009	2010	2009
K-citymarket, trade	69	69	1,295	1,215
K-supermarket	181	170	1,488	1,398
K-market (incl. service station stores)	489	487	1,293	1,279
Others	268	304	268	292
K-food stores, retail sales			4,343	4,185
Kespro			682	673
Food trade, total	1,007	1,030	5,025	4,857
Food trade segment’s key figures			2010	2009
Net sales		€ million	3,896	3,798
Operating profit		€ million	158.4	170.6
Operating profit excl. non-recurring items		€ million	160.1	133.1
Operating profit as % of net sales excl. non-recurring items		%	4.1	3.5
Capital expenditure		€ million	117.2	69.4
Return on capital employed* excl. non-recurring items		%	27.0	20.9
Personnel average			2,881	3,035
* cumulative average
Food trade segment's net sales in 2010			€ million	Change, %
K-citymarket, food			907	5.5
K-supermarket			1,061	5.7
K-market and K-extra			1,028	0.2
Kespro			688	1.7
Others			212	-8.2
Net sales, total			3,896	2.6
Food trade segment’s capital employed at 31 December, € million			2010	2009
Non-current assets			603	632
Inventories			108	90
Short-term receivables			400	371
./. Non-interest-bearing debt			-557	-489
./. Provisions			-13	-8
Capital employed**			541	596
** capital employed at the end of month