Building and technical trade strategy

The strategic objective for the building and technical trade division is to establish itself as an even stronger operator in Northern Europe. The coronavirus epidemic began to have a significant impact on our operations from mid-March 2020 onwards, but overall the impact on sales for the building and technical trade division has been moderate so far.

We continue the determined execution of our growth strategy, but for now our focus is on managing the crisis brought on by the coronavirus epidemic. Information on the impacts of the epidemic on Kesko’s businesses can be found under the Operating environment section.

 

STRATEGIC OBJECTIVE

WHAT WE ARE DOING

Country focus, with country-specific strategic actions

 

  • Finland: Focusing on fully utilising the potential provided by our market-leading position and constantly improving customer experience by expanding Onninen's services and focusing on implementing storespecific business ideas in K-Rauta; actively developing multichannel business in the leisure trade
  • Norway: Seeking growth in sales and profitability by developing Byggmakker's business
  • Sweden: Continuing measures to improve profitability; utilising synergies from acquisitions and serving our three customer segments comprehensively
  • The Baltics and Belarus: Focusing on growing and redesigning the store network
  • Poland: Systematically developing the business

Serving three different customer segments according to their specific customer needs

  • Continuing digital channel development by customer segment
  • Striving for the best customer experience in all channels

Seeking synergies

  • Actively seeking synergies within operating countries in e.g. logistics and support functions, and between the countries in e.g. in sourcing, digital services and concept development
  • Utilising synergies obtained from integrating acquisitions

Organic growth and profitability improvement

  • Continuing systematic actions to support growth and profitability improvement
  • Increasing the role of our own brand products

Targeted acquisitions

  • Continuing acquisitions in selected markets and segments

Business environment

Megatrends affecting building and technical trade

  • Market consolidation
  • Outsourcing of construction to professionals
  • Growth in renovation building
  • Non-traditional players entering the market
  • Digital becoming increasingly important for the customer journey

 

Strategy review published in 2019 Annual Report: 

Execution of country-specific strategies continued with good results

To ensure a solid foundation for the execution of our international growth strategy, in 2019 we concentrated on improving profitability through organic growth and acquisitions. K Group's building and technical trade division is the leading operator in Northern Europe. In 2019, we continued to execute our country-specific strategies, and the division's profitability improved markedly. Our strategy execution takes account of our three customer segments – consumers, professional builders, and technical professionals – and their distinctive needs. We have also sought synergies within and between the operating countries in areas such as concept and own brand development. In 2019, we continued targeted acquisitions in line with our strategy in Sweden and Norway, and the integration of previously acquired businesses.

K-Rauta and Onninen continued as market leaders in Finland

Sales growth in K-Rauta in Finland outpaced the market and its market share totalled 42%, with marked improvement in profitability as well. Well-performing B2B trade has been established alongside strong consumer business. We are improving customer service and customer experience and maintaining sales growth with store-specific business ideas, online sales and extended opening hours. Store-specific business ideas have proven successful in the grocery trade, and we have begun implementing them also in K-Rauta. Management by information enables selections and services that meet the
specific needs of each store's customer base. 

Onninen has been a success as part of Kesko, and has given us a strong foothold in technical wholesale. Onninen's net sales improved and operating profit grew significantly in 2019, and its market-leading position inFinland strengthened, with a market share of 38%. The market and growth outlook for technical wholesale and Onninen are good in Finland and elsewhere in Northern Europe. In the leisure trade, the sales development for

Intersport and Budget Sport was in line with the market, with strong profit performance. Profitability improved for The Athlete's Foot. The Intersport and Kookenkä chains kept their positions as the most trusted brands in their respective fields in Finland*.

*Reader’s Digest Trusted Brand survey

Profitability improved in Sweden

Sweden has the biggest building and technical trade market of our operating countries. In spring 2019, we carried out the acquisition of Fresks, which strengthened our market position. The integration of Fresks and adoption of the new K-Bygg brand have been a success. We now more distinctly serve three customer segments: K-rauta consumers, K-Bygg B2B customers, and Onninen Infra customers. 

We divested Onninen's HEPAC contractor business to accelerate the turnaround in Sweden. Onninen in Sweden will now concentrate on the Infra business, where it has a strong position on the growing market. The acquisitions and divestments and operational changes have resulted in a turnaround in profitability and we expect to see synergies in 2020. We see strong further growth potential in Sweden.

In Norway, we concluded the acquisition of Sørbø's DIY retail business as agreed in 2018. Following the acquisitions in 2018 and 2019, we now operate over half of all Byggmakker stores. This enables further operational development and better profitability. We have also managed to turn around Onninen's sales in Norway. We see significant growth potential in Norway in the long term.

Good profit development in the Baltics and Poland

In the Baltics, Kesko Senukai's sales growth was very strong, especially in Latvia. Store redesigns have brought good results and we have invested in network and concept development. Onninen's performance in the Baltics was good. OMA in Belarus also performed strongly in terms of both sales and profit.

In Poland, Onninen's good profit performance continues, and we have strengthened our position in technical wholesale.

We agreed to sell our remaining stake in the Baltic machinery trade subsidiaries and Konekesko Finland's agricultural machinery trade operations in 2018, and completed the latter divestment in 2019.

Strong sales growth online

Our ambition is to offer an effective combination of online sales, electronic services, professional sales and comprehensive store network to best suit the needs of each of our customer segments. In 2019, we developed logistics for the K-rauta.fi online store in Finland, offering new delivery options to consumers. Reception was positive and online sales in Finland grew by 80%. Onninen's digital sales in Finland also developed well and grew by 10%.

The building and home improvement trade market by country, along with the improvement from the previous year (retail trade, VAT 0%), market shares and main competitors

Market area  

Market size and change

Market share

Main competitors

Finland 

€3.2 billion (-0,6%), (RaSi ry, Finnish Hardware Association, DIY)

43% (RaSi ry, Finnish Hardware Association, DIY)

STARK, S Group, Bauhaus

Sweden

€4.8 billion (+3.0%), (Byggmaterialhandlarna and Kesko’s own estimate)

8%*

Beijer, XL Bygg, Optimera, Woody, Bauhaus, Byggmax, Bolist

Norway

€5.0 billion (+1.0%), (Virke, Kesko's own estimate)

10%*

Optimera, Mestergruppen, Coop, Maxbo

Estonia

€0.6 billion (+5.5%)**

19%**

Espak, Bauhof

Latvia 

€0.6 billion (+0.9%)**

17%**

Depo, Kursi

Lithuania

€1.1 billion (+5.9%)**

36%**

Ermitazas, Moki-Vezi, Depo

Belarus  

€1.4 billion (+9.1%)*

11%*

Mile, Materik, Praktik

* Kesko’s own estimate

**K-Senukai’s selection, Kesko’s own estimate

 

Onninen’s market by country, along with the improvement from the previous year (retail trade, VAT 0%), market shares and main competitors

Market area

Market size and change

Market share

Main competitors

Finland

€2.2 billion (+1.1%), (STK, Talteka)

38% (STK, Talteka)

Dahl, Ahlsell, SLO, Rexel

Sweden

€2.1 billion (+3.1%), (SEG, electrotechnical trade)

5% (SEG)

Dahl, Ahlsell, Elektroskandia, Rexel

Norway

€1.4 billion (+3.0%), (EFO, electrotechnical trade)

17% (EFO) 

Elektroskandia, Solar, Ahlsell, Berggård Amundsen, Otra

Poland

€5.1 billion (+3.0%)*

5%*

GC Group (BIMs, HTI, Hydrosolar), Grudnik, TIM, Kaczmarek, Alfa Elektro, Grodno

Estonia

€0.4 billion (+8.6%)*

11%*

FEB (Ahlsell), W.E.G (Würth), Dahl, Esvika, SLO

Latvia

€0.4 billion (+11.5%)*

5%*

Sanistal, EVA-SAT, Energokomplekss, SLO

Lithuania

€0.6 billion (+5.4%)*

3%*

Sanistal, Dahlgera, Elektrobalt, SLO

* Kesko’s own estimate

 

The leisure goods market in Finland, along with the improvement from the previous year (retail trade, VAT 0%), market shares and main competitors

Market

Market size and change

Market share

Main competitors

The sports trade  

Around €0.9 billion (-0.3%), (Textile and Fashion Suppliers and Retailers Finland TMA and Kesko’s own estimate)

Intersport, Budget Sport, The Athlete's Foot ja Kesport
28%* 

XXL, Stadium,  hypermarkets and online stores

The shoe trade

Around €0.3 billion (-2.6%), (Textile and Fashion Suppliers and Retailers Finland TMA and Kesko’s own estimate)

Kookenkä and Kenkäexpertti
10%*

Other speciality stores, department stores, hypermarkets, sports stores and online stores

* Kesko’s own estimate

  Number Sales (pro forma) (VAT 0%)*,
€ million
Retail sales and number of stores 2019 2018 2019 Change, %
K-Rauta and Rautia 131 135 1,075.1 1.9
Rautakesko B2B Service  -  - 255.5 -2.4
Onninen, Finland 57 56 926.6 3.3
Leisure trade, Finland 107 109 283.5 -0.2
Finland, total 295 300 2,540.7 1.7
K-Rauta, Sweden 18 18 164.3 -6.3
K-Bygg, Sweden 34 - 204.4 -2.3
Onninen, Sweden - 13 99.4 17.7
Byggmakker, Norway 63 65 485.6 -6.6
Onninen, Norway 18 25 258.1 -5.1
Kesko Senukai, Baltic countries 42 40 723.1 12.6
Onninen, Baltic countries 17 15 85.4 10.5
Machinery trade, Baltic countries  -  - 131.4 -10.4
OMA, Belarus 17 17 146.6 14.4
Onninen, Poland 36 36 283.3 -0.8
Other countries, total 245 229 2,536.5 1.6
Building and technical trade, total  540 529 5,077.2 1.7

In addition, building and technical trade stores offer e-commerce services to their customers.

Two Onninen stores in Finland and one Onninen store in Sweden operate in the same store premises with K-Rauta.  
   

         
Key figures 2019 2018
Net sales, € million     4,331.1 4,102.6
Building and technical trade excl. speciality goods trade     3,984.5 3,728.0
Speciality goods trade     346.7 374.6
Operating profit, comparable, € million     142.8 126.8
Building and technical trade excl. speciality goods trade     133.3 117.5
Speciality goods trade     9.5 9.3
Operating margin, comparable, %     3.3 3.1
Building and technical trade excl. speciality goods trade     3.3 3.2
Speciality goods trade     2.7 2.5
Return on capital employed, comparable, %, rolling 12 months     7.4 7.9
Capital expenditure, € million     332.7 200.7
Personnel, average     12,630 11,668
 
Properties 2019 2018
Owned properties, capital, € million   222 169
Owned properties, area, 1,000 m²   298 235
Leased properties, lease liabilities, € million   758 748
Leased properties, area, 1,000 m²   1,253 1,169
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