Operating environment

This page contains information on the impacts of the coronavirus epidemic on Kesko’s businesses.

The COVID-19 coronavirus epidemic began to affect our operations significantly from mid-March 2020 onwards. Despite ongoing worldwide efforts to stop the epidemic, we must prepare for the possibility that exceptional circumstances will last for some time, and all our businesses have adapted their operations accordingly.

Key measures taken:

  • Ensuring the safety of customers and personnel
  • Ensuring functioning purchasing and supply chains under all circumstances
  • Growing online sales services fast
  • Postponing development projects, focus on dealing with the situation
  • Securing cash flow:
    • Savings in personnel costs, over 1,000 people currently laid off (28 May 2020)
    • Cuts to other fixed costs
    • Cutting cash flows from investing activities below €200 million in 2020
    • Efficient management of credit risk and amounts due from customers
  • Ensuring the availability and sufficiency of financing
  • Growth strategy execution continues, but right now our focus is on crisis management

Profit warning on 18.3.2020

Due to covid-19 and global economic uncertainty, we issued a stock exchange release for a profit warning, in which we cancelled the previous net sales guidance and changed our operating profit guidance. Read the stock exchange release

Outlook and Guidance for 2020 (Issued 28 April 2020)

Outlook for Kesko Group's continuing operations is given for year 2020, in comparison with year 2019.

Due to the COVID-19 pandemic and global economic uncertainty, the company estimates that its comparable operating profit for continuing operations will amount to €400–450 million in 2020, thus falling somewhat short of the 2019 comparable operating profit of €461.6 million. The company does not issue a guidance regarding net sales.

Kesko estimates that consumer demand for food will remain good despite the exceptional circumstances brought on by the COVID-19 pandemic. Sales are expected to grow in grocery stores and especially in the online sales of groceries. In the foodservice business and home and speciality goods trade, sales are expected to decrease. Under the current circumstances, it is difficult to provide assessments on sales development in the building and technical trade. A weakening in the overall economy is expected to be reflected in sales to B2B customers. In addition, restrictions on store opening hours affect country-specific sales development in the building and technical trade division. In the car trade, both new and used car sales are expected to decrease compared to 2019.

Due to the weakened economic situation, Kesko has initiated extensive cost adjustment measures to ensure profitability and secure cash flow. The measures include temporary personnel lay-offs and extensive adjustment of other costs.

The coronavirus epidemic impacts Kesko’s businesses in different ways

 

Impacts vary for the grocery trade

Impact on K Group

  • Strong food sales growth in K-food stores and online
    • K-ruoka.fi has become the biggest online grocery service in Finland, highest growth rate over 800% a week
    • Our K-ruoka.fi network is expanding fast, some 20 new stores added to the network every week - Currently over 400 K-food stores offer online grocery sales services at K-Ruoka.fi
    • Very high customer satisfaction, NPS 82
    • Online’s share of retail sales rose to 5% in April
  • Kespro’s sales down by approx. 50% due to restrictions on restaurants and cafeterias
  • Sales of home and speciality goods in K-Citymarkets down due to lower customer numbers
  • Reduced traffic has had a significant impact on sales for Neste K service stations

Impact on market

  • No restrictions imposed on grocery stores in Finland.
  • Significant growth in food retail.
  • Hoarding seen in individual product categories.
  • Fewer customer visits, but bigger average purchase.
  • Strong growth in demand for online sales of groceries.
  • Strong decrease in demand in the foodservice business due to containment measures. Only take away allowed for cafés and restaurants between early April  and end of May in Finland. Cafés and restaurants allowed to open, with some restrictions, on 1 June 2020.
  • Service station sales down due to reduced traffic.

 

Moderate impact so far on the building and technical trade sales

Impact on K Group 

  • Sales development in building and home improvement B2C trade has been good in Finland and Sweden
  • Sales levels have also stayed good in B2B trade
  • Onninen’s sales development very good so far
  • Steep drop in sales in Lithuania due to stores being closed until 16 April
  • Significant decline in leisure trade sales

Impact on market

  • No restrictions imposed on building and home improvement stores in Kesko’s operating countries apart from Lithuania, where stores were closed until mid-April
  • Activity on construction sites has continued without major disruptions
  • Home decoration and renovation have increased
  • Fewer new construction starts
  • Difficult to predict trends in demand in the longer term
  • Stimulus measures could accelerate economic turnaround and increase demand

 

Significant decrease in demand in the car trade

Impact on K Group

  • New car sales and orders significantly below normal levels
  • Used car sales also clearly down
  • Servicing and spare part service sales almost at a normal level
  • Production shutdowns at Volkswagen Group plants, but plenty of previously imported cars available for sale
  • Car pick-up and return services expanded

Impact on market

  • Overall, orders for new passenger cars down by approx. 60%, orders for vans down by 40%
  • Demand has weakened significantly among both consumer and corporate customers
  • Used car sales also down significantly

 

 

 

 

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Megatrends affecting trading sector (as published in the Annual Report 2019)

Megatrends

The trading sector is affected by various global megatrends ranging from digitalisation to climate change. By identifying the trends that affect K Group’s operations, we can effectively anticipate future challenges and opportunities and
better respond to them.

Globalisation

  • Intensifying price competition
  • Global supply

 
 
 
 
  

Digital trade and services

  • Growth in international and Finnish online trade
  • Seamless online and mobile customer experience
  • Impactful marketing that addresses individual needs

 

Increasingly individual customer behaviour

  • Customers value convenience and quality
  • Urbanisation
  • Changes in purchase habits, individualisation
  • Customers looking to optimise their lives

Customers hold the power

  • Conscientious consumers seek information as the basis for their choices
  • Peer experiences have a big impact on choices
  • Customers want to affect selections
  • Transparency in pricing, availability and the supply chain
  • Responsibility and smart consumption significant criteria

Sustainability and strong brands as preconditions for success

  • Good corporate governance
  • Responsible operating principles
  • Climate change and circular economy
  • Transparency of purchasing chains
  • Open dialogue with stakeholders
  • Responsible investment
     
     
     

Climate change

  • Sustainable lifestyle: food, living and mobility
  • Renewable energy
  • Circular economy solutions
  • Minimising food waste
     
     
     
     

 

 Read more about opportunities and risks in our operating environment in Annual Report for 2019.

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