Operating environment

Global political and economic uncertainty

• Heightened geopolitical circumstances and consequent tensions and crises
• Consumer confidence still weak, business confidence has grown stronger
• Uncertainty impacts investment appetites
• Construction activity remains low
• Consumer behaviour driven by price

Urbanisation 

• Migration to growth centres continues
• Impacts on housing, consumption habits, and mobility
• Regional differentiation changing the demand for services.
• Drives the development of K Group’s store network

Demographic changes

• Ageing population, growing importance of senior citizens as customers
• Smaller household sizes
• Immigration and workforce availability

Convenience

• Consumer behaviour emphasises convenience – ready meals, eating out, online sales, express deliveries
• Growing importance of individuality
• Purchase behaviour and consumer habits and needs changing fast – adapting selections

Climate change and the green transition

• Energy efficiency and investments in energy infrastructure
• Emission reductions throughout the value chain, increased use of zero-emissions energy
• Increasing sustainability regulation impacting operations

Digitalisation and AI

• Growing need for high-quality digital services
• Bigger utilisation of AI’s potential – improved process efficiency, more personalised customer experience based on high-quality data

Impact of globalisation on supply chains and growing importance of risk management

• Growing importance of supply chains, reliable partners and transparency
• Stronger emphasis on good governance and anti-‍corruption
• Market consolidation

Grocery trade

Building and technical trade

Car trade

Impacts on business

• Economic uncertainty and weak consumer confidence continued to impact consumer purchase decisions
• Quality and convenience important to some of the consumers
• Consumers still price conscious despite moderate food price inflation
• People think more carefully about eating out
• Market share increased despite tight competition

Impacts on business

• Gradual recovery seen in the construction cycle, but pace slower than anticipated, especially in new housing construction
• Corporate investment appetites and consumer confidence still low
• Sales margins weakened by tight price competition despite growth in sales
• Profit ability remained stronger than that of competitors

Impacts on business

• General economic uncertainty reflected in consumer confidence
• Uncertainty regarding powertrain choices
• Demand for new cars below the long-term average 
• Despite the challenging operating environment, Kesko’s car trade outperformed the market in both new and used car sales 

Strategic actions

• Strengthening store-specific business ideas and crystallising competitive advantages
• Investments in the store network, with focus on growth centres
• Strengthening price competitiveness and image
• Utilising high-quality customer data and further strengthening digital services
• Strengthening Kespro’s market-leading position

Strategic actions

• Securing profitability and generating cash flow
• Strong focus on B2B trade
• Strengthening geographical operating areas and completing the integration of acquired businesses
• Utilising opportunities in the M&A markets

Strategic actions

• A balanced business portfolio: new cars, used cars, and services
• Continuous business development, strengthening the dealership network and digital services
• Continuous development of both the customer and employee experience
• Strong brands, developing a product portfolio that serves the Finnish market

ECONOMIC ENVIRONMENT 

Risk 

Impact 

Response  

Consumer confidence and corporate investments

Weak consumer confidence and corporate investment appetites could impact demand in all operating countries. Low demand, a decrease in sales, and price competition could increase margin and cost pressures in all divisions.

Active sales, new customer acquisition, and the maintenance of existing customer relationships. Cost efficiency monitoring and necessary actions carried out on an ongoing basis.

Implementation of strategic projects and changes

Challenges in implementing growth strategies, acquisitions, or changes in business models could impact the company’s ability to achieve its objectives.

Risk management for strategic projects is strengthened through proactive planning, clear division of responsibilities, and rapid responses to deviations.

Strengthening of market shares

Tightening price competition and a decrease in market shares in different businesses and operating countries could weaken net sales and profit.

Strengthening competitive advantage by ensuring competitive prices, quality and customer orientation, implementing store-specific business ideas, and investing in the store site network.

Store sites and properties

Risks related to the upkeep, development and occupancy rates of store sites and properties could impact business profitability.

Risk management is focused on proactive maintenance and optimising occupancy rates to improve profits and manage costs.

Financing and cash flow

Growing financing costs combined with potentially weakening cash flow from operating activities could impact business profitability and the company’s ability to invest.

Further developing forecasting and monitoring of cash flow and working capital. Strengthening inventory management and the management of deviations the from procurement budget through clear division of responsibilities.

Business disruptions

Events such as a major disturbance in a logistics centre could result in extensive interruptions in deliveries and financial loss.

Strengthening business disruption risk management through proactive continuity plans, safeguarding of critical processes, and rapid recovery measures during disruptions.

Regulations and legislation

Changes in national and international regulations, for example restrictions related to private label products or new sustainability requirements, could impact the operating conditions for business and profitability.

Closely monitoring developments in legislation and regulation and their impact on Kesko.

Product and food safety

Serious deviations in product or food safety could result in the recall of products, financial loss, and reputational damage.

Using sustainability guidelines to direct the procurement of products containing raw materials critical from a social or environmental responsibility perspective. Ensuring product safety and systematically supervising its realisation.

GLOBAL OPERATING ENVIRONMENT 

Risk 

Impact 

Response  

Geopolitical and supply chain risks

Instability in the international operating environment, changes in trade and economic policy, and potential disruptions in supply chains could impact product availability and business continuity.

Preparing for a potential escalation of global tensions and supply chain disruptions by ensuring that continuity plans and the crisis management system are up to date.

Cybersecurity and data protection risks

Cyber-attacks and data leaks could result in business disruptions, loss of data, and reputational damage.

Continuously monitoring information security threats and proactively developing information security.

Providing comprehensive training for personnel and requiring a high level of information security from critical service providers.

SUSTAINABILITY IN OPERATING ENVIRONMENT   

Risk 

Impact 

Response  

Sustainability and climate risks

Risks related to climate change, and environmental and social responsibility and the fulfilment of requirements related to these could impact business continuity and reputation.

Preparing for global changes in prices, suppliers, availability and quality in Kesko’s value chain. The diversification of Kesko’s business in multiple divisions protects it from impacts affecting one of them.

Reporting to the capital markets

Tightening of requirements for financial reporting and sustainability reporting will increase requirements for data collection and reporting accuracy.

Enhancing data collection and ensuring the accuracy of reporting to meet tightening sustainability and financial reporting requirements.

EMERGING RISKS

Risk 

Impact 

Response  

Human rights risks in the supply chain:

Human rights violations, such as forced labour, child labour or discrimination, could occur in the value chain.

Human rights violations in the value chain could result in significant reputational damage and sanctions. Moreover, risks related to human rights violations in the supply chain are growing due to international regulation and stakeholder expectations.

The risk is managed through supplier selection based on sustainability criteria, certificates, continuous training, and the development of contracts. Risk developments are systematically monitored and assessed through sustainability criteria, audits, and supplier cooperation.

Emerging sustainability legislation and regulation:

Responding to the requirements of rapidly evolving international legislation and regulation, as well as national legislation and regulations in Kesko’s operating countries.

Changes in sustainability legislation and regulation and compliance with them may increase operational costs. In addition, the changes may increase uncertainty in Kesko’s value chain, potentially resulting in negative impacts.

Kesko’s sustainability strategy and the Sustainability Compliance programme provide a framework for managing risks related to sustainability legislation and regulation. Developments in legislation and regulation and their impact on Kesko’s sustainability targets are continuously monitored.