Investor blogs and podcasts

In Kesko’s investor blogs and podcasts, Kesko’s management discusses topical issues relevant to investors and shareholders.

IR blog: Q3 recap

30.09.2021

Kesko will publish its Q3 interim report on Friday, 29 October 2021, at around 9.00 am Finnish time. There is a Finnish-language webcast at 11.00 am the same day, and an English audiocast/teleconference at 12.30 noon (see details here).

Below is recap of Kesko's key events and news in Q3/2021.

Group and shares

* Composition of Kesko's Shareholders' Nomination Committee (release 13 Sept.)

* Latest change in the holding of Kesko Corporation's treasury shares (release 17 Sept.)

* Disclosure in compliance with Chapter 9, Section 10 of the Finnish Securities Markets Act, Ilmarinen Mutual Pension Insurance Company (release 9 Sept.)


Sales development

* Kesko’s sales grew in July (release)

* Kesko’s sales grew in August (release)

Sales figures for September will be released in mid-October.

Other materials

Investor presentations

* Roadshow, SEB Nordic Large Caps, 26 Aug. (presentation)

Investor blogs

Is there further potential for growth in Kesko’s grocery trade going forward?
With President of the grocery trade division Ari Akseli

We have great potential to continue profitable growth
President of building and technical trade division Jorma Rauhala

Electrification of cars will affect the whole car trade business
With President of the car trade division Matti Virtanen

Tailored store-specific business ideas
With Ari Akseli and Chief Digital Officer Anni Ronkainen

Grocery trade news

* Kesko invests heavily in developing click&collect services to enable further growth in online grocery  (blog) 

Building and technical trade news

Kesko to acquire Byggarnas Partner, a company serving professional builders in Sweden, thus further strengthening its position in Swedish building and home improvement trade (release 23 July) 

Sustainability news 

* Kesko meets the objective of its Cocoa Policy - all cocoa and chocolate in Kesko's own brand Pirkka and K-Menu products now 100% of sustainable origin (release) 

* K Group ready for the implementation of the Single Use Plastic (SUP) directive (release)

The whole automotive sector has been undergoing a major transformation in recent years, with the introduction of new technologies and the electrification of cars. Kesko’s car trade division does not want to be left behind, and is therefore also carrying out large-scale transformation in order to be more efficient, accelerate digitalisation and offer a better customer experience.  

 As of April 2021, this transformation process has been steered by Matti Virtanen, who has had a long career in leadership positions in the technology sector with companies such as Nokia, Compaq and Hewlett-Packard in Finland, Europe and the US. He was also Chairman of the Board of Kamux, a Finnish listed company specialising in used car sales, for four years. Here, Matti and Kesko’s Vice President of Investor Relations Hanna Jaakkola discuss the measures taken by Kesko’s car trade to meet the challenges posed by the changing car sector landscape and ways to raise market share further and bring the customer experience in car sales to a whole new level.

(The discussion is available in Finnish as a podcast here).

Car trade at Kesko – market leader with a strong focus on the future

Car trade has been part of Kesko since 1978. A key element for the division is the collaboration with Volkswagen Group, one of the biggest car manufacturers in the world. Kesko’s K-Auto imports and sells Volkswagen Group brands, namely Volkswagen, Audi, SEAT, CUPRA, Porsche and Bentley passenger cars and Volkswagen Commercial Vehicles and MAN trucks in Finland. K-Auto and independent dealers sell new and used vehicles and offer servicing and after-sales services at some 70 outlets across Finland as well as online.

Kesko’s K-Auto imports and sells Volkswagen Group car brands, sells used vehicles and offers servicing and after-sales services at some 70 outlets across Finland as well as online.

In new car sales, Kesko is the market leader in Finland. In Q2/2021, the market share of the models represented by Kesko was 19.3%, while our market share in all-electric cars was close to 50%. Strategically, the division aims to strengthen its market share further above 20%.

The division also wants to increase its sales of used cars and services. Matti Virtanen notes that over the past decade, used car sales have become a proper business in Finland, with a very different dynamic. This is why earlier this year the two businesses were separated from each other at Kesko. New web pages for used car sales, meeting modern requirements, will also be launched this autumn.

In the service business, the electrification of cars will impact the need for servicing and car accessories going forward, which is why Kesko is currently updating its logistics. Investments are also made to better meet customer expectations in the repair business, which is seen as a growing business area.

Transforming operations to ensure the best customer experience in the business

Kesko’s strategy focuses on profitable growth in the company’s three divisions. To better enable profitable growth in the car trade division, the division has launched a significant wide-scale transformation scheme, aiming for better competitiveness and cost structure while improving margins and profit levels and consequently the division’s profitability.

According to Virtanen, the transformation programme is motivated by two main underlying changes impacting the car trade business: 1) a marked shift in customer behaviour, with customers increasingly using digital channels to examine the offering and even to purchase cars; and 2) the growing importance of customer experience in car sales, car servicing and car deliveries.

So how does Kesko’s car trade intend to create and offer the “best customer experience in Finland”? For one thing, digitalisation will be utilised more extensively to shift resources from administrative tasks to customer service. Virtanen also notes that better customer service requires a new kind of attitude and business culture. “We are currently recruiting 160 new people for car sales, and will train them to master good customer service and positive customer experiences – this will enable a better response to customer needs and wishes,” says Virtanen. 

To ensure the best customer experience in the business, Kesko’s car trade division is utilising digitalisation to free up more time for customer service, while also ensuring effective digital services. 

Strong collaboration with Volkswagen Group lends Kesko a considerable advantage

Kesko’s strong, long-standing collaboration with Volkswagen Group is one central element of the car trade division's strategy. Matti Virtanen sees many advantages for Kesko in this: “Thanks to the collaboration, we have a good vision of where the car sector is going, also with a long-term perspective. In this current situation, where e-mobility is surging ahead at a great pace, this lends us a considerable advantage.”

The collaboration also means Kesko has been able to develop world-class expertise in sales, servicing, marketing and other support functions. 

Kesko’s long-standing collaboration with one the world’s leading car manufacturers Volkswagen Group enables insight into the future of the car industry and ensures K-Auto can offer products that are excellently suited for the rapidly changing market.

The future is electric – and here sooner than we think

Speaking of Volkswagen Group, the company announced in its new strategy this summer that it intends to invest 16 billion euros in e-mobility, hybridisation and digitalisation by 2025. How does this fit the business and strategy of Kesko’s car trade division?

“Our strategic decisions and investments are very much aligned with those of Volkswagen Group and we share their vision of the future direction of cars. K-Auto is the undisputed market leader in electric cars in Finland, and we can already see that the electrification of cars in Finland is moving ahead even faster than fairly recent predictions would suggest. For us, the massive investments by Volkswagen Group mean that we will be able to offer products that are excellently suited for this rapidly changing market. Volkswagen Group is able to offer competitive electric cars irrespective of brand,” says Matti Virtanen.

Virtanen also mentions Kesko’s own significant investments in building an extensive EV charging network in Finland to prevent charging capacity from becoming a bottleneck for progress. Investments in the K Charge network will continue next year, with emphasis in particular on fast and high-power charging (HPC).

The K Charge network currently consists of over 80 charging stations for electric vehicles, found at K Group store locations across the country. In July 2021 alone, charging at these stations was up by 137% year-on-year, reflecting the growing popularity of EVs.

The downside of modern hi-tech cars is how the current global component shortage is causing issues with car availability, as the car industry is not first in line when it comes to access to scarce components. Virtanen says that it is likely that the impact of the component shortage will be felt for the remainder of the year and may pose some challenges also at the start of next year. There is also some uncertainty related to the development of new technologies and how they will impact the car sector going forward.

Overall, Virtanen trusts that Kesko’s strong position and track-record form a good basis for the further growth of its car trade division. 

This has been a successful year for Kesko’s building and technical trade division. “Our growth has continued strong and all our chains in all our operating countries are making a profit,” says division President Jorma Rauhala.

In the first year-half, net sales for Kesko’s building and technical trade division grew by 13.2% in comparable terms, while the division’s comparable operating profit grew by €69.5 million. “We have reached our previously set operating profit target levels and are now among the best in Europe. All our chains in eight countries are making a profit,” says Jorma Rauhala.

In Finland, both K-Rauta and Onninen continued to perform strongly in H1, as reflected by their market share, sales and profit figures.

 In Norway, the first half of the year was very strong for both Byggmakker and Onninen, and profitability rose to a whole new level. In Sweden, there has been a  marked turnaround and Rauhala considers the current situation good: “We will continue to grow the sales and improve the profit of K-Bygg, K-Rauta and Onninen in Sweden. The acquisition of Byggarnas Partner, announced in July, further strengthens our position in the country.”

Sales and profit have also been growing in the Baltics and Poland, and Rauhala sees good growth potential in all four countries 

“We have a clear growth strategy that is yielding results. We have fared very well under exceptional circumstances, often outpacing the market. We have every opportunity to exploit possibilities also going forward, as we operate in a strongly growing sector. The renovation needs of homes and other properties, the growing infrastructure investment debt, and energy-efficiency related requirements in construction will see our market grow further.”  

More than half of the building and technical trade division’s sales today come from outside Finland. Strong country-specific focus has proven to be the key to success: “It is crucial for our division, as circumstances vary significantly from one country to another. It is therefore important to have a clear individual strategy for each country and business. Our K-Rauta and Intersport chains in Finland operate under the retailer business model, while elsewhere we employ other business models.”

The division is constantly looking to share good examples in all countries and businesses, and also seeks synergies both within and between operating countries.

Most recently, global availability issues have made life more difficult for building and home improvement stores and sports stores. In building and home improvement, this has been particularly evident in product categories related to wood, metal and plastic. How are we prepared for future challenges and what have we learnt?

“For one thing, the role of pre-orders has become significantly more important, especially with imported goods. Advances on purchases need to be made somewhat earlier, and it is important to commit to them,” says Rauhala.

The division’s strategy continues to emphasise growth, profitability and synergies. As new strategic focus areas, Rauhala mentions proactive sales and sales management and improving digital customer experiences further: “During the autumn, we will also establish a division-specific sustainability strategy, which will define our future sustainability targets and actions for each country and each chain.”

Heavy investments will be made in digital services: “Our division is already strongly present in digital trade, where our sales amount to nearly €560 million,” explains Rauhala. However, there is a need to make digital purchases even easier for customers and digital operations more efficient: “We must offer digital services for all customer segments and in all chains to ensure a competitive advantage.”

The division’s outlook has improved compared to last year’s forecasts, although there is still uncertainty related to upcoming years: “Forecasts suggest that the trend in construction will continue moderately strong in all our operating countries. We expect good activity in construction and consequently busy times for our B2B trade in particular,” says Rauhala.

Meanwhile, he expects the B2C business to stabilise following the pandemic surge, as people begin to travel and spend more money outside their homes again: “Already this year, our growth has come especially from B2B trade, which now accounts for over 70% of the division’s net sales, and that percentage is constantly growing.”

The leisure trade business at Kesko operates under the building and technical trade division. Going forward, it will focus on sports trade: “We updated the strategy for leisure trade and decided to focus solely on sports trade. As a result, we decided to discontinue our shoe store chains The Athlete’s Foot, Kookenkä and Kenkäexpertti, and focus on the Intersport and Budget Sport chains,” says Rauhala.

He admits the decision was not easy: “Nonetheless, under the circumstances we were able to handle the situation as well as possible, emphasising a store-specific approach and close communication with the retailers.”

According to Rauhala, the sports trade business will be developed in accordance with Kesko’s growth strategy: “We are excellently positioned to do so. The new focus on sports trade is reflected in our figures, as our sports trade operations performed very strongly in the first half of the year and we won over market share to a significant extent.”

The current situation, in which each country and business is stable and in profit, increases the division’s possibilities of developing operations and raising the bar further, Rauhala believes. It also offers great possibilities for targeted acquisitions: “We have great potential to continue profitable growth in Northern Europe – currently our market shares in Norway and Sweden, for example, are still fairly low.”

“We have a clear growth strategy that is yielding results. We have fared very well under exceptional circumstances, often outpacing the market. We have every opportunity to exploit possibilities also going forward, as we operate in a strongly growing sector. The renovation needs of homes and other properties, the growing infrastructure investment debt, and energy-efficiency related requirements in construction will see our market grow further.”

 

TEXT: Kirsi Suurnäkki-Vuorinen

Originally published in the Kehittyvä kauppa magazine of K-Retailers' Association on 23 Sept. 2021

Ari Akseli began his sales career selling wooden ladles door-to-door at the age of six. He has been at Kesko for 26 years, and has headed the biggest of Kesko’s three divisions, grocery trade, for nearly four. Here, Ari and Kesko’s Vice President of Investor Relations Hanna Jaakkola discuss the competitive advantages Kesko has on the fiercely competitive Finnish grocery trade market, from an extensive store network to store-specific business ideas tailored to meet local demand, as well as the challenges related to grocery trade going forward.

(The discussion is available in Finnish as a podcast here).

Kesko’s grocery trade division has performed very well in recent years, especially during the pandemic. Many investors are now wondering if there is still room for further growth. Ari Akseli sees further growth potential, as Kesko’s strategy has proven effective, and people have shown that they want to buy better, high-quality food. Kesko’s grocery trade has been able to upgrade the level of products sold, for example, selling Roman-style pizza instead of flour and tomato sauce.

Adjusting to the pandemic and implementing store-specific business ideas

Akseli is not ready to give the pandemic all the credit for Kesko’s excellent performance in recent years,  noting that in the short term, it actually had a negative impact on his division’s performance, as Kespro’s foodservice operations were hit by the restrictions imposed on restaurants and events, and the rapid surge in online grocery sales – which grew by a whopping 1,000% in spring 2020 – required heavy investments to ensure K Group’s grocery stores could meet the enormous increase in demand.

“We were able to adapt to the situation quickly and successfully adjust our selections and operations and create safe shopping environments. However, the biggest thanks for our excellent performance goes out to our staff and customers, who enabled the successful execution of our long-term strategy,” says Akseli.

There is also further potential in store-specific business ideas, which help each store to tailor their selections and services to meet local customer needs. This is not a simple task, as K Group’s grocery stores serve some 1.2 million customers daily and have more than 2,000 active suppliers with new products that can total as many as 30,000. However, the successful implementation of these business ideas has seen sales of existing stores grow significantly.

(For a more detailed discussion on store-specific business ideas, see our recent IR blog post)

Extensive online selections and a wide network of local stores offering online services

Following the surge in demand during the pandemic, Kesko now controls over 50% of the Finnish online grocery market, with high online customer satisfaction (NPS above 80). Compared to 2017, Kesko’s online grocery sales are 20 times higher. However, competition is tightening, with new operators entering the market – will Kesko be able to hold onto its No. 1 position in online grocery?

Ari Akseli insists that Kesko sees the tightening competition in the online grocery business as positive, spurring it on to develop its own operations further. He does, however, believe that Kesko has certain competitive advantages in its favour, namely the wide network of local stores offering online services – which helps to resolve the issue of the costly “last mile” – and the extensive selections K Group can offer its customers online.

Unlike online-only operators, K Group can provide people everything they want from a grocery store in one go: “A customer may write in their order form ‘I’d like some sushi, preferably nigiri’ and we’ll put together a nice fresh plate for them. That is not something you can easily do in a dark store,” Akseli explains.

Fresh sushi has been a huge trend in Finnish grocery stores in recent years. Sushi is also part of the extensive online selections offered by many K Group grocery stores.

Kesko thus sees the seamless combination of its online and physical stores as a winning concept, enabling it to meet all customer expectations and offer extensive selections while keeping costs of delivery from local stores lower. Over 50% of customers also say that they want to collect their online shopping from their local grocery store when it best suits them – K Group’s model also enables this.

(Read the new Trademaker blog post to find out more about K Group’s efforts to develop its click & collect grocery services)

Grocery store + restaurant = grocerant

The aspect of grocery trade that excites Ari Akseli most at the moment is the rise of grocerant solutions:

“The line between restaurants and grocery stores is becoming increasingly blurred, and we are constantly seeing exciting new examples of this in our stores. There are both our own innovations as well as collaboration with a with a wide variety of restaurants, and demand in this area is constantly growing.”