Strategic objectives

1. Profitable growth

Our objective is to grow faster than the market
We seek growth in nearby areas, particularly in Russia
We invest in the development of our store network
We develop online services and e-commerce
We increase our shareholder value

Kesko's key strategic objective is healthy, profitable growth. Growth is sought by actively developing store selections and services to meet customer needs, by implementing capital expenditure in a competitive store network and by developing online services and e-commerce.

Capital expenditure in Kesko's business operations in Russia offer significant growth potential for a long time to come.

Kesko's target return on equity is 12%, while the target return on capital employed is 14%. Our objective is to maintain good solvency in all market conditions and to increase our shareholder value.

Growth in russia

In Finland, growth is sought by increasing market shares and by more customer-driven services than those provided by our competitors. In addition, growth is also sought in the Russian market, in particular, which is growing faster than the Nordic or Baltic markets.

The objective is to make capital expenditures of over €600 million in the food trade, building and home improvement trade, and Intersport operations in Russia by 2015. In all divisions, the focus is on the Moscow and St. Petersburg regions. In the food trade, the longer-term objective is to open clusters of 10 stores both in St. Petersburg and Moscow. In the building and home improvement trade, the objective is to open 11 new K-rauta stores by 2015. At the end of 2011, there were 14 K-rauta stores in Russia. Intersport has 36 stores and the aim is to double the network by 2015.

Capital expenditure in the store site network and in strengthening competitive advantages

In the food trade, major capital expenditure is directed at enhancing the store network in Finland and starting business in Russia. The most important project providing competitive advantage in the food trade involves strengthening the selections, the service and the displays of fruit, vegetable and bakery departments and service counters offering meat, fish and ready-to-eat meals.

In the home and speciality goods trade, the strategic emphasis is on increasing retail sales, strengthening the competitive advantages of K-citymarket's and Anttila's concepts and continuing the integration of purchasing and logistics operations. An important project providing competitive advantage is increasing online services and e-commerce.

In the building and home improvement trade, the store network will be considerably expanded over the next few years, particularly in Russia, where the focus is on the Moscow region. Synergy benefits are achieved by investing in centrally directed sourcing and selections development, and in a joint enterprise resource planning system and logistics network.

In the car and machinery trade, the market shares of the brands represented – Volkswagen and Audi, for example – will be increased by developing the retail sales and service network with the focus on a customer-driven approach.

Online services and e-commerce

New online services, wireless solutions and different terminal devices have increased the diversity of customers' needs and purchasing habits. Online shopping and interactive channels will be a key competitive factor in the near future.

The development of online transactions and e-commerce are strategic focal points in all divisions. The projects are coordinated by the electronic marketing and services unit. The objective is to be well present throughout customers' purchase transactions, so that customers will be able, if they wish, to use web services from planning their purchases to using the products.

The development of online services and stores requires significant capital expenditure in various projects related to electronic business models. Kesko has gained a strong position in online sales of home and speciality goods through the netanttila.com, kodin1.com, konebox.fi, cmstore.fi and budgetsport.fi online stores. Electronic services and e-commerce are also actively developed in the building and home improvement trade and the food trade.

2. Sales and services for consumer-customers

We increase the value of our brands
Our customer satisfaction exceeds that of our competitors
Our competitive asset is the K-retailers, who know local customers and their needs
We use loyal customer information efficiently to serve our customers

Kesko has strong brands

Kesko has dozens of successful chain and product brands. Strategic objectives and target images that are based on customer needs have been defined for each brand. The objective is to strengthen the value of these brands and to improve the efficiency of marketing. This is measured by customer satisfaction and employer profile surveys, as well as by financial indicators.

Consumers' shopping experiences at K-stores determine our success in the market.

K-Plussa is the joint customer loyalty system of the K-Group. It is the most extensive and diverse customer loyalty system in Finland, providing K-Plussa customers with benefits at over 3,000 outlets and from more than 40 business partners. Chains and stores utilise customer information in, for example, their selection planning, pricing, marketing and store network planning. A key objective is to increase the commitment of K-Plussa customers.

Kesko is primarily the group brand of a listed company. The target groups of the Kesko brand are investors, shareholders, suppliers of goods and services, employees, society in general and all other actors in our operating environment.

Customer-driven business models

The business models applied in Kesko's sales to consumer-customers are retailing through retailer entrepreneurs and Kesko's own retailing. Kesko is also engaged in B2B sales.

1) Retailer entrepreneurs' retailing

The principal business model in the Finnish market is the chain business model, in which independent K-retailers run retail stores in Kesko's chains. In Finland, all food and building and home improvement stores in the K-Group are run by K-retailer entrepreneurs. Through its chain operations, Kesko provides a first-class setting for its retailer entrepreneurs to provide the best possible service to their customers. The K-retailer entrepreneur implements the chain concept and is responsible for store management, customer satisfaction, personnel and business profitability. The K-Group's competitive edge is based on its best selections, excellent service and knowledge of customer needs.

At the end of 2011, Kesko had 1,102 independent K-retailer entrepreneurs and about 130 other retailer entrepreneurs in the Asko, Sotka, Byggmakker and Senukai chains as partners. Kesko's sales to the retailer entrepreneurs accounted for 52% of Kesko's total sales in 2011.

2) Kesko's own retailing

Kesko acts as a retailer in business operations where its competitive advantage is based on having a centrally managed chain concept and large units. Kesko's own retail stores in Finland include the Anttila and Kodin Ykkönen department stores. Kesko is also responsible for retailing home and speciality goods in the K-citymarket chain. Kesko's own retailing is the model mainly used in business operations outside Finland. In 2011, Kesko's own retailing accounted for 26% of total sales.

3) B2B sales

Kesko is also engaged in B2B sales. Typical B2B customers include construction companies, agricultural entrepreneurs, the manufacturing industry, retail dealers, institutional kitchens and the public sector. In 2011, Kesko's B2B sales accounted for 22% of total sales.

3. Responsible and efficient operating practices

Our operating practices are responsible
We efficiently combine retailer entrepreneurship and chain operations
We leverage our economies of scale and competence for the benefit of customers
We automate our processes

Sustainable development and responsible operating practices

The principles of sustainable development and responsible operating practices are a central part of the daily activities in Kesko and its chains. The trading sector is required to take responsibility for the safety and healthiness of products, and for the environmental and social impact of business operations. The results of responsible operations are reported annually in Kesko's Corporate Responsibility Report.

Efficient combination of retailer entrepreneurship and chain operations

A strategic objective is to efficiently combine K-retailer entrepreneurship and chain operations. The K-retailer entrepreneur implements the chain concept and is responsible for store management, customer satisfaction, personnel and business profitability.

Kesko's efficient chain operations and joint processes provide support to retailers. Chain operations offer the retailer a joint business concept which includes chain control related to chain selection, pricing and marketing, and business management support. Joint chain operations carried out by retailers and Kesko are further enhanced by developing increasingly better tools and business models for the stores. The most important of these are regional and store-specific selections and pricing guidance as well as tools for customer relationship and store personnel management.

The function of Kesko's purchasing and logistics is to source and deliver products efficiently and at competitive prices. Purchasing is always target-oriented and based on plans. The aim is at selections which serve customers best and at affordable prices, while responsible practices are applied. Logistics operations manage the whole supply chain efficiently and provide customers with optimum on-shelf availability at the lowest possible costs.

Kesko participates in international purchasing cooperation in various product lines, which increases purchasing volumes and efficiency. The most important partnership organisations in which Kesko participates include AMS Sourcing B.V. in the grocery trade, Eurobuy in the building and home improvement trade, Intersport International Corporation in the sports trade, and Electronic Partner International in the home technology trade.

Work and productivity

Cost-efficient operations build price competitiveness and customer satisfaction in the retailing sector. Cost-efficiency is also a basic requirement for increasing Kesko's profitability and shareholder value.

The most important tools for improving productivity include enhancing personnel competence and management, and increasing the efficiency of operating practices.

Promoting the wellbeing of employees has become an increasingly important factor. There are projects on promoting wellbeing at work underway, with the aim of improving the working capacity, motivation and health of employees and increasing the retirement age.

Automation of processes

In order to improve cost-efficiency, projects related to the automation of processes are underway at Kesko. Key areas in process automation include logistics automation projects, the forecasting systems and automated orders that improve the availability of products in stores, the adoption of electronic purchase and sales invoices, and the automation of financial management routines in the shared services centre of the Kesko Group.

Financial objectives and their realisation
Objectives announced on 5 Feb. 2009	Target level	Realised in 2011	Realised in 2010
Net sales growth	Growth faster than market	Realised*: Food trade, building and home improvement trade in Finland, furniture trade, car and machinery trade	Realised*: Food trade, K-citymarket's home and speciality goods trade, car and machinery trade
Return on equity	12%	8.9%, excl. non-recurring items 8.8%	10.1%, excl. non-recurring items 8.7%
Return on capital employed	14%	13.2% excl. non-recurring items 13.1%	16.0%, excl. non-recurring items 14.0%
Interest-bearing net debt/EBITDA	< 3	0.1	-0.9
Equity ratio	40–50%	53.9%	53.5%
Economic value added	Growing positive EVA as internal indicator	Realised in food trade and car and machinery trade	Realised in all divisions except for building and home improvement trade
*Kesko's own estimate

More detailed information on each division's strategic emphases and projects is provided in the division-specific presentations.