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Grocery trade

K-food stores offer their customers both low-priced and high-quality food. The aim is to have the highest-quality food stores in Finland where customers are served by about 900 K-food retailers running their locally tailored stores. Kesko’s grocery trade and K-food stores cooperate under an efficient chain business model.

The grocery trade has operations in Finland and Russia. At the end of 2015, it had 8,364 employees. The K-Group (Kesko and K-retailers) is the second largest operator in the Finnish grocery trade with a market share of approximately 33%.

Every day, around 900,000 customers visit K-food stores with high expectations of comprehensive, high-quality selections, ease of shopping, favourable prices and responsibility. Customers and quality are the centre points of all operations of K-food stores and the aim is to have the highest- quality food stores in Finland.

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Cooperation between Kesko’s grocery trade and K-food retailers is based on chain operations, which ensure customer orientation, business efficiency and the achievement of competitive advantages. Kesko’s main functions include centralised sourcing, selection management, logistics, and the development of chain concepts and the store site network. Kesko also agrees on long-term cooperation models with various partner companies. Centralised operations ensure effective competitiveness.

Local K-food retailers tailor their stores to meet the needs of local customers as well as possible. K-retailers are responsible for the product selections, customer service, competence of staff, product quality and profitability of business in their own stores. Listening to the wishes of local customers and making use of customer data, the K-retailers build a selection of products and services that meet customers' needs. K-food retailers complement the chain's common product selection with local food from local producers.

Digital retail services developed together by Kesko and K-food retailers offer customers ideas and inspiration for cooking and easier ways to shop for their groceries. The K-food mobile application, for instance, provides personal benefits and store-specific offers as well as an intelligent shopping list that recommends products that the customer frequently buys, along with nearly 6,000 recipes with instructions. The network of K-food stores’ online stores and click and collect services is growing. Customers have the large selections and low prices of their familiar stores also available online.

in action:
BOTH/AND IS ABOUT MORE THAN JUST THE PRICE

Food is not only about price. It is also about quality and experiences. K-retailer entrepreneurship provides strength to local communities and also gives a lot to K-food store customers.

At the beginning of 2015, the K-Group started to build up an increasingly rich Finnish food culture together with its customers and suppliers. K-food retailers across Finland offer Finnish consumers the best of both worlds: low prices combined with quality, freshness, domestic origins and diversity.

One of the most visible actions in these terms was the ’Thank the Producer’ operating model. The purpose is to highlight Finnish food production and raise discussion about the welfare of Finnish agriculture. In November and December, K-store customers buying groceries for Christmas had a chance to buy a ’Thank the Producer’ pig card for one euro. The proceeds from the sale of the cards were tripled and remitted in full by the K-Group to Finnish pig farmers in cooperation with the Central Union of Agricultural Producers and Forest Owners (MTK) and meat companies.

Another example of the both/and mindset were the local food dates that were organised in six locations in 2015 to help K-retailers and local producers in networking. The events will continue in 2016.

Watch the video.

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Competitive advantages in the grocery trade

  • Store-specific business idea - tailoring K-food stores according to local customer demand
  • The best fresh food departments and widest selections
  • K-retailer entrepreneurship guarantees customer-driven operations
  • Low-priced and high-quality Pirkka and K-Menu products
  • Domestic origins and responsibility – about 80% of the products are Finnish
  • A wide choice of digital services that make customers’ everyday lives easier and a comprehensive network of online food stores
  • Efficient customer dialogue – a million customer feedback responses per year

Chains

K-citymarket

K-citymarkets are modern Finnish hypermarkets, which offer their customers varied and extensive selections of food and home and speciality goods. K-citymarkets are known for their best offers, local selections and food competence.

K-supermarket

K-supermarkets are better than average food stores, which provide both high-quality and low-priced products combined with easy shopping. Their strengths include superior fresh food departments, skilled staff, comprehensive service, the widest selections and Finnish products.

K-market

K-markets are reliable, service-oriented, local neighbourhood stores located near customers. K-markets offer customers a versatile selection of everyday food and local services.

K-ruoka, Russia

The competitive advantages of the K-ruoka food stores, which operate in Russia, include extensive, fresh and high-quality selections. There are nine K-ruoka stores in the St. Petersburg area.

Kespro

Kespro is the leading wholesaler in the Finnish hotel, restaurant and catering (HoReCa) business and acts as a partner for its customer companies and municipalities in Finland. Kespro provides its customers with diverse sourcing solutions as well as delivery and cash&carry services.

Market

In 2015, the Finnish grocery trade market was worth about €16.6 billion (incl. VAT), representing an estimated decrease of about 1% (VAT 0%, Kesko’s own estimate).

The Foodservice market (previously HoReCa) is estimated to have slightly decreased in 2015 from the previous year (Kesko’s own estimate).

Market shares

Food trade

Market share in Finland: about 33% (Kesko’s own estimate)
Competitors: Prisma, S-market and Alepa/Sale (S Group), Valintatalo, Siwa (Suomen Lähikauppa Oy), Lidl, Stockmann and M chain stores

K-citymarket, home and speciality goods

Market share cannot be calculated reliably
Competitors: department stores, hypermarkets, speciality store chains and online stores

Foodservice

Kespro, Finland
The market share is estimated to have increased to about 22% (Kesko’s own estimate)
Competitors: Meira Nova, Metro-tukku, Heinon Tukku and Suomen Palvelutukkurit

in action:
Knowledge of the origins of product ingredients is important

Which part of the world does the product come from? While the question is simple, the answer may be far from that. There are over 2,500 Pirkka products, which contain thousands of ingredients.

Kesko aims to identify the entire supply chain of these products, while also ensuring that the ingredients are responsibly sourced. Work to assess the origin of the ingredients in own brand groceries started in spring 2015.

Sohvi Vähämaa, who was completing her Master’s degree studies in business and economics, was given the task of establishing the countries of origin of the ingredients in Kesko’s own brands in the grocery trade.

Sohvi began her risk assessment of the ingredients one product group at a time. The origins of the ingredients in some products had already been identified but the situation was less clear for other products and more work was needed.

“Working with one product often takes time, as cereals or biscuits, for instance, may have 20–30 ingredients from all over the world. Cooperation with product managers and suppliers has been great and the missing information about the origins of ingredients has been well complemented,” Sohvi says.

By the end of 2015, Sohvi had established the countries of origin of the ingredients in all Pirkka and K-Menu products. In the future, an ingredient survey will be carried out whenever a new product is introduced into the selections.

Special attention is paid to products from high-risk countries, though the quantities imported from these countries are small (1.2% of all Kesko’s purchases in 2015).

“The number of ingredients is so large that we will carry out a risk analysis. With the help of the high-risk country tool, we will assess which products contain such ingredients from high-risk countries that may require further assessment. Then we will set out to ensure that the ingredients are responsibly produced in cooperation with the supplier,” Sohvi says.

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Did you know?
  • The K-food mobile application rose to number one on the Finnish App Store’s download list in the week of its launch in October 2015. Android and Windows Phone versions of the application are also available. By the beginning of March 2016, as many as 120,000 customers had already downloaded the application.
  • Speaking up for Finnish food production is of primary importance to the K-Group, as approximately 80% of the products sold by K-food stores are made in Finland. The aim of the ’Thank the Producer’ operating model launched by Kesko in autumn 2015 is to highlight Finnish food production and provoke discussion about the welfare of Finnish agriculture.
  • A new kind of K-food store was opened in Myllypuro, Helsinki in November 2015. K-Myllypuro is the K-Group's test store, which does not belong to any of the current K-food store chains. K-Myllypuro boldly experiments with various food store concepts and models. Customers have a chance to decide how the store, its selections and services will develop in the future.
Own brands in 2015
  • Number of Pirkka products: 2,551
  • Number of Pirkka Organic products: 117
  • Number of new Pirkka products launched: 195
  • Number of K-Menu products: 291

in action:
ECOTRUCK ENHANCES EFFICIENCY

In early 2015 Keslog, which is responsible for Kesko’s grocery trade transportation, introduced a new Ecotruck, which carries twice as much cargo as an ordinary truck. Everything went according to plan during its first year in operation.

The Ecotruck significantly improves logistics efficiency, being able to carry more than a traditional trailer combination. In Finland, a country with long distances, the transportation of temperature-controlled groceries is challenging.

”The first year went according to plan and we had no setbacks. And no complaints about the larger-than-normal truck were heard from other people on the road,” says Toni Pelin, Keslog's Environment and Safety Manager.

Carbon dioxide emissions from transportation are one of the most significant environmental impacts. The large quantity of goods carried by the Ecotruck cuts the total transport distance, thereby also cutting emissions. The Ecotruck may reduce the annual number of transport journeys by as many as 600, which corresponds to 360,000 kilometres between southern and northern Finland.

The Ecotruck is 34 metres long and its full load mass is 90 tonnes. It operates between the central warehouses in Vantaa and the Kempele terminal in the Oulu distribution area.

Read more about efficient logistics fleet.

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Strategic focus areas

Alaspäin
Strategic objective

K-food stores are refurbished

  • Strengthening the quality image of all K-food store chains ─ emphasis on freshness, Finnish origins and service
  • Capital expenditure in the network of neighbourhood stores
  • Tailoring each K-food store to meet local customer needs

 

What we are doing

 

  • Renewing the store concepts and the network of neighbourhood stores, and opening new stores
  • Kesko Food has made an agreement to acquire the share capital of Suomen Lähikauppa Oy; the acquisition is expected to be completed in the first half of 2016
  • Implementation of a new service station concept
  • A test store was opened in Myllypuro, Helsinki, with the aim of developing a completely new kind of grocery trade concept in Finland
  • New business partners in connection with K-food stores, such as Starbucks, Posti, DHL, and K-rauta Express

Improving the quality and price image

  • Low-priced shopping basket for each customer at every visit to the K-food store
  • Improving the quality and service level
  • Strengthening customer dialogue
  • Improving customer satisfaction

 

  • The both/and mindset: we offer our customers both low-priced and high-quality food
  • Further increasing the selection of own brand products
  • Attractive special offers
  • Enhancing operations based on customer feedback

Increasing K-food stores’ digital services

  • Mobile services that are significant to customers and customised marketing
  • Increasing online food services and making new solutions accessible to customers

 

  • Launching the K-food mobile application
  • Rewarding customers
  • Personalised special offers based on shopping history
  • Click and collect services continue to expand in various parts of Finland

Renewing the retailer model

  • Ensuring that retailer entrepreneurship continues to be profitable and interesting

 

  • Store-specific business ideas respond to local customer demand
  • Retailers may run several stores

Increasing Kespro’s business

  • Strengthening international cooperation
  • Strengthening market position further

 

  • Close cooperation with K-food stores
  • New partnerships and international cooperation

Increasing operations in Russia

  • In addition to Finland, growth is sought in the Russian market

 

  • Growth and improved profitability in the St. Petersburg area
  • Based on our good experiences, the implementation of the strategy in Russia continues
  • Every new investment is considered carefully

Stakeholder address:
Consumers want Finnish food

Food interests consumers. According to studies, Finnish consumers have strong confidence in national food production. This confidence is justified and is the result of hard work.

There are around 50,000 active farms in Finland. The objective of Finnish food production is to produce high-quality and tasty food. Our northern climate is favourable from the viewpoint of animal and plant health, and farmers annually invest millions of euros to keep agriculture free from salmonella and to improve animal welfare. By global comparisons, requirements concerning the environment and animal welfare are very strict in Finnish food production. Compliance with these requirements is part of producers’ corporate responsibility but this comes with costs.  

The profitability of agriculture has been very low in recent years. In order to be able to offer domestic food to Finnish consumers in years to come, the profitability of agriculture must be improved. Farmers, who are entrepreneurs on their own farms, are the key operators in this process.

The trading sector plays a strong role in the food chain and has an influence on consumers’ behaviour. For its part, the sector is also responsible for the future of the Finnish food chain. The pursuit of low prices alone also leads to poor results from the viewpoint of consumers.

Kesko has set a good example by highlighting the quality and the importance of domestic origin in the discussion about food and by carrying out the ’Thank the Producer’ campaign together with producers, thus providing consumers with an opportunity to directly support Finnish producers. 

Antti Sahi, MTK Executive Director

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Grocery trade in figures
NumberSales (VAT 0%),
€ million
Retail sales and number of stores2015201420152014
K-citymarket, food81811,5051,505
K-citymarket, home and speciality goods8182*575581
K-supermarket2192181,7161,725
K-market (incl. service station stores)4764441,1891,216
K-ruoka, Russia95106103
Others*108164122161
Grocery trade, retail sales5,2145,292
Kespro779780
Grocery trade, total8939135,9936,072
* incl. online sales
Grocery trade, key figures20152014
Net sales€ million4,6734,754
Operating profit€ million249.4216.2
Operating profit excl. non-recurring items€ million177.5223.2
Operating profit excl. non-recurring items as % of net sales%3.84.7
Capital expenditure€ million12998
Capital employed€ million8711,007
Return on capital employed excl. non-recurring items%20.422.2
Personnel average6,4206,176
Properties20152014
Owned properties, capital€ million639880
Owned properties, area1,000 m2410586
Leased properties, lease liabilities€ million1,9061,503
Leased properties, area1,000 m21,4051,279