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WE IDENTIFY THE RISKS AND OPPORTUNITIES OF OUR OPERATING ENVIRONMENT

The trading sector operations are affected by several global megatrends ranging from the digital transition to climate change. By identifying the trends that affect the K-Group’s operations Kesko is able to effectively anticipate future challenges and opportunities and to respond to them ever better.

GLOBAL MEGATRENDS

 

TRENDS AFFECTING THE K-GROUP’S OPERATIONS

International trading groups concentrating on a single product line are challenging local operators
  • Intensification of price competition
  • Slow economic growth and decline in consumer demand
  • Affordable products are preferred for the shopping basket
  • Sales of own brand products are increasing
What we are doing
  • We concentrate on a more limited number of business operations
  • We operate more efficiently and at a higher quality level
  • We develop our own brand products further

Consumers’ ability to make analytical buying decisions has increased
  • Transparency of selections, prices and availability
  • Importance of social media channels: access to information, exchange of experiences and interaction
  • Product origin and responsibility are important selection criteria
  • Quality and food healthiness
What we are doing
  • We make clear customer promises and deliver on them – service, quality, price
  • We provide comprehensive product, price and availability information on digital channels

Digital services play a key role
  • Ease of transactions
  • 24/7 availability of services irrespective of place
  • Targeted marketing based on customer data
What we are doing
  • We offer an ever better customer experience by making use of the possibilities of mobile services, online services and digital marketing

Changes in demographic structure coupled with the change in consumer behaviour make customer behaviour increasingly individual
  • Ageing of population
  • Growth in single households
  • Urbanisation
  • Increasing cultural diversity
What we are doing
  • We create new concepts and retailer models and make more extensive use of customer data

More than before, responsibility coupled with a strong identity and attractive brands is a prerequisite for operation in every line of business
  • Good corporate governance
  • Open communications
  • Responsible operating principles
  • Adaptation to climate change, energy efficiency and circular economy
  • Management of purchasing chains
  • Responsible investing
What we are doing
  • We take care that responsibility is realised in all our operations
  • We strengthen the corporate identity and the core brands

in action:
Pirkka and Gasum recycle together

Biogas produced from K-food stores’ waste is utilised as energy to manufacture Pirkka products. Cooperation between Kesko and Gasum provides K-stores with a new kind of way to use wastage, so we can contribute to turning Finland into a forerunner in bioeconomy and cleantech.

Watch the video

in action:
K-FOOD MOBILE APPLICATION HELPS CUSTOMERS IN STORE AND AT HOME

The new K-food mobile application that was launched in October 2015 provides personal benefits and store-specific offers plus a smart shopping list. The application makes customers’ daily lives easier in many ways. It is available for all operating systems.

After the launch, the K-food application rose high on the lists of the most downloaded free apps in Finland. By the end of the year, the application was available in iPhone, Windows Phone and Android versions. By the beginning of March 2016, as many as 120,000 customers had already downloaded the application.

In addition to personal benefits and special offers, the application recommends to customers such products they might be interested in based on their shopping history. The application also has nearly 6,000 recipes directly available to customers.

The shopping list can be shared by several devices in the K-Plussa card household concerned and the list is updated in real time.

“Previously, K-food store customers received the special offers from their local store by e-mail at the beginning of the week. Now we also offer a mobile app with their personal benefits and the store's other special offers handily displayed and added to the shopping list,” says Mika Kakko, Sales Director of Kesko’s grocery trade.

The application also offers ideas and inspiration for cooking. The recipe search function includes special diets and the app also suggests the most popular, easy, affordable, topical recipes using seasonal ingredients.

The Palokangas family tested the K-food mobile app and commented on it in the Pirkka magazine in January 2016:

”It was good that after finding the recipe I could add all the ingredients needed to my shopping list with one click. In the store, it is easy to delete products from the list by clicking them and see what is missing. The application is also useful when deciding what to make for dinner,” says Mari Palokangas.

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KESKO TAKES ACCOUNT OF THE STAGES AND IMPACTS OF ITS VALUE CHAIN

Kesko’s objective is to operate sustainably and responsibly at all stages of its value chain. In addition to its own direct impacts, Kesko’s value chain generates significant indirect impacts.

Kesko's value chain

Raw materials
Kesko Raw materials
Production
Kesko Production
Logistics
Kesko Logistics
K-store
Kesko K-store
Customer, services and products
Kesko Customer, services and products
Recycling
Kesko Recycling

In our operations, we promote the sustainable use of natural resources. We favour local purchases.

We ensure responsibility across our purchasing chain. We take account of health and environmental aspects in our selection decisions.

We transport and warehouse our goods efficiently. We reduce the emissions from our transportation by using eco-trucks and route planning.

Kesko and K-retailers employ tens of thousands of people and create welfare for the local community. Our comprehensive store network and digital services provide service near customers.

Our customers can be confident that when they shop with K-stores they make responsible choices. We offer quality products and digital services that make customers’ daily lives easier.

We recover the waste generated in our operations. We help our customers reduce their environmental impacts.

Taustaviiva
 

Kesko's value chain

Kesko Raw materials
Raw materials

In our operations, we promote the sustainable use of natural resources. We favour local purchases.

Kesko Production
Production

We ensure responsibility across our purchasing chain. We take account of health and environmental aspects in our selection decisions.

Kesko Logistics
Logistics

We transport and warehouse our goods efficiently. We reduce the emissions from our transportation by using eco-trucks and route planning.

Kesko K-store
K-store

Kesko and K-retailers employ tens of thousands of people and create welfare for the local community. Our comprehensive store network and digital services provide service near customers.

Kesko Customer, services and products
Customer, services and products

Our customers can be confident that when they shop with K-stores they make responsible choices. We offer quality products and digital services that make customers’ daily lives easier.

Kesko Recycling
Recycling

Our customers can be confident that when they shop with K-stores they make responsible choices. We offer quality products and digital services that make customers’ daily lives easier.

Opportunities and risks related to the operating environment

Below you will find a presentation of the risks and opportunities related to Kesko’s operations. Click on the headings to find out more.

Multi-channelling is increasingly important in the retail trade

E-commerce and digital services are increasingly popular parts of consumers’ shopping behaviour. E-commerce increases price transparency and consumers’ choices. Purchasing and marketing of products and services is more individualised and increasingly web-based.

Opportunities

E-commerce and digital services coupled with a comprehensive store site network provide a basis for excellent customer service in the K-Group.

The aim is to serve customers as well as possible at different stages of the buying process irrespective of time and place.

In line with Kesko’s strategy, the objective is to provide customers with the best multi-channel shopping experience in the trading sector.

Kesko develops targeted electronic customer marketing based on purchasing behaviour and increases online availability of product information for improved customer satisfaction and increased sales.

Risks

Challenges to e-commerce profitability include the cost-effectiveness of logistics models and the suitability of the current stores sites for e-commerce logistics.

Continuous changes in e-commerce and digital services present special challenges to the rapid development of new services.

Store site projects can be slowed by town planning and permit procedures and the availability and pricing of sites.

With the growth of e-commerce or changes in market situation, there is a risk that the operations of a chain or site relying on physical stores become unprofitable.

Economic operating environment

In line with the strategy, Kesko’s objective is to increase growth and invest capital particularly in its three strategic growth areas: the grocery trade, the building and home improvement trade, and the car trade. Achieving the objective requires customer-driven operations and good cost-efficiency in all of Kesko’s business operations. From the perspective of growth, key objectives include increasing our market share in the Finnish grocery trade, expanding the building and home improvement trade in Europe, strengthening market leadership in the Finnish car trade, and developing of e-commerce and online services.

Opportunities

Kesko's strategy emphasises customer-orientation and quality in all operations in addition to competitive prices.

Kesko’s strong financial position and net debt-free balance sheet provide excellent opportunities to develop operations.

Kesko sees Russia as an opportunity in the long term and continues to make deliberate capital expenditure in Russia.

Risks

The weak outlook for the Finnish economy, increases in taxes and public payments resulting from the indebtedness of the public sector, coupled with increasing unemployment, weaken purchasing power and consumer confidence and may cause a long-term decline in the level of demand. This would have negative repercussions especially on Kesko's home improvement and speciality goods trade and car trade in Finland. In the grocery trade, price is increasingly important.

Kesko’s market performance varies greatly from one country and division to another.

There is great uncertainty around economic development in Russia, and political and country risks in Russia remain high.

Development of retail market in Kesko’s operating countries in 2013–2015

Retail trade excluding motor vehicles, change %, deflated figures
Source: Eurostat, Rosstat for Russia

Purchasing chains

Transparency and responsibility in purchasing chains has become increasingly important.

It is necessary to provide customers with increasingly detailed information on the origins and manufacturing methods of products. Care must be taken to ensure that all operations throughout the supply chain are responsible. Product safety management must be flawless and traceable across the entire supply chain.

Opportunities

Networking with suppliers of goods and providers of services requires that all operators in the supply chain adopt the same values, objectives and operating practices and are committed to international sustainability assurance procedures.

Corporate responsibility communications, the store K-responsibility concept and product labelling can help customers make responsible purchasing decisions.

Careful and traceable product safety control and quality assurance strengthen customer confidence in the K-Group.

Risks

Non-compliance in the management of social or environmental responsibility within the supply chain cause human rights violations, environmental damages, financial loss and the loss of customer, shareholder and investor confidence while negatively affecting the corporate responsibility work and its credibility.

A failure in product safety control or in the quality assurance of the supply chain can result in financial losses, the loss of customer confidence or, in the worst case, a health hazard to customers.

Impacts of climate change

Climate change causes risks and opportunities affecting habitats, regulations and reputation factors.

Emissions from the generation of electrical and heat energy of properties represent a significant proportion of the environmental impact Kesko and the K-Group stores. In accordance with Kesko’s environmental and energy policy, the real estate functions work in cooperation with business partners to develop solutions for the new building, repair, concept changes, maintenance and use of real estate properties with the aim of reducing the consumption of materials and energy during the life cycles of these properties. We also help our customers find energy-efficient solutions. Read more about energy-efficient solutions.

Opportunities

Kesko efficiently recovers waste heat, such as condensation heat generated by store refrigeration units, for heating using the latest technology.

Kesko also actively examines the use of renewable energy sources. Among other things, the use of soil and water as sources of heat and cooling, as well as solar energy, will increasingly be potential alternatives as technical solutions become more sophisticated.

Products and services that enhance enery efficiency at homes and are available at the building and home improvement stores make it easy for customers to improve the energy efficiency of their homes and to find solutions that support sustainable development.

Risks

Climate change increases the risk of extreme weather phenomena. Extreme phenomena may cause damages or business interruptions that cannot be prevented. There is also the risk that insurance does not cover all unexpected accidents and damages caused by extreme weather phenomena.

If energy source policies prove wrong, they may lead to unpopularity among customers, shareholders and investors and cause financial losses.