RetailAnalysis
13 March 2017
Kesko: 2016 results, health & beauty joint venture

We review the latest results from Finland's Kesko, including its 2016 results and move to enter a 'health, beauty and well-being' chain through joint venture with Oriola-KD.

Results driven by acquisition

Kesko has published its 2016 results, reporting that group net sales increased by 17.3% to €10.2bn. Kesko’s grocery trade saw net sales increase by 12.4% to €5.3bn, although this was largely driven by the acquisition of Suomen Lähikauppa, providing Kesko with ‘Finland’s most comprehensive network of the most service-oriented neighbourhood stores’. Siwa and Valintatalo stores are expected to be converted to K-market stores by spring 2017. Elsewhere, in November 2016, Kesko also sold its grocery operations in Russia to Lenta.

Format-wide refurbishment underway

Between 2016 and 2017, Kesko will have opened 30 new supermarkets, while 20 stores will be refurbished. Kesko also plans to refurbish all hypermarkets by the end of 2018, while 23 of these stores have already been refurbished. Elsewhere, all Neste K service stations will be refurbished by the end of 2017.

Online & digital a key focus area

Around 100 of Kesko’s grocery stores in Finland now offer an online and click & collect service. Going forward, the retailer will prioritise adding this service in its grocery stores throughout Finland.

Digitally enabled solutions have also been a priority. Kesko now offers shoppers more personalised benefits, while the K-food app offers smart shopping functionality, recommending products that shoppers frequently purchase.

Private label and vegetarian ranges increasingly popular...

In 2016, private label accounted for around 20% of Kesko’s grocery sales. Kesko offers around 2,900 products across the Pirkka, Pirkka Parhaat and K-Menu private label ranges, while 66 new products launched during the year.  Elsewhere, as vegetarian foods become increasingly popular, Kesko has introduced a dedicated zone that brings plant-based protein together in 100 Kesko stores.

...As Kesko looks to launch 'health, beauty and well-being' chain

Kesko is partnering with pharmaceutical wholesaler Oriola-KD to introduce ‘a comprehensive health, beauty and well-being’ chain of stores through a joint venture. This is subject to competition authority approval, although this is anticipated by the third quarter of 2017.

Commenting on the development, Kesko President and CEO Mikko Helander said,‘Kesko has extensive experience in the grocery store, as well as a strong D-consumer brand. Oriola-KD, in turn, is a prestigious health and distributor of wellness products, as well as pharmaceutical expert. We're going to build together the leading health, beauty and well-being of the chain, which Finns trust.’.

An emerging Nordic strategy to capitalise on health trend?

Oriola-KD is owned by Kronans Apotek, the third largest pharmacy chain in neighbouring Sweden. In 2014, Swedish market leader ICA acquired the country’s largest private pharmacy chain, Apotek Hjärtat for €618.2m. Combining this with ICA’s existing pharmacy chain gave ICA the number two position in the Swedish pharmacy market.

Although Kesko’s potential joint venture with Oriola-KD is on a much smaller scale, it will be interesting to see how the store concept could develop. Health and wellness is set to continue to be of key importance driven by lifestyle and demographic trends. We expect industry investment to accelerate in this area further in 2017. To find out more about this and other trends that IGD believes will shape the global retail market this year, click here.

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