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Operating environment

Trading sector operations are affected by various global megatrends, ranging from digitalisation to climate change. By identifying the trends that affect K Group’s operations, we are able to effectively anticipate future challenges and opportunities and respond to them better.

Megatrends:

Globalisation

Digitalisation

Urbanisation, single-person households, ageing population

Increased consumer knowledge and power

Sustainability and strong brands

Climate change

Trends affecting K Group's operations

International operators challenge local companies

  • Intensified price competition
  • Global supply
  • Increased sales of own brand products

What we are doing

  • We focus on core businesses
  • We use quality and product selections to differentiate ourselves from the competition
  • We offer a wide selection of own brand products

Digital stores and services

  • Growth in international online sales
  • Ease of shopping
  • Targeted marketing based on customer data

What we are doing

  • We offer the best online store customer experience
  • We offer versatile mobile services
  • We personalise and target our offering to customers
  • We offer versatile electronic services to B2B customers

Increasingly individual customer behaviour

  • Ageing population
  • More single-person households
  • Urbanisation
  • Increased cultural diversity
  • Changes in eating habits

What we are doing

  • We utilise customer data in the development of our store and service concepts
  • We make all stores different, customised to meet local customer demand
  • We focus heavily on reshaping neighbourhood store services

Increased consumer knowledge and power

  • Transparency in product selections, prices and availability
  • Importance of social media: source of information, exchange of experiences, interaction
  • Product origins and sustainability key selection criteria

What we are doing

  • We make clear customer promises and deliver on them – service, quality, price
  • We offer products and services in multiple channels to suit customer needs
  • We follow the principles of sustainability

Sustainability and strong brands as preconditions for success

  • Good corporate governance
  • Responsible operating principles
  • Climate change and circular economy
  • Transparency of purchasing chains
  • Open dialogue with stakeholders
  • Responsible investments

What we are doing

  • We make K a strong top level brand
  • We make sure that corporate responsibility is realised in all our operations
  • We promote the use and production of renewable energy
  • We develop innovative circular economy solutions together with our partners
  • We work to ensure responsibility throughout the purchasing chain
  • We strengthen our corporate identity and core brands
  • We make corporate responsibility visible in stores and marketing

K Group's value chain

We operate sustainably and responsibly in all parts of our value chain. In addition to its direct impacts, our value chain generates significant indirect impacts.

Raw materials
Kesko Raw materials
Purchasing chain
Kesko Purchasing chain
Logistics
Kesko Logistics
Multichannel trade
Kesko Multichannel trade
Products and services
Kesko Products and services
Circular economy
Kesko Circular economy

Sustainable environment

  • We promote the sustainable use of natural resources.
  • Our soy, palm oil, plastics and other policy statements guide our responsible sourcing.

Responsibility across purchasing chains

  • We support local production.
  • We are accountable for the safety and quality of products.
  • We ensure the responsibility of production in high-risk countries.

Efficient logistics

  • We have customer oriented logistics models.
  • We reduce emissions with an efficient transportation fleet and optimisation of logistics.

Easy shopping instore and online

  • K Group is a significant employer: 42,000 employees.
  • We have some 26,300 suppliers.
  • Our comprehensive store network is close to our customers.
  • We develop digital services that make customers’ lives easier.

We put the customer first

  • Every K-store is different, because every customer is different.
  • We make use of customer data and offer personalised benefits and services to our customers.
  • We build sustainable partnerships with our business customers.

We promote circular economy

  • We develop innovative circular economy solutions.
  • K-food stores host nearly 400 Rinki eco take-back points.
Taustaviiva
 

Kesko's value chain

Kesko Raw materials
Raw materials

Sustainable environment

  • We promote the sustainable use of natural resources.
  • Our soy, palm oil, plastics and other policy statements guide our responsible sourcing.
Kesko Purchasing chain
Purchasing chain

Responsibility across purchasing chains

  • We support local production.
  • We are accountable for the safety and quality of products.
  • We ensure the responsibility of production in high-risk countries.
Kesko Logistics
Logistics

Efficient logistics

  • We have customer oriented logistics models.
  • We reduce emissions with an efficient transportation fleet and optimisation of logistics.
Kesko Multichannel trade
Multichannel trade

Easy shopping instore and online

  • K Group is a significant employer: 42,000 employees.
  • We have some 26,300 suppliers.
  • Our comprehensive store network is close to our customers.
  • We develop digital services that make customers’ lives easier.
Kesko Products and services
Products and services

We put the customer first

  • Every K-store is different, because every customer is different.
  • We make use of customer data and offer personalised benefits and services to our customers.
  • We build sustainable partnerships with our business customers.
Kesko Circular economy
Circular economy

We promote circular economy

  • We develop innovative circular economy solutions.
  • K-food stores host nearly 400 Rinki eco take-back points.

Opportunities and risks related to our operating environment

Opportunities and risks related to our operating environment are presented below. Click on the headings for detailed descriptions.

Economic operating environment

Our three strategic growth areas are the grocery trade, building and technical trade, and car trade. From the perspective of growth, key objectives include increasing our market share in the Finnish grocery trade, strengthening our position in the building and technical trade in Northern Europe, consolidating our market leadership in the Finnish car trade, and developing digital services and multi-channel trade.

Opportunities

Risks

  • Competitive prices, customer focus, and quality give us a competitive advantage.
  • Tight price competition can weaken the profitability of Kesko and the retailers. Failure to deliver on the quality promise would reduce customer satisfaction.
  • In the building and technical trade, the growth in B2B trade clearly outpaces that of B2C trade.
  • In the building sector, cyclical fluctuations may be strong.
  • Our strong financial position provides excellent opportunities to develop operations.
  • Kesko’s market performance varies greatly from one country and division to another.

 

Development of retail market in Kesko's operating countries in 2015–2017

Source: Eurostat / Retail trade excluding motor vehicles and fuel, deflated figures

Multi-channel approach

In line with our strategy, we aim to offer customers the best multi-channel shopping experience in the trading sector.

Opportunities

Risks

  • The combination of online stores and digital services and our comprehensive store site network creates a basis for excellent customer service in K Group.
  • Challenges to the profitability of online stores include the cost-efficiency of logistics operating models and the adaptability of existing store sites to the logistics of online sales.
  • We provide our customers with the best possible service that meets their needs, in either physical stores, online or both, irrespective of time and place, at all stages of the buying process.
  • Continuous changes in e-commerce and digital services present special challenges to the rapid development of new services and their integration into existing operating models and systems.
  • To improve customer satisfaction and increase sales, we develop personalised customer marketing based on shopping behaviour, and increase the availability of online information about products, prices and availability.
  • With the growth of e-commerce or changes in market situation, there is a risk that the operations of a chain relying on physical stores or a store site become less profitable.

 

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. We take care to ensure that all operations and the whole supply chain are responsible. Product safety management must be flawless and traceable across the entire supply chain.

Opportunities

Risks

  • 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.
  • Non-compliance in the management of social or environmental responsibility within the supply chain may cause human rights violations, environmental damages, financial losses and the loss of customer, owner and investor confidence while negatively affecting the corporate responsibility work and its credibility.
  • We can help customers make responsible purchasing decisions by means of corporate responsibility communications, the stores' K-responsibility concept and product labelling.
  • We strengthen customer confidence in K Group through careful and traceable product safety control and quality assurance.
  • 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 impacts of Kesko and K Group stores. In accordance with our environmental and energy policy, our real estate functions work in cooperation with business partners to develop solutions for the building, renovation, concept changes, maintenance and use of real estate properties which reduce the consumption of materials and energy during the life cycles of these properties. We also help our customers find energy-efficient solutions.

Opportunities

Risks

  • We efficiently recover waste heat, such as condensation heat generated by store refrigeration units, for heating using the latest technology.
  • Climate change will increase the risk of extreme weather phenomena.
  • Extreme phenomena may cause damage or business interruptions that cannot be prevented or covered with insurances.

 

  • We also actively examine the use of renewable energy sources. Among other things, the use of soil and water as heat and cold storages, as well as the use of solar energy, will increasingly be potential alternatives as technical solutions become more sophisticated.
  • Products and services that enhance energy efficiency in 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.
  • If our energy source policies prove wrong, it may have a negative impact on our reputation and profitability.