I don’t usually stare at message likes, but in this thread, I’ll make an exception. It seems that wishful thinking appeals to fellow debaters. In this thread, it’s not understood that a “discounting strategy” doesn’t work with the same logic in a neighborhood pizzeria as it does in a grocery store. People rarely go for pizza. Kesko’s problem is not how often people visit stores, but how much is bought from stores and how much is bought from competitors. That’s why a “discounting strategy” is reflected faster in turnover. Now we see that the latest discounting strategy fell flat.
Thanks to @peruspiensijoittaja for the “the emperor has no clothes” comment. In the grocery retail sector, Kesko’s performance simply has to improve. Otherwise, market share will be lost, and margins will shrink due to purchase prices.
Do you mean unrealistic expectations for PT’s prospects with “dream fluff”? Many probably think that if Kesko is doing reasonably well already, the situation is unlikely to worsen during an economic upturn? Cf. this in-depth analysis by Aki Pyysing shared earlier.
Precisely that thought error should be avoided, that Kesko’s grocery trade (PT) only lives according to economic cycles, especially when examining market shares. And it hasn’t even historically materialized to the extent many think. The better economic period preceding the financial crisis did not bring Kesko additional market share in the grocery trade. And on the other hand, in the 2010s, the company was able to increase its market share during an economically very difficult time.
Kesko’s car trade is doing well. The construction side lives according to economic cycles, so I’m more interested in the development of market shares than sales development, which looks good in the big picture. On the PT side, I’m concerned that for how many years now, market shares have been developing like church membership numbers, and the visibly launched “halpuutus” (price reduction campaign) did not succeed this time either in improving the price image or increasing customer traffic.
The key challenge, of course, is that grocery shopping is increasingly concentrated in large stores. While S-Group has been reasonably active in opening super- and hypermarkets, Kesko’s efforts have been sluggish. Last year, the number of Citymarkets was at least increased by one, but the number of K-Supermarkets stagnated. This year, fortunately, there is more activity regarding new stores. Hopefully, this will also be reflected in sales figures.
On all of these (the cycle’s effect on grocery market share, the effect of store sizes, the scarcity of new establishments), I largely think the same way. I don’t predict a dramatic change in market share for Kesko either, but instead, I believe that the EBIT margin will rise in the coming years.
It’s good to note that the markets do not operate in a static state when it comes to these marketplace investments. Lidl has opened several new stores, for example, in the Helsinki metropolitan area recently, and Prismas are being heavily renovated, with new ones also nearing completion.
The saturation point was reached a good while ago. Visitor numbers in the provinces are decreasing, and new investments may, in some cases, cannibalize the sales of nearby stores of the same chain. These few new hypermarkets won’t move the needle much.
A large part of people invest in quality in their purchases when it comes to cars, tools, home appliances, etc. Why wouldn’t the same people invest in quality in grocery purchases as well?
In Kesko’s grocery trade, quality-conscious customers probably form a significant core customer base, and I am of the opinion that maintaining or improving the quality image is Kesko’s only opportunity to balance margins and market share.
I have been following Kesko’s price investment with some trepidation, hopefully it remains a short-lived experiment.
The worst thing in Kesko’s story would be if a few percentage points of market share increase in the grocery trade were scraped together by shrinking margins. At worst, we are in a situation where margins shrink, the perception of quality weakens, but market share grows only marginally. Then we are in a vicious cycle, where it can be difficult to hold onto quality and customer satisfaction.
Of course, growth is needed, but Kesko’s R&T is for that.
To my delight, I have followed Kesko’s inorganic growth even in a weak market. Hopefully, more news will come from that side.
I agree. However, when grocery shopping, the same generic product is fundamentally sold, so if the product selection is similar, price remains the only differentiating factor, and the most cost-effective operators succeed best in that competition.
K-stores have traditionally been somewhat faster in bringing new service concepts to consumers. S-Group has been quite good at copying these on a fast schedule, so the competition in optimizing customer experience is tough.
There are considerable differences between stores in the quality of fresh produce, fruit and vegetable departments, and the fish and meat at the deli counters, even if the same items are available.
There is certainly a difference. The solvent group willing to pay a premium is simply not very large in Finland. Good enough suffices for most, and at least in my experience, stores like Prisma have improved their quality perception in recent years and have significantly approached Citymarket stores. At this point, one can already critically begin to ponder the competitive landscape.
Otherwise, the operations seem quite good, but I’m not particularly enthusiastic about the food sector, which unfortunately constitutes a large part of the company’s business.
Prismas have indeed improved, so the market slipping to the S-chain is hardly due to mere cheapening. This might be an opportunity for Kesko to sharpen up.
There’s certainly always room for improvement on the quality side.
In Finland, the competition in the food sector has probably not been particularly tight in past years, and that can lead to a slowdown in development. Competing on price is a lazy and bad solution if other opportunities can be found.
In my opinion, a small misconception about the lack of competition has arisen because small markets usually only accommodate two or three large players. Over the decades, really tough players have dropped out of the competition here. At its peak, Tukko had a larger market share than S-Group (S-ryhmä) does today.
In my opinion, the key competitive advantages in the retail trade are price, accessibility, and selection. One must perform at least reasonably well in each of these sectors to defend a market share as large as Kesko’s.
I can’t comment on the misconception of a lack of competition. For Kesko, the grocery business has been one of the most profitable in the world. More on this topic can be found from many different news sources.
Paywall:
Today’s Aamulehti features a story from the merchant of the Cittari opening in Lempäälä’s Ideapark this autumn:
Strengths being pursued:
-Store furniture selection through ‘wow’ elements.
-Self-smoked meat and fish in the store.
-Emphasis on homemade food.
-Customer needs are taken into account, offering, for example, sushi, which cannot be found elsewhere in Lempäälä.
-Prisma next door, but in the merchant’s opinion, both stores have their own strengths and thus their own customer base.
My opinion: The aforementioned might be small things, but in my opinion, they are headed in the right direction compared to starting a bloody price war to drive down margins. Of course, loss leader offers must also be available.
At least I myself would, in this case, primarily choose Cittari instead of the adjacent Prisma.
Quality differences can be found, and they matter.
I’ve never seen such statistics, it would be interesting. What makes you think then that young people visit K-stores less than older people?
Many factors certainly influence people’s choices and habits. Perhaps age is one of them, but hardly the most important.
On the other hand, I feel that K-stores are popular among young people, for example, because K has a wide selection, many special products, and always those new items that young people are interested in.
Completely agree, e.g., the quality of vegetables and fruits, ready meals, fish, meat, cheese counters, etc.
It has always puzzled me that here on this forum too, often, and among Finns, it always has to be the cheapest… Quality and profitability first, and sufficient competitiveness – in that, Kesko, in my opinion, performs quite reasonably even in the grocery retail sector.
There are many people at that income level who genuinely have to look for the cheapest option; that should always be kept in mind. Although the poor are not the stingiest but often give from their last, but now I’m already straying far from the topic.
I strongly believe that if Kesko launched a bonus system similar to the S-card, quite a few would switch to K Group’s services, but they are currently playing with discounts that many don’t bother to spot.
Fortunately, however, everyone has a few options and can choose from them .
P.S. This year we’ve mainly been to Mercadona , but that too will soon be “fixed”…
This made me think that, for me, in an ideal situation, Cittari and Prisma would be next to each other.
Often I buy coffee, meat, ice cream, etc., special offers from Cittari and other items from Prisma. For me, the 5% Bonuses are met every month, which directs my visits to Prisma. On the other hand, the bonuses continue to grow in S-Pankki’s funds, into which they automatically go.
So as not to be completely off-topic, I started wondering how many people like me there are, and whether Cittari’s coupon offers and “mammoth market” special pricing policy are an advantage or a disadvantage in these situations?
Should one rather try to create a unique offering and maintain familiar quality criteria, as is clearly attempted in Ideapark, instead of experimenting a bit with price without the intention of being able to comprehensively compete with S-Group?
Kesko’s stock trend was, until recently, upward by all metrics
“KESKOB daily/weekly/monthly up trend”
High domestic unemployment figures in February may have turned the trend downward for now. Kesko’s March sales figures will determine the short-term direction of the stock. If unemployment figures have directly negatively impacted consumption, then now might be a bad time to buy Kesko’s stock.
Soon, once the weather improves, permit-free construction will take place, and one would think this would reflect in Kesko’s hardware store results. It might be that I’ll add more during the spring, while it’s still cheap…
S-Group’s share in the grocery trade grew last year to 48.8%, an increase of 0.6% from the previous year. Kesko’s market share decreased by a corresponding amount and was now 33.7%. It’s not easy for Lidl either, as its market share decreased by 0.2% and was now 9.4%.
This “permit-free” construction is not only a myth but also something people don’t understand. For example, that zoning regulations etc. are still in force.
Furthermore, in my opinion, nothing indicates that Kesko, specifically, would benefit from this in any way. At most, through a temporary price increase.
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, but that too will soon be “fixed”…