Competitors and the Market
Tokmanni’s and Dollarstore’s competitors are performing well, and the market appears to be in a clear growth mode right now.
Clas Ohlson April - Organic Growth
• Sweden +7%
• Finland +12%
Last 12 months - Organic Growth
• Sweden +8%
• Finland +7%
Nordea’s card data also points to an excellent March and a reasonably good April.
It is also interesting that development varies significantly by region. The difference between the best and worst is 12 percentage points. Tokmanni likely has a fairly strong presence in Uusimaa?
https://corporate.nordea.com/api/research/attachment/198841
CEO Change and Profit Warning
I cannot comment on the probability of a profit warning. However, I think it is important to recognize that the CEO transition makes this year exceptional. Such long CEO transitions are invariably very difficult and are only resorted to when forced by necessity because no other option is possible. No one surely doubts Rautiainen’s motivation to push at 110% until the end. But it’s not about him. It’s about the fact that the entire organization knows that no matter how much Mika reassures them that “Item X is the right direction forward,” a new leader is coming, and Item X might not be the right direction in the future.
Yes. A new leader’s job is to keep the old things that work and develop them further.
AND at the same time, a GOOD leader for a company finds new perspectives, stops and halts certain things, builds a new direction, and challenges old attitudes and assumptions. It is, so to speak, normal that Tokmanni’s management/organization hasn’t been in top form in this context over the last year. I don’t believe this is the decisive or primary factor, but the organization and management would be lying to themselves if they said it has no impact at all.
Another psychological factor and the CEO change affects this year as well. Rautiainen has undoubtedly achieved excellent things at Tokmanni. Especially during the pandemic and the “stay-at-home” boom, the concept was in great shape and produced wonderful results. Revenue has nearly doubled during his tenure. I could well imagine that Tokmanni’s management and board want him to have an honorable and respectful retirement. Because he truly deserves it!
And at the same time, it is unfortunately true: the Dollarstore acquisition has proven to be expensive, strategically risky, and has shown that Tokmanni does not (yet) have deep and demanding retail concept expertise outside of Finland. It can be learned, but there are no guarantees. The more Tokmanni has changed DS, the more customers have become alienated from DS. Ahead lies a long and expensive road to build a new and functional concept that beats competitors. And there are no guarantees—what if the competitors evolve faster? What if the “honest-working-man-former-TV-actor-Mr.-Tokmanni” isn’t interesting or better in the eyes of the Swedish consumer…? Domestically, the Eurospar experiment is interesting. But will it remain a change for a few easy stores and volumes equivalent to “one big Prisma”? Would the return on capital be better if the entire organization’s development capability and attention were focused on improving core Tokmanni margins—rather than learning something new, especially when the competitors aren’t the easiest “Swedish discount retail home teams” and the “globally unique grocery duopoly”? And as a result, the share price is below listing levels.
Regrettably, the multi-front war has started to backfire. If April-May doesn’t go as planned, for example in Sweden, will the Tokmanni organization be tempted to push out a profit warning as Rautiainen’s final legacy and thanks? A profit warning would, in a way, highlight Rautiainen’s biggest failure. Or is there a temptation perhaps to postpone such an unpleasant event, if June were to bring a positive change… At the same time, it’s good to realize that the new CEO has no accountability for history; in late summer, he will have the easiest job in the world to guide downwards. “I joined the company and unfortunately I must now state facts as facts: it is not realistic to reach these results and therefore…” Päällysaho’s performance-based pay is likely not tied to the share price development of the first 3 months.
Quite an interesting situation overall. One thing that has probably been learned is that in the retail sector, simplicity is one important strategic competitive advantage.