Kesko Ltd (Kesko Oy)

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Kesko Ltd (Kesko Oy)

Satamakatu 3, P.O.B. 135-136
Helsinki, Finland
(358) 0 1981
Fax: (358) 0 655 473

Public Company
Incorporated: 1940
Employees: 6,816
Sales: FIM $26.64 billion (US $5.08 billion)
Stock Exchanges: Helsinki
SICs: 2095 Roasted Coffee; 5064 Electrical Appliances, TV, & Radios; 5083 Farm & Garden Machinery; 5091 Sporting & Recreational Goods; 5112 Stationery & Office Supplies; 5136 Mens and Boys Clothing; 5137 Womens and Childrens Clothing; 5139 Footwear; 5141 Groceries; 5142 Packaged Frozen Goods; 5143 Dairy Products; 5148 Fresh Fruits & Vegetables; 5191 Farm Supplies; 5411 Grocery Stores; 5311 Variety Stores; 5511 New & Used Car Dealers; 5551 Boat Dealers; 5561 Recreational Vehicle Dealers

The largest trading company in Finland, Kesko Ltd is the parent corporation of the K-Group, comprising some 2,400 independent retailer-shareholders who operate nearly 2,700 stores specializing in groceries, leisure goods, and consumer durables. Total sales for the K-stores in 1992FIM $32.2 billion, or US $6.14 billionexceeded that of the corporation itself. Keskos largest division by far is Foodstuffs, which represents 71 percent of the K-Group outlets and 59 percent of corporate sales. The Agricultural and Builders Supplies and Non Food Divisions form the remainder of the company. The Non Food Division, reorganized on January 1, 1992, consists of departments devoted to clothing, household goods, leisure goods, home electronics, and shoes. Kesko also serves as one of Finlands major importing firms, handling such international brands as Audi, Brooks, Browning, Daewoo, Fuji, Volkswagen, and Yamaha. Through its subsidiaries, many of which fall within the domain of the Agricultural and Builders Supplies Division, Kesko enjoys additional diversity as a major participant in the construction and agribusiness industries, despite troubling economic trends that caused a nearly 20 percent decline in division sales from 1990 to 1991.

Kesko was formed following mergers and dissolutions of nearly a dozen retailer-owned wholesale companies active in Finland prior to World War I. By the beginning of World War II, only four such companies, called the group of rural retailer companies, were left to vie for market share against other competitors in the rural foodstuffs industry. These four were Maakauppiait-ten Oy, founded in 1906 and headquartered in Helsinki; Kauppiaitten Oy, founded in 1907 and located in Vaasa; Oy Savo-Karjalan Tukkuliike, founded in 1915 and centered in Vyborg; and Keski-Suomen Tukkukauppa Oy, founded in 1917 and located in Jyväkylä. The early association of these four main companies represented a transition in Finlands goods distribution system from traditional wholesale trade to owner-operated wholesale companies, a transition upon which Finlands entire cooperative movement was ultimately modeled. Two large central companies already in existence, the Finnish Co-operative Wholesale Society SOK and the Central Cooperative Society OTK, would eventually be surpassed by this group that joined to form Kesko. Even during their infancy, three of the core fourMaakauppiaitten, Kauppiaitten, and Savo-Karjalan Tukkuliikerepresented sizeable businesses with extensive office networks and net sales second only to the two central co-ops.

According to the corporate publication 50 Years of Kesko: Attempts were made to merge the retailer-owned wholesale companies almost from the very beginning, as the first negotiations on the matter took place as early as in 1908. Although prior to the formation of Savo-Karjalan Tukkuliike or Keski-Suomen Tukkukauppa, these original negotiations led to a series of meetings throughout the 1910s and 1920s, during which time several small mergers took place. A large merger of the core four almost succeeded in 1928, prevented only by the strong men of the two biggest companies, who had firm opinions about the principles of the new company, and the other companies could not accept them. The firm opinions, of course, pertained to how the new company would be managed and what degree of administrative clout each of the original managers would retain following the merger.

One positive outcome of the 1928 negotiations was the formation of two organizational bodies, Vähittäiskauppiaiden Tuk-kuliikkeiden Yhdistys (VTY) and Kauppiaitten Keskuskunta. The purpose of the former was to serve as a consortium for more uniform purchasing by the four; the latter was to serve as a joint-service cooperative for the importation of wholesale goods as well as domestic industrial production, as the Kauppiaitten company already operated a Lahti shirt factory and a Helsinki coffee roastery. According to 50 Years of Kesko, Kauppiaitten Keskuskunta did not become a very significant company during the 1930s but, in the end, it became the seed of Kesko because of its registration of the K-emblem and the Kesko logo. In late March 1940, following another decade of ongoing but disappointing negotiations as well as the conclusion of the Winter War with Russia, new talks among the four companies resumed. Despite one potentially considerable stumbling blockSavo-Karjalan Tukkuliikes loss of most of its eastern Finland operations to Russian control during peace negotiationsKesko Oy became a reality by October. Combined sales at the time totaled FIM $1.25 billion; retailer-shareholders for the group numbered some 5,800.

Fittingly, the chair of the largest merged company, Maakauppiattens Oskari Heikkilá, was elected Keskos first chairperson. The companys original supervisory board consisted of 21 other members, with seats apportioned according to the net sales of the predecessor companies. The name Kesko, which had no historical ties to any of the founding companies, was adopted. Interestingly, the formation of Kesko did not legally constitute a merger because all four companies dissolved themselves and distributed their net assets to shareholders, who in turn subscribed to new shares of capital in Kesko, a wholly new limited liability company.

From the end of World War II to 1950, Keskos district network grew from 19 to 22 regional offices while K-emblems spread to the stores of some 3,700 shareholders. Through the formation of Consultative Committees, introduction of purchase discounts, and implementation of support services, Kesko began to transform itself from a strictly wholesale concern to a central company devoted to its members. Beginning in 1950, the emphasis on district expansion and internal restructuring was exchanged for diversification beyond foodstuffs, into the related areas of animal feed, fertilizer, and agricultural machinery, as well as the construction industry.

During the late 1950s, as Finland altered from a primarily agrarian and rural to a primarily industrial and urban economy, Kesko adapted itself as well. Large numbers of K-stores located in outlying regions had to be closed, while nearly as many new K-stores had to be erected closer to urban centers. Coincident with this dramatic upheaval for Kesko retailers, the central company faced shortages in capital, spiralling growth in personnel, and mounting transportation and distribution expenses.

The most significant action taken by the company during this period of growth and transformation was the decision to take Kesko public, through a division of the companys stock into exclusive and ordinary shares. Thus, in 1960, Kesko was listed on the Helsinki Stock Exchange, and new capital was available to solve its problems while governance of the company remained in the hands of the exclusive shareholders, the retailers themselves. Enormous advancements during the 1960s, including the completion of a central warehouse in 1965 and the implementation of long-term retail development programs, paved the way for significant growth during the 1970s. During this decade, Kesko came into its own and saw its combined market share rise from 23 percent to almost 30 percent. Confident, after weathering the rationing policies and manufacturing shortages of the 1950s and 1960s, that foodstuffs could steadily generate at least half of corporate sales, Kesko poised itself for more rapid growth in its Agricultural and Builders Supplies Division.

During the 1980s, Kesko fulfilled its longtime plan of divesting itself of most of its manufacturing operations, which over the years had come to include a margarine factory, flour mill and bakery, match factory, ryecrisp company, meat processing company, bicycle factory, clothing factory, and coffee roasting plant. The process had been a slow one, for at the beginning of the decade the last three still remained within the companys holdings. Management decided to retain only the roastery, the strongest performer in net sales of all Keskos manufacturing units. The necessity of having a coffee roastery of our own has been generally approved, according to 50 Years of Kesko, because coffee has been the most important campaign product ever since the Second World War. Keskos establishment in 1991 of Viking Coffee Ltd., a roastery jointly owned with a Swedish central company, affirms the companys continuing commitment to this important micro-market.

Having become the largest central trading company in Finland, Kesko entered the 1990s streamlined (its district offices progressively pared down to just nine) and prepared for strong continuing growth. However, due to a depressed national and global economy, the company saw net sales decline by 6.5 percent from 1991 to 1992. Chair and Chief Executive Eero Utter nonetheless found cause for optimism in the increased market share for most of Keskos product groups: Although the Kesko Corporations profit for 1991 decreased from the previous year, the Corporation and the whole K-Group has coped and will continue to cope with the recession very well in comparison with other companies. Despite relative anonymity in the United States, Kesko has emerged as a singularly important Finnish company, controlling some 40 percent of the overall grocery market. Its ranking by Fortune in August 1992 as the 56th largest global service company further demonstrates that the critical decision to go public back in 1960 has repaid the cooperative handsomely.

Principal Subsidiaries

K-Cash & Garry Ltd.; Auto-Span Oy; Keskometalli Oy; K-Motts Oy; K-maatalousyhtiöt Oy; K-yhtiöt Oy; MK-mainos Oy; Interrent Oy; Suomen Väri Oy; VV-Auto Oy Viking Coffee Ltd. (50%).

Further Reading

A Capital K Is the Key to the Finnish Market, Helsinki: Kesko Corporation, 1991.

Fifty Years of Kesko, Helsinki: Kesko Oy, 1990.

The 500 Largest Foreign Companies (table), Forbes, July 28, 1986, p. 192.

The Global Service 500 (table), Fortune, August 24, 1992, p. 212.

Kesko Annual Report, Helsinki: Kesko Corporation, 1991.

Jay P. Pederson