Finland Kesko Scraps Agriculture, Starts Drugstores

Daniel Johansson (Retail Analyst)
27 April 2017

Finnish retailer Kesko strengthened its focus further on its core businesses in Q1 this year by selling its K-Maatalous agriculture business to Swedish competitor Lantmännen. Kesko also sold 45% of its Baltic machinery subsidiary Konekesko to Danish Agro, including the option for the latter to buy the remaining stock in addition to Konekesko’s Finnish operations.

Instead, the retailer started a drugstore joint-venture with Finnish health & beauty and pharmaceuticals distributor/retailer Oriola-KD. The plan is to launch 100 stores in the first phase and later introduce pharmaceuticals if the current legislation is amended.

Kesko’s Q1 net sales were EUR2.597bn and increased by 2.4% in local currencies, excluding acquisitions and disposals. Grocery net sales grew by just 0.1% using those same metrics, but comparable operating profit remained relatively stable at EUR26.4mn despite several conversions of acquired Suomen Lähikauppa stores. By the end of March the retailer had converted 382 of around 400 acquired minimarkets.

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Daniel Johansson (Retail Analyst)
Daniel Johansson (Retail Analyst)

Opinion Going Where the Money Is

27 April 2017

The divestment of its agriculture business and seeking to offload its machinery division is the next logical step in the retailers more focused strategy. These industries are becoming increasingly consolidated and have few synergies to Kesko’s core businesses. Following the previous discontinuation of its department stores and electronics stores, the footwear/sports and furniture businesses could be the next to go. Although, as these categories are strongly represented in Kesko’s hypermarkets and DIY stores respectively, the retailer will most likely be more motivated to hold on to those.

The divestments will free up resources for its entry into the health & beauty market alongside its partner Ariola. The drugstores can be expected to enjoy strong synergies to the grocery business, and with healthy eating being a major trend in Finland it seems a wise decision. If the pharmacy market is to be deregulated at some point, the stores will also allow Kesko to have a pharmacy network ready when the time is ripe.

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