Kesko Ltd. (Kesko Oy) History

Company Perspectives:

Our basic values: Customer satisfaction is the result of successful service and high-quality products. It creates and ensures loyal customer relationships. Enterprising spirit means confidence in entrepreneurship and one's own competence, diligence and a willingness to develop in one's work and the will to produce profit. Profitability means good financial results and high-quality operations. Cooperation--both inside and outside the K-Alliance--improves the competitiveness and results of all participants. Continuous improvement means active responses to customer needs, utilization of new opportunities, open and unprejudiced attitudes to new ideas, and continuous development of operations. Responsibility and honest working methods allow one to make a full and active contribution in a changing society. Respect of other people, and solidarity create a good working environment.

Company History:

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. Kesko's largest division by far is Foodstuffs, which represents 71 percent of the K-Group outlets and 59 percent of corporate sales. Other corporate Divisions include Builders' and Agricultural Supplies, and Home and Specialty Goods, each of which includes both wholesale and retail operations. Kesko also serves as one of Finland's major importing firms, handling such international brands as Audi, Brooks, Browning, Daewoo, Fuji, Volkswagen, and Yamaha.

Early 20th Century Origins

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 Maakauppiaitten 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 Finland's goods distribution system from traditional wholesale trade to owner-operated wholesale companies, a transition upon which Finland's 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 four--Maakauppiaitten, Kauppiaitten, and Savo-Kaijalan Tukkuliike--represented 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 foundation of two organizational bodies, Vähittäiskauppiaiden Tukkuliikkeiden 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 block--Savo-Karjalan Tukkuliike's loss of most of its eastern Finland operations to Russian control during peace negotiations--Kesko 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, Maakauppiatten's Oskari Heikkilä, was elected Kesko's first chairperson. The company's 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.

Postwar Growth

From the end of World War II to 1950, Kesko's 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, spiraling 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 company's 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.

Changes in the 1980s and 1990s

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, rye crisp 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 company's holdings. Management decided to retain only the roastery, the strongest performer in net sales of all Kesko's 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." Kesko's establishment in 1991 of Viking Coffee Ltd., a roastery jointly owned with a Swedish central company, affirms the company's 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 Kesko's product groups: "Although the Kesko Corporation's 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."

The company was back on track soon, with profits for 1994 of FIM $462 million, up from FIM $285 million the year before, on a sales increase of 4.8 percent. The following year was even better, with a total profit of FIM $689 million on sales of FIM $26.4 billion. Expanding outside Finland, Kesko had begun opening several different types of stores in Sweden, and later in Russia. The K-stores chain had restructured in 1994, with stores now classed into four different size categories, ranging from "One-K," the smallest, to "Four-K," with a store's sign now showing from one to four letter "K"s on it as appropriate. Each size had a different emphasis, with the smallest ones, for example, posting a list of "10 principles" on the wall near the entrance which stated such ideals as, "You can always have a few words with the shopkeeper," or "You'll always feel cozier in our store than in big supermarkets." Despite the variations in size, the stores were organized identically, enabling shoppers to find things easily in any store in the chain.

The year 1996 saw Kesko acquire a large commercial trading house, Kaukomarkkinat Oy, while it sold Keskometalli Oy, a steel and metal service center and distributor. An attempted acquisition of the Tuko chain of supermarkets, however, was thwarted by the Commission of the European Union after the Finnish government requested that it examine the case. The country could not intercede itself, as it had no laws governing large corporate mergers. Control of Tuko, the second largest supermarket chain in Finland after K-stores, would have given Kesko nearly 60 percent of this market, and the EU ruled against Kesko because it believed that this would significantly impede competition. Having already begun the acquisition process, Kesko was forced to sell off most of the portions of Tuko that had already been purchased.

This setback was not a total debacle, however, as Kesko reported that it was selling off its Tuko stake at cost, and by 1998 the company was posting yet another record year for profits and sales. The company installed a new CEO, Matti Honkala, and announced plans to add wine sales to its food retail outlets and expand further into the Baltic States. Another acquisition had come in late 1997, that of Academica Oy, an information technology company, which boosted Kesko's presence in the computer marketplace. Kesko also reorganized its Foodstuffs and Home and Specialty Goods Divisions around this time.

Despite relative anonymity in the United States, Kesko is a singularly important Finnish company, controlling some 40 percent of the country's over-all grocery market, and looming large in other areas including department stores, wholesaling, importing, and coffee roasting. It appears to have become a permanent fixture in the Finnish landscape.

Principal Subsidiaries: Kaukomarkkinat Oy; VV-Auto Oy; Antilla Oy; K-maatalousyhtiöt Oy; Rautia Oy; Viking Coffee Oy (50%).

Principal Divisions: Foodstuffs; Builders' and Agricultural Supplies; Home and Specialty Goods.

Further Reading:

• A Capital K Is the Key to the Finnish Market, Helsinki: Kesko Corporation, 1991.
  Fifty Years of Kesko, Helsinki: Kesko Oy, 1990.
• "Finland: Kesko-Tuko Case--The Finnish Experience of the Use of the 'Dutch Clause'--Castren & Snellman," Mondaq Business Briefing, February 6, 1997.
• McCabe, Jane, "Commanding Respect (Finland's Coffee Industry)," Tea & Coffee Trade Journal, February 2, 1995, p. 16.
• Raphael, Murray and Neil Raphael, "The One-Idea Trip--Innovative Ideas For Grocery and Convenience Stores," Progressive Grocer, March 1, 1996, p. 23.

Source: International Directory of Company Histories, Vol. 27. St. James Press, 1999.