Axfood signs new wholesale deal, Kesko improves

Related tags Cent Estonia Kesko food

Swedish food retail and wholesale group Axfood is to supply a
further 105 convenience stores under the terms of a new agreement
worth SK100 million. Meanwhile, Finnish counterpart Kesko has
shrugged off a relatively poor performance in its home market to
post a 9 per cent improvement in sales for 2003.

Axfood Närlivs, one of the Swedish group's two wholesale businesses (the other being Dagab) will take over the contract to supply the retail group Direktbutikerna, replacing fellow wholesaler ICA Meny.

The new agreement, which will come into force on 1 July 2004, will run for more than four years, terminating on 31 December 2008.

Direktbutikerna is a purchasing organization whose owners consist primarily of convenience store proprietors throughout Sweden. Direktbutikerna currently has 105 member stores.

The new co-operation agreement will also see Axfood Närlivs and Direktbutikerna work together to design a new convenience store business for the Swedish market.

The Axfood​ group runs a number of different store banners in the Nordic markets, including Hemköp, Willys and Willys hemma, as well as supplying many more through its wholesale operations. In total, it runs around 500 Swedish stores, of which 220 are wholly owned, as well as some 290 stores in Finland, of which 80 are wholly owned.

The company's market share is 18 per cent in Sweden and approximately 8 per cent in Finland.

Kesko shows steady growth

Meanwhile, another leading Nordic retailer, Finland's Kesko​, has announced a 9.3 per cent improvement in sales for 2003 to €7.1 billion, a sold performance from the diversified retail operator driven by rising consumer confidence and the rapid strengthening of the economy throughout the entire Baltic region. However, the domestic grocery business remained difficult.

According to estimates from the Research Institute of the Finnish Economy, cited by the company, Finnish GDP grew by 1.3 per cent in 2003 and growth is forecast to reach 2.7 per cent in 2004. In addition, the Estonian economy grew by about 5 per cent in 2003 while the Latvian and Lithuanian economies strengthened by 6-7 per cent. The GDP growth forecast for 2004 for Estonia is 5-6 per cent and 6-7 per cent for Latvia and Lithuania. Kesko operates in all these markets, and indeed attributed the majority of its sales increase to the foreign businesses. Sales in Finland increased by 5.2 per cent over the year, compared to 54.7 per cent for the operations in Estonia, Latvia, Lithuania and Sweden.

Kesko Food sales in Finland were €3.5 billion, up 2.2 per cent on the previous year, less than the 3 per cent growth estimated for the grocery market as a whole. The year was marked by intensifying price competition and growth in sales of retailers' own brands.

Kesko Food's sales in the rest of the region were €249 million, a 34.2 per cent increase year-on-year. Kesko also operates in the DIY, home & office, clothing and agricultural supplies sectors, both in Finland and abroad.

Pre-tax, pre-extraordinary profit for the group was €161.6 million, up by more than 47 per cent on the previous year. Operating profit was 59.5 per cent higher than in 2002 at €157.6 million, although Kesko Food's profit dropped 6.9 per cent to €56.3 million because of major investments in marketing, information systems and store sites made during the first half of the year. Kesko Food's total investments were €75.5 million, of which investments in retail stores accounted for €54.0 million. About 31 per cent of all investments were made in the Baltic operations.

The company operates a number of different food store formats, with the convenience store unit K-citymarket showing the best improvement in 2003 - 10 per cent year-on-year.

But the group is also continuing to diversify into different store formats as well - in July, it formed a joint venture with the Neste group called Pikoil which operates a chain of petrol station forecourt stores and convenience outlets under the K-pikkolo name. The group will also start testing the discount store format in Finland later this year.

Kesko Food's grocery trade grew much more in the Baltic countries than in Finland, by a total of 38.2 per cent. In Estonia, net sales increased by 31 per cent and in Latvia by 105.4 per cent, helped by the rapid expansion of the SuperNetto discount chain there.

Kesko is hoping to step up its operations in the Baltic countries over the next few years, capitalising on their accession to the EU in May this year, and recently formed a joint venture there with Swedish counterpart ICA.

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