Onko yritysasiakkaissa Keskon herkkupaikka, pääjohtaja Jorma Rauhala?

We are talking about something. 4 billion, and if we have now 4.3, we are about 10% of that, so there is growth potential. This is Karo's Grill, with guest Jorma Rauhala, in cooperation with Kesko's CEO Jorma Rauhala. You have experience in both daily goods trade and then from the hardware and building technology trade. Which one shall we start the interview with today?

In daily goods trade, Kesko's aim is to strengthen its market position. That usually means increasing market share. When you look at Kesko's market share in daily goods, it was about 20 years ago somewhere around 36%. From there it steadily declined, then we bought Suomen Lähikauppa and it rose back, and now it's about 34%. So is Kesko's daily goods trade just a leaky barrel? Or maybe a cognac demijohn from which a little alcohol evaporates every year?

So concretely, how do you get, as you said, plots are not available everywhere, can we get hypermarket-sized, meaning Citymarket-sized stores in the Helsinki metropolitan area?

The grill is one year old today. Your predecessor Mikko Helander was here a year ago. Now we get coffee, luckily we already got it from the coffee machine. Yesterday from Kallio's K-Market came these gingerbread-flavored pastries, they were on promotion. But there's probably cake there too, usually when you're at a grocery store? Yes, but no mustard for this. This works so you can choose mustard to taste. Is that black one very spicy? Yes, it's spicy. This goes into Kesko's blood. And since I couldn't think of a nice mustard question, I know you're a skiing man. This isn't even available in Pirkka's bookcase, Pirkka Trendi, from the back of the Pirkka bookcase, and not yet in any store. In two weeks, Sami Jauhojärvi's life story will be published. Life stories are nice to read. But it probably also works as something to listen to on a ski trip. It's written that way. When I ski, I don't listen to anything. I listen to the sounds of nature and maybe my own breathing. Same with cycling, it's quite dangerous if you can't hear. So yes, and you are a mountain biker? Yes, I mostly ride on the road when I have the energy. In winter, the bike is on the trainer.

Then, in strategy, you updated on the Defense Forces' Flag Day, or you gave some clarifications to the strategy. Kesko announced that its strategic goal for daily goods is to strengthen the price image. So the price image of K-stores is that they are the more expensive store. Isn't this a sensible thing to confirm that you are expensive?

Does the price investment mean that you sell a bit cheaper to the retailers? To customers, consumers? Yes, we will do that. And actually yesterday I just went through plans, I was very satisfied with what I saw, how it will be done. How will you also market it somewhat, not just a temporary price cut trick, but bring a clear message to the consumer that smart pricing decisions have been made, specifically for the consumer.

Actually, I was about to move to that. In many European countries, the share of discounters is a couple of tens of percent. In Germany, it's probably around 40% with Lidl and Aldi. In Finland, Lidl's market share is around 10%, then there are other discount stores like Tokmanni, Minimani. Then the share of private labels, I looked at, for example, if I could pronounce it, Carrefour wants to achieve 40% private label share. For you, it's probably around 20% in daily goods. Does that mean that Pirkka and Menu are just being brought in more? Menu is really very price competitive.

Yes, and that is also a differentiating factor, and of course with the food industry having good relations, it probably also brings opportunities for joint development.

Now talking about price, then at the other end is probably service. Taken to the extreme, that's online grocery with home delivery. I saw that in the third quarter, online grocery grew by double digits, even though in absolute terms it's still quite small, around a few percent. But when we talk about market share tenths of a percent, it already starts to be felt. Has there been a change that Finns have started to order groceries home? That is, the option to pick up from the store or have it delivered to the door. Apparently, ordering has increased.

What about rapid delivery, i.e., the use of Wolt? There has been public discussion about how some restaurant entrepreneurs have been upset that when Wolt delivers, not only does the customer pay Wolt, but also the restaurant, in this case the store, pays Wolt. So if I order from a K-Market via Wolt to my door, the retailer has to cut into his own margin or pay Wolt protection money. How does that work?

Then, one new change since Mikko Helander's grilling last summer: stronger alcoholic beverages. Apparently, largely due to the wishes of retailers, they got onto store shelves. They haven't seemed to become a super hit yet.

Which would be higher on the wish list: raising the alcohol limit to 15% or over-the-counter medicines?

Yes, so in the context of these gingerbread-flavored pastries, with glögi, now there might be some products that naturally go with it. And then there are the special rules about fermentation, whether you ferment yourself, there are many special rules in Finland.

This PT business area also includes Kespro, which is like an old cash-and-carry, serving restaurants, cafeterias, etc. And in practice, nowadays it's that the network orders and then it's delivered to the restaurant's door, apparently quite quickly. If you order in the evening, you might get salad supplies the next morning. There are still 13 cash-and-carry locations, but it's good to mention that my first job was at a K‑Cash & Carry in Vaasa in '92, so it's a familiar place. But it's exactly that the share of delivery sales has grown a lot. Is the nearest cash-and-carry in Lahti from Helsinki? That's a good question, I haven't been there recently. But it illustrates the shift to online.

And this seems like a really good spot for the food service side. But it's probably not possible to internationalize that way because it requires large volume.

Yes, let's move outside Finland to the construction and building technology trade. Actually, similar to how Kespro is in B2B sales, the construction and building technology trade abroad, especially, is like that. There is Onninen, which is a wholesaler, and also the hardware stores, they sell mostly to business customers.

Is this the sweet spot for Kesko?

Yes, so Denmark a year ago, we talked with Mikko Helander about this Davidsen deal that was then being realized. Now in mid-August, you announced three complementary ones, which were indeed expected. With these deals, the hardware business in Denmark will rise to over a billion euros? Probably yes, though the market has been weak in recent years. But it is so. I was involved in many of these, especially in Davidsen and the later ones, and I can say it went quite well. Davidsen was only in southern Denmark, and through acquisitions we got a few individual stores elsewhere, but we saw that we weren't satisfied. So we sent a message to the market that we are interested in buying, and it was quite effective, we got the message across in Denmark, and through that we quickly got contacts to the next targets. And it went well, so after these, when they are consolidated next year, we will have all of Denmark covered, and it will rise to around 800-900 million euros. And then the market will surely start growing, and we will be number two or three in the market. So it was quite fast to get a new country under control, and a market share of around 20% is enough to achieve scale, because these are all scale businesses. This will actually surpass Norway as a hardware country, becoming the second largest hardware country after Finland, if you include technical wholesale. And that's the point: the volume is sufficient. Are there more acquisitions? Yes, it's possible, but not necessary. It's more about if a single store or something comes along. As it gets bigger, competition law might become a bit more difficult for acquisitions, but the volume is sufficient. The important thing is that we can serve nationwide customers, like nationwide construction companies, with deliveries from all over.

I noticed in the press release that these new acquisition targets are specifically B2B, serving business customers. Does that mean that now you can also expand the technical wholesale, i.e., Onninen, through these hardware stores?

Looking at Kesko's RT (construction and building technology) map, now in Denmark the hardware side is sufficiently large. Elsewhere, it feels like there is room for growth, especially through acquisitions, especially in Sweden, where the market share is quite small. So have you sent a message to Sweden as well?

Well, you just talked about starting a new store. On the other hand, it also means the barrier to entry is quite low. There are many local entrepreneurs who can start a car dealership. In recent years, there has been a lot of consolidation, and even a couple of companies focused on used car sales have gone public. But it differs in nature from how all other Kesko operations are described. Growth really has to come through acquisitions, especially on the building and technical trade side internationally.

But is there any other synergy or organic connection between them besides the fact that the headquarters is in Kalasatama?

I also need to ask, because I understand that the efficiency you're looking for from the supplier side is essentially fine-tuning. So you get a slightly better deal when you're a customer for the whole of Scandinavia? I would say so, yes.

We talked about the synergy between the three business areas being quite limited. I think of Kesko's stock as an investment product. To me, it appears as a defensive grocery side that aims to provide stable cash flow through the cycle, and a more cyclical building and technical trade component that may also offer above-cycle growth. Do all international investors necessarily understand this well? Does Kesko's value come through in the best possible way when it's a bit of a complicated contraption? It would always be nicer if it were just a factory producing one single widget.

But isn't the grocery media business essentially negotiating with suppliers or brand owners whether it comes as a cheaper purchase term or whether they buy an ad?

But tell me about generative AI, since you mentioned it. What were the three bullet points that came to your notes?

Second question. I was about to ask before I went off on a tangent. When you go to international investors, you sometimes have to explain this division of three business areas, or two plus one. How often do you have to explain why Kesko seems to deliberately push down its own stock price by having two share classes that show that there are the dealers, even though it's no longer called the dealer share for the A share? It reminds you forever of the dealers' cooperative. Do you have to explain that?

I always get excited about the discussion, but I still have to take the last question. I won't ask what kind of grill you have, because Mikko Helander said his is much better than mine. But let's find out what kind of investor you are. You can choose the question yourself and then answer it. You can read whatever you want. What stock investment do you regret the most? Oh, don't answer Kesko. It has done very well during your time.

Well, thank you very much, Jorma Rauhala, for being with us. The dividend actually decreased a bit last year, but it was still quite good, over a euro. I remember when I bought Kesko, the dividend was a euro then, and since then there have been splits. It has worked well. Thank you again, Jorma Rauhala. Thank you. Next up is Karo's grill.

Well, it's quite clear that expansion must be done through acquisitions. Organic growth abroad is small compared to Kesko's ambitions. The ideal situation is the opportunity to grow, if not through competitive advantage, then at least within the chosen strategy. For example, in Sweden, there is certainly cash flow that can be used for growth. It's clear that Kesko's strategy emphasizes growth. In Finnish grocery, it's hard to get any growth above general consumption, close to GDP growth. Kesko has excellent efficiency. I was thinking about the same thing as in the Sampo episode a few weeks ago: are the Nordic countries a kind of paradise where both property insurance and grocery can achieve exceptionally high profit margins? Is that sustainable? Well, Kesko has shown that it can be. And the building and technical trade, I think there should be more opportunities for synergies and thus improving profitability. I understand that Finland is very profitable because the market share is so high, but in areas with lower market share, it's harder, like in Denmark. That will become interesting. But I like Kesko's profile. I have been a shareholder continuously since 1999. Wait, today is the grill's one-year anniversary, and now it's my 25th anniversary of owning Kesko. Plenty of reason to celebrate. Indeed, back then the dividend was a euro and the stock price was about ten euros. Since then, there have been splits, and the dividend is still a euro, but now you get more shares. After Mikko Helander's visit, I actually bought more Kesko when Jorma Rauhala started, and the stock price fell last spring. I added a couple of times, and now the stock is around 20. With the latest profit guidance update, Kesko always gives a range for operating profit. In the third quarter, they usually narrow the range. Last year, they lowered the upper end, but now it was the opposite, so the average of the range increased, which led to a stock price increase. So, what I saw a year ago when I rewatched the old episode, I should remember to put links there. There is also background material that wasn't covered in this episode. I tried to cover different things. So, is there still room for improvement? Yes, it seems so. I believe that especially on the building and technical trade side, the weak market cycle has been handled well by Kesko. At least at the division level, I don't know country by country, but in terms of profit, by improving own operations and managing inventory. But when market growth inevitably starts, construction doesn't stop, so Kesko starts from good positions. Onninen is a very good business in Norway, and they also have the electrics side there, not the plumbing. And now the Danish hardware side looks quite nice. But why am I convincing myself? I already own the stock. This was Karo's grill, the grill master Karo Hämäläinen. The grill was built by Illegal Vision, and the chefs were Henrik Koivisto and Olli Jalkanen.