Toilet paper, dried and canned foods and mince meat were the first to almost run out. The initial effects of the coronavirus epidemic on K Group’s day-to-day business came in the form of customers stockpiling certain product groups.
“The effects of the epidemic were immediately felt at our stores. We began at once to make special arrangements in our logistics to ensure goods remain available,” says Mikko Helander, President and CEO of Kesko.
The first spikes in the stockpiling of toilet paper and canned foods occurred in February.
“From then on, the situation escalated rapidly. We were quickly faced with changes in our business in the Baltic countries – Lithuania, for example, took a decision that clearly diverged from those of our other countries of operation, ordering all businesses except for food stores to be shut.”
K Group operates in the building and home improvement trade in the Baltic countries.
The restrictions imposed by governments in different markets proceeded at slightly varying paces. The Finnish government declared a national emergency in consensus with the President of Finland on 16 March. By then, citizens and companies had already lived with various degrees of special arrangements for weeks.
“We put the entire K Group into crisis mode quite quickly,” says Helander.
The switch into crisis mode partly means digging up old contingency plans, implementing adaptation measures and improvising completely new solutions. The special circumstances have affected the business areas in various ways. In the grocery trade, sales have temporarily increased, whereas in the foodservice business they have decreased clearly due to the closure of restaurants, schools and workplaces. In the building and technical trade and the car trade, it is difficult to assess the impact on sales and profitability at this stage.
“We have a lot of different risk scenarios. Reviewing the different risk alternatives and preparing for them is part of our normal work. Even though no one could have exactly forecast a scenario like the coronavirus epidemic, I can safely say that K Group is extremely well-prepared to face various crises. That’s one of the reasons why we have things so well under control.”
When a crisis emerges, the first thing K Group looks to secure is the safety of its customers and personnel.
“In our case, it’s an enormous number of people. Normally, around 1.5 million people shop at K Group’s 1,800 stores. And since our stores are busy, the safety of our employees and those of our partners becomes an important issue. We have done a lot to take all of these issues into consideration. We have increased the cleaning and disinfecting of our stores, installed protective plexiglass panels, increased the use of protective masks and worked hard to keep our customers informed. We are contemplating new measures all the time.”
Mikko Helander points out that the 1,100 retailer entrepreneurs form the backbone of the K Group’s network.
“They and their personnel have acted responsibly and innovatively. I admire the way they have managed to do everything in such a short time, and with a good team spirit. It has also been great to see how appreciation for retail workers has risen to whole new level. They are doing really valuable work.”
After ensuring the safety of customers and employees, it was important to secure the supply chains. Even if citizens are stockpiling, stores must not run out of food and toilet paper.
“People should also tip their cap to our data systems. When the demand peaks started getting huge, our data systems – our robots – calculated and forecast the need for different products at every store. So we were able to tell the stores that ‘you’re going to receive these and these products even though you haven’t had time to order them yet.’ And the retailers have thanked us for this.”
Helander believes that, had the crisis hit when the old ways of working and data systems were still in place, store shelves would have been empty of many products.
“But fortunately we have developed our ways of working and systems strongly in recent years and know how to make the best use of them today.”
K Group’s stores play a key role in ensuring that food and supplies are available throughout Finland. In fact, around 40% of all the food consumed in Finland flows through K Group.
“We have been constantly drilling these kinds of scenarios under the leadership of the National Emergency Supply Agency for decades. The traditions go all the way back to the Second World War – even back then Kesko and K Group played a key role in the food supply.”
Helander emphasises the importance of domestic food production for securing the food supply in Finland. Domestic produce still accounts for around 80% of the food consumed in Finland, whereas in Sweden, for example, the share of domestic food products has fallen to around 50%.
“In a crisis situation, we can’t rely on having a large proportion of our food shipped in across the Baltic Sea. This is why we have been talking about the importance of domestic food production and Finland’s self-sufficiency for a long time,” Helander says.
“It’s a big advantage that we should continue to protect.”
What worries people at K Group’s new headquarters in Kalasatama in Helsinki are the effects of the epidemic and the emergency on the Finnish economy. How long will the crisis restrictions have to be kept up, and what will their long-term effects be?
“How damaging is this to the Finnish economy or the global economy? How much unemployment will the crisis cause and how much will it increase our national debt?” Helander ponders.
“Although we have to focus on saving lives at this acute stage, we can’t completely forget about the economy. When you think about how much destruction and misery the recession in the 1990s caused to individuals and society as a whole, it’s clear that prolonged and deepening economic impacts will have grave consequences. However, I believe and trust that our politicians understand this.”
Decisions are made harder by the unpredictability of the crisis. At this stage, there are only estimates of the duration of the epidemic and how many waves it could come in.
“What is reassuring is that, in the Asian countries where the epidemic was brought under control through tough restrictions, its duration has been around three months. If we calculate that we have had emergency measures in place for almost a month, one might hope that around the end of May or beginning of June the worst of the crisis would be over and we could gradually return to normal,” says Mikko Helander.
“But will things turn out this way – no one knows for sure. And for the economy, uncertainty is always bad.”
On the other hand, Helander believes in the markets’ resilience in the face of a crisis.
“When people address issues and do the right things, the economy will eventually come around. The market economy has an amazing ability to recover from various crises. There has never been a crisis humankind has not survived. We are already seeing lots of positive signs of the crisis being brought under control in places where it has been addressed properly.”
The crisis is changing society permanently in many ways, and some of the changes may be positive. In the retail sector, the exceptional circumstances have made many people embrace new online shopping services.
“We are seeing fourfold growth in our online store at the moment. K Group is adding 15 stores a week to its online store network. I’m absolutely sure that, once we have put the crisis behind us, many of our new online store customers will become permanent ones. In general, new customer segments are learning to use digital retail services. I believe that the crisis will accelerate the adoption of digital services,” Helander muses.
The President and CEO assures us that K Group is facing the crisis calmly. Despite the difficulty of making forecasts, it is important to retain the ability to look to the future beyond the crisis.
“Kesko and K Group are well-prepared to face various crises. I feel confident about the future, as we will continue to act and confront issues swiftly, as we have done so far.”
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