What did we learn about Finnish grocery market this week?

Source: PTY

There was two important announcements this week regarding the Finnish grocery market. Firstly, Kesko reported their full year results from 2021. Secondly, the Finnish Grocery Association (PTY) reported full year sales figures of the market.

Since the Finnish market is heavily dominated by two big chains, it gives us an opportunity to draw up initial estimates about the balance between the two big players.

As the figure above illustrates, the market grew still rapidly in 2021. The growth was driven by the bigger formats, especially the hypermarkets.

As one starts to dig deeper into how the growth has been spread throughout the year, it becomes clear that majority of the growth happened during this first quarter of the year.

Source: PTY & Kesko quarterly reporting

Kesko winning in Q1, S-Group winning the rest?

As the image above suggests, Kesko seemed to grow faster than the market during the first quarter of the year. This was driven by the hypermarkets and especially the K-Citymarket chain. As the year progressed the growth started to decline, because of the high comparison figures from the pandemic induced rapid growth in Q2/2020.

Both S-Group big chains, Prisma and S-Market, seemed to manage the difficult comparison numbers much better as the market did not decline at the same time as Kesko chains declined. These are very early figures that will get be verified later on.

During the last years, the growth of Kesko market share has been driven by these two big chains. Now the competition seems to be rising and that will make it more difficult for K-Citymarket and K-Supermarket to add market share.

One reason for the great success of these two chains has been the rapid adoption of online grocery during Q2/2020. As the pandemic disrupted the normal order of grocery retailing Kesko retailers were fast to open online stores. That was one reason why the two chains clearly outgrew their competition in Q2/2020.

As the growth of the online channel has stopped, also the growth of the two chains has slowed down.

Online growth plateaued before next growth phase?

As Kesko reported their online numbers, we can do first estimates of the online grocery market in Finland in 2021. After the huge growth of 2020, the market really stabilised during the latter part of 2021. Kesko’s online grocery revenues even declined by -11% in Q4/2021.

Unofficial data about the online revenues of S-Group indicate that S-Group would have been able to catch Kesko in online. That would have been quite an achievement as Kesko was approximately 30% bigger in 2020.

There are some reasons that would support the notion that S-group could have caught Kesko. They have rolled out Prisma more actively during the latter part of 2020 and during 2021. Prisma is after all the chain that seems to be most popular among the families with children, the most important customer segment online.

S-Group also launched their new online store s-kaupat.fi and its accompanying app during 2021. S-Group also seems to have been somewhat more active in promoting their online businesses than Kesko.

With these data points, one could estimate that S-Group and Kesko would be rather equal in terms of online revenues. That would grow the market to around 450 M€. On top of that there is a growing group of online challengers. If one estimates that they have also grown rapidly, the group would look something like this:

• Ruokaboksi: 20-25 M€

• Fiksuruoka: 20-25 M€

• Matsmart: 10-15 M€

• Kauppahalli24: 10 M€

• Others (Wolt, Foodora, Feelia, Sannan ruokakassi…): 25 M€

In total the challengers would make up around 100 M€ or 18% of the market. With that Kesko and S-Group would be both 41% (+/- some %-points). Thus, Kesko would be a bit above it’s overall market share and S-Group a bit below.

If the online market would have grown from about 400 M€ to about 550 M€, it would mean about 35% growth.

That would put online share of all groceries to around 2,5-3%.

That is rather encouraging taken into account how much the market grew in 2020. However, the growth of online focused mainly into the first and second quarters of the year.

With the plateauing growth, Oda is a welcome introduction to the market. With a new market entrant, one can suspect that they will shake up the market quite a bit.

What about 2022?

It is very interesting to see where Oda will end up in terms of the first year revenues.

Will Oda become the third largest online grocer already during the first year?

That would mean that they would need to surpass both Fiksuruoka and Ruokaboksi, which both also continue to grow. Thus, Oda would need to achieve revenues of above 30 M€ in the first year.

That alone will push the market to growth. More important growth driver for the market will most likely be the increased activity from the two big incumbents who are not ready give up any online market share.

If Kesko and S-Group start to advertise and invest in their services, the market will grow significantly.