Finland is not interested in foreign grocery stores, and that is one of the reasons for expensive food – An expert explains why

Sit’s pointless to wait for a new grocery store chain in Uomo, especially from abroad, says an experienced expert in the trade industry.

The arrival of foreign grocery store chains in Finland has long been hoped for in order to bring more price competition to the grocery store. Now the grocery store is exceptionally concentrated in Finland.

“Finland would probably have a huge number of foreign Food and Beverage operators if this were an interesting market,” says the leading consultant of the consulting company Accenture Harri Hokkanen.

He has a long experience in the field of trade. He has also studied the breakdown of trade markets and the development of business models in his dissertation.

It is clear that the price competition would be fiercer if there were more trade groups, says Hokkanen.

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The Finnish market is not so big that it would be interesting.

Hokkanen quickly lists many reasons why Finland does not attract foreign grocery store chains. The main thing is that entering the Finnish market is difficult.

The Finnish market is not so big that it would be interesting. There are few people and the purchasing power is not great.

“Grocery is a volume business, you have to sell large quantities,” explains Hokkanen.

However, in sparsely populated Finland, there are only a few areas where sales volumes increase. Transport distances for products to stores are also long, because Finland is a long country.

In addition, the trade groups that are already here have a strong market position. The S group and Kesko together control 82 percent of Ruokakaupa’s market.

Although Lidl has been operating in Finland for twenty years, it has managed to increase its share to just under ten percent.

According to Hokkanen, a big obstacle for foreign entrants is also the fact that food procurement channels, i.e. wholesale, and logistics are mainly in the hands of S group and Kesko. There are no independent operators anymore.

This means that a foreign retail chain that likes Finland would either have to build its own procurement organization from scratch or use Kesko’s or S Group’s channels.

Building your own organization would be very expensive. Being dependent on S group or Kesko, on the other hand, would mean that they would decide which products are offered for sale and at what price.

The lack of market places is also a problem.

“The sad fact is that the best places in Ruokakaupa have already been taken. You can see that when you look at where the current stores are located,” says Hokkanen.

HS told last spring about the effects of urban zoning and plot policy on Ruokakauppa’s competition. For example, Lild estimated at the time that the difficulty in finding suitable store locations had slowed down its expansion in Finland.

Although the concentration of trade reduces competition, Hokkanen believes that it also has positive aspects. When the market is mostly in the hands of two large domestic chains, it is easier for domestic products to reach the shelves.

According to him, the entire value chain of the store is also reliable in Finland and the security of supply is good. The stores did not run out of food even during the corona crisis, as was feared.

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Finns are not very loyal to their stores.

Ulocal the store chain could of course set up a purely online store in Finland. But even for that, you should build your own procurement and logistics organization, Hokkanen reminds. It would be expensive.

The Norwegian online food store Oda only had time to operate in Finland for a year before it announced that it was closing its operations a year ago.

“The Finnish market is not yet ripe for buying food from an online store. So far, the demand is still small”, Hokkanen estimates.

Other online food stores that have considered a possible investment in Finland have also come to this result, he believes.

A survey conducted by Accenture in the spring and winter showed that only a fifth of consumers in Finland were interested in shopping for food online. 1,500 people answered the survey.

Contrary to what is often thought, online shopping is not a cheap way for a store to sell food. Although the store costs are eliminated, warehouse structures, online processes and logistics cost, Hokkanen reminds.

“At least for the time being, it is more profitable for stores to sell food from a store than from an online store,” says Hokkanen.

Over the years, the stores have been tuned to be very efficient. So far, the amount of sales online is still so small that its processing is not as efficient and therefore not as profitable as in stores.

In any case, it is important for stores to get customers to visit a physical store, because it is easier for them to make impulse purchases there, Hokkanen points out.

Pin the early days, the entry of a foreign grocery store chain into Finland could be successful with a completely new, different concept. Because it could avoid the problems of the Finnish market, Hokkanen estimates.

An example of this could be the American Costco that has expanded to Sweden, which is a member-based pickup wholesale store intended for consumers.

Hokkanen believes that it would be possible to attract Finnish consumers to switch shops.

“If a foreign chain could survive the challenges of entering the market, it could have a good chance of succeeding, because Finns are not very loyal to their stores, even though they have adapted to the current situation,” Hokkanen estimates.

A study by Accenture shows that only a tenth of Finns are deeply loyal and committed to their store.

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In the future, stores will have to think about how they could become a better part of people’s lives outside the store and inside homes.

Vstop trade groups have in turn launched price reduction campaigns. Most recently, Lidl announced a price war in early summer, which said it would continue to lower its prices. S-group and K-traders, on the other hand, have told about lowering prices already earlier this year and last year.

Is the price competition real?

“We don’t run cheapening campaigns for nothing. The price competition is real”, Hokkanen believes.

In a weak economic situation, the importance of the price of food increases. According to Harri Hokkanen, it is also starting to interest larger consumer groups than before. Money is tight for many.

For the Finnish consumer, the price of food is the most important factor guiding the purchase decision today. This was also reported by Pellervo Taloustutkimus PTT’s study published last spring.

However, not all trade groups compete on price as fiercely. The consumer notices it by visiting different stores. More precisely, it is called a pricing strategy.

According to Hokkanen, each trade group has its own pricing strategy. In general, there are three ways that are known around the world.

The S group, which has the largest market share, uses the so-called everyday low price-strategy. It means that prices vary less, but are always at a relatively low level, explains Hokkanen.

Kesko’s K-shops, on the other hand, use high–low– pricing. It means that throw-in products have been able to be priced very cheaply, but the prices of the basic selection are slightly higher than others or higher than, for example, in the S group’s strategy. This is partly reflected in the good profitability of K-stores.

Lildl, on the other hand, is known as hard discountefrom its r-strategy, i.e. as a clear bargain store that strives for a clearly lower price level than its competitors every day low price -trade.

Vperiod the price is important, Hokkanen emphasizes that it is only one of the trade’s competitive advantages.

In addition to the price, the selection must be good and suitable for customers. The quality of the products must also be top class. The location of the stores is a very important competitive advantage. They must be close to customers and their routes.

Until now, the operation of the store has been dominated by logistic efficiency thinking. According to Hokkanen, we are now moving towards customer thinking. The next step after customer focus will be people focus.

People-centricity means that in the future, stores will have to think about how they could become a better part of people’s lives outside the store and inside their homes. It could mean, for example, automatic shopping lists, help in planning food shopping and party catering. According to Hokkanen, these would ease consumers’ stress.

So far, stores are focusing a lot on the shopping experience, i.e. how to make shopping in stores easier and faster.

Although Finnish stores are not exactly among the pioneers, according to Hokkanen, they react very quickly to new trends in the world, such as the development of technology.