AN ACCENT ON THE 'K'

PHIL FITZELL

HELSINKI, Finland -- Kesko, a wholesaler based here, has revamped the marketing and merchandising strategy of its independent grocery retailers in an attempt to centralize control.

The cooperative supplier has reidentified the banners of its 1,900 independent supermarket customers and aligned them under a unified "K" theme, which includes four separate format styles. In effect, the wholesaler has moved closer to the chain-store concept, but without taking ownership control of the stores.

As a result, the distinction between a chain store and an independent operator is losing its meaning, at least in the eyes of the consumer, in Finland.

Much like an orchestra conductor, Kesko is directing the way each grocery store format looks in terms of color schemes, merchandising and sales areas. And as the glue that holds the idea together, Kesko has deliberately adopted the letter "K," one of the most commonly used letters in the Finnish language, as its unifying theme.

The wholesaler's four new formats all carry a "K" in their banner. They are:

K Lahikauppa neighborhood stores.

KK Market supermarkets.

KKK Supermarket superstores.

KKKK Citymarket hypermarkets.

Economic uncertainties in the Finnish economy have forced Kesko, the country's leading food wholesaler, to tighten corporate

operations and attempt to vertically integrate its customer base through the four prescribed format themes. Simultaneously, the wholesaler has picked up more commitment to its private-label program.

Overall sales for the diversified company -- which includes food distribution, agricultural and builders' supplies divisions and a specialty and home-goods sector as well as support services -- have slipped in recent years. The wholesaler generated annual sales volume of about $5 billion (25.8 million Finnish markkas) in 1993, down about 3% from the previous year.

Food distribution, which includes grocery and fresh foods, food-service and cash-and-carry operations, accounts for nearly 60% of group sales. This division supplies more than 1,800 grocery stores.

Overall, Kesko supplies retailers operating about 2,700 stores, including builders' supply outlets, hardware stores, shoe stores and other specialty formats. It also owns some nonfood stores.

The most prevalent of Kesko's new format stores are the K Lahikauppa neighborhood stores, with between 1,200 to 1,300 outlets. These small stores stock everyday merchandise in a cozy environment. The stores, organized like a chain of local convenience stores, offer about 2,000 stockkeeping units. The stores are less than 4,360 square feet (400 square meters) and generate annual sales of under $3.8 million.

The KK Market supermarket format carries a wide range of basic foods and specialty and home goods. The stores cater to consumers in populous suburbs and rural population centers who are looking for a quick shopping trip. The stores are less 11,000 square feet and should achieve annual sales of between $3.8 million and $9.4 million. Kesko expects to operate 250 stores with this format.

Slightly larger are the KKK Supermarket superstores. These units offer shoppers between 5,000 and 6,000 SKUs, a large catchment area and special expertise in food. The superstores are projected to generate more than $9 million annually per store. Some 60 stores are expected to operate under the KKK Supermarket banner.

Kesko's largest format, KKKK Citymarket hypermarket, meets the needs of the one-stop shopper. Each of the 40 stores planned for this banner will occupy about 33,000 square feet. Among the stores 14,000 SKUs are an extensive choice of foods, specialty and home goods. Each unit is expected to achieve sales volume of more than $19 million annually. The KKKK store is designed to allow existing Citymarket department stores to be converted to this more modern format.

The bottom line for Kesko with the new format structure is that it can get better control of its costs and operate more efficiently. Kesko, in effect, has abandoned its matrix buying network.

"Everything is changing in Kesko," said Tuulikki Markkula, assistant marketing manager for the wholesaler's food distribution division. "The headquarters had nine district offices, but as of January 1994 that number has been cut to seven offices. Also, last year, goods were purchased through our district offices. Now they all buy from headquarters, except for bread and local perishable items. It's now more of a vertical structure."

Initial consumer response to the new Kesko formats has been positive.

Marja Ja Martti Ikonen, a K-retailer for the past 17 years and owner of a new, bright-yellow KKK Supermarket, said his new store's performance has exceeded his expectations. The store opened in January.

Ikonen said his initial sales estimate of $9.4 million annually has been revised upward. If customer counts hold their current trend, he said sales could go as high as $13 million. (His first K store has annual volume of between $4.7 million and $5.7 million.)

In the new KKK store, which is 25,000 square feet, about 19,000 square feet are allocated to selling space. The store stocks 5,000 SKUs, including 450 Pirkka private-label SKUs.

Normally, Ikonen said he would stock no more than 400 SKUs of Pirkka. In the new store, he has given Pirkka products 50% more facings. Pirkka sales to date have been "very good," he said.

One reason consumers are attracted to Pirkka products, according to Markkula of Kesko, is that they are "short of money" in these tough economic times. Pirkka products are priced as much as 20% under the name-brand category leaders.

In 1993, sales of the Pirkka private label -- which covers more than 450 SKUs -- increased 10% at wholesale, Markkula said. In addition to Pirkka, the wholesaler's flagship private label, Kesko's store brands also includes 10 to 15 smaller lines, such as Millie hosiery, Kokki cookware, Diva canned fruits and vegetables, K-kaupan sausage and cheese.

Pirkka has impressive market shares, according to Kesko. Items such as ketchup, jams, cereals and margarine claim between 30% and 40% market share. In some categories, Pirkka is the market leader, Markkula said.

This is partly attributable to the strong support Kesko gives Pirkka. Kesko began supporting the Pirkka label with television advertising in 1986 and then about six years ago it launched a magazine under the Pirkka name. The magazine is sent free to more than 2 million homes. Kesko also has created special promotions around the Pirkka range.

Some Kesko retailers, including Ikonen, are taking advantage of the increasing popularity of the Pirkka name.

With the right methods, shoppers can be gently swayed toward purchasing value-oriented Pirkka goods, Ikonen said. "Other K-retailers haven't yet realized how good these products can be for their business," he said.

Ikonen said he also gets clues on when to merchandise and display products in the range from the Pirkka magazine as well as from Kesko's local newspaper ads. The retailers know the timing of special offers and can prepare displays as a tie-in promotion accordingly.