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Tuija Salo says she will wait keenly to find out what Kesko decides to do with Siwa corner shops. “Having only two giant retailers is a bad thing. On the other hand, Siwa is quite an expensive corner shop,” she says.Prime business locations are the main motivation for Kesko to take over its rival grocery chains, Siwa and Valintatalo, estimates Arto Lindblom, a professor of marketing at Aalto University.

“That's definitely the main factor behind the takeover,” he says.

Kesko Food announced on Wednesday that it will acquire the operator of Siwa and Valintatalo stores, Suomen Lähikauppa, from the private equity firm Triton for approximately 60 million euros. The takeover will see the traditional retailer take control of a total of 643 Siwa and Valintatalo stores and add 4,100 employees to its payroll.

The takeover will also allow Kesko to expand its network of neighbourhood shops and generate notable synergies.

Analysts were far from surprised by the announcement.

“Speculation about this has continued for quite some time,” points out Taavi Heikkilä, the chief executive of the largest grocery co-operative in Finland, SOK.

Niclas Catani, an equity analyst at OP Group, reminds that Triton unlikely had a wealth of options when looking for a buyer for the grocery store operator it acquired in 2013.

The small and concentrated grocery market of Finland is not exactly appealing to foreign grocery chain operators. S Group, for example, would bump up its share of the market to a level that would raise eyebrows among antitrust authorities by taking over Suomen Lähikauppa. Lidl, in turn, has a distinct brand and strategy.

The takeover will reduce the number of competitors in what is already one of the most concentrated grocery markets in the world. It will see the combined market share of Kesko and S Group creep up to 86 per cent and that of the three largest grocery retailers to as high as 95 per cent.

The takeover still requires the approval of antitrust authorities.

Juhani Jokinen, the director general of the Finnish Competition and Consumer Agency (FCCA), refrained from commenting on the proposed takeover on Wednesday. The FCCA, he estimated, will comment on the issue by the end of March.

Catani estimates that the timing of the acquisition is in favour of obtaining the necessary approvals as the considerable price cuts adopted by the S Group have increased competition by forcing other operators to squeeze their price margins.

Jokinen also reminded that the market concentration does not accurately reflect the state of competition in the market. “Competition is much better than the market concentration implies. Price competition has picked up notably in 2015 as a result of the campaigns of certain operators. The S Group adopted its own campaign and its competitors have responded to it,” he states.

One of the biggest losers of the price competition has been Suomen Lähikauppa. It has failed to bring down the prices of its relatively small stores sufficiently.

Suomen Lähikauppa has lost nearly one-half of its share of the grocery market and posted combined operating losses of more than 120 million euros since 2007. The grocery store operator has according to figures published by Kesko also failed to end its loss-making streak in 2015. The price of the takeover is low in light of the annual net sales of roughly one billion euros generated by Suomen Lähikauppa specifically for this reason.

The quoted price is very low, confirms Jukka Oksaharju, an equity strategist at Nordnet. “The seller was in a brutal negotiating situation,” he estimates.

Investors welcomed the announcement as good news for Kesko. The share of the traditional retailer strengthened by seven per cent on Wednesday.

The takeover will not only shake up the domestic grocery market but may also signal the disappearance of one of the best-known corner shops from the streets of Finland.

Suomen Lähikauppa has previously announced that it will re-organise its Valintatalo stores under the Siwa brand. Lindblom doubts that the takeover will bode well for the future of Siwa as an independent brand.

He also estimates that the decline in the number of competitors in the grocery market is bad news both for consumers and wholesalers. He nonetheless considers it unlikely that grocery prices will begin to creep up as a result of the takeover. “Price competition will probably remain intense also in the future. The takeover will have no impact on the intensity,” he views.

Anni Lassila, Juhani Saarinen – HS
Aleksi Teivainen – HT
©  HELSINGIN SANOMAT
Photo: Kimmo Räisänen

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