HKScan – long way to 5% profit

Hannu Kottonen, CEO HKScan, aims to reach 5% profit within three years.  This was made public in last August.  Realistically, it would be fine if the result remained at its current level,  and  thanks to the implemented closures, layoffs and other cost saving measures, it is possible.  Layoffs are of course the very last way but they are now made up to the extent that even Finnish workers have been on strike, illegally in fact. Hopefully layoffs were made in a way that productivity actually improves.  It may be a vain hope.  More managers but less workers appears to be HKScan’s way of doing things today. 

Not only in Finland but also in rich Sweden workers have firmly objected to layoffs.  The reason is that Scan has replaced permanent workers by temporary agency workers.  Fair or not but something is happening also in HKScan Sweden. Like in Finland, HKScan has now also in Sweden begun to streamline purchases by buying meat raw material just as much as it needs and only when it needs.  Producers seem to be – at least officially – quite happy with the company.  “HKScan is going in the right direction”, says Gunilla Aschan, Swedish animal farmers’ representative in HKScan Group Board of Directors.

So, Kottonen’s program for savings, streamlining and productivity improvement is strongly under implementation. However, only an optimist expects profits to improve significantly this year only due to these steps.  Kottonen’s other means of improving HKScan’s performance are enhancing the brand value, driving consumer demand, innovation and synergies.  One may see, what this all will mean in terms of practical implementations.  According to the strategy update last August, HKScan will introduce the operating model gradually by the end of this year.

Raising the brand value may be troublesome.  Well-known and recognized local brands already are HKScan strength. For instance Scan in Sweden is a respected brand.  But so are for example Saab and Volvo as well!  Brand is not a panacea and consumers are very price-conscious.  It is so easy for everyone to make savings in the grocery store and the result is shown immediately in the wallet. Private label brands will inevitably increase their share especially because the general economic situation is what it is. 

What about innovation and synergies?  It seems that the Kottonen wants to combine them. In a large interview in just-food.com, he says:

"Here we have potential as well given our strong local brands, but very local innovation processes and relatively small intercompany business. We can here find further internal synergies as well."

Without a doubt, HKScan is planning to invest in product innovation but requires that they benefit the entire group. It remains to be seen really, what these all – raising brand value, driving consumer demand, innovation and synergies - will mean in practice.  I would guess … costs.

We will discuss HKScan later but on Friday, April 12^th we will look at Atria’s businesses. Summertime is coming and summer will follow, 99% sure about that!

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