REV: MARCH 8, 2010
RAMON CASADESUS-MASANELL TARUN KHANNA SAMULI SKURNIK JORDAN MITCHELL
Finland’s S Group: Competing with a Cooperative Approach to Retail Introduction to Two Finnish Mainstays: S & K
To Finns, the letters “S” and “K” were as Finnish as saunas, pine forests, berries, reindeer, and Karelian pies.1 Behind the letters were two multi-billion-euro retail powerhouses, S Group (€10.5 billion2 in retail sales in 2007) and Kesko (€11.6 billion3 in 2007), both with substantially different business models. S Group, a cooperative network owned by 1.7 million Finnish residents, had defied many mainstream views that cooperatives could not be successful in the modern economy. Although S Group had existed since the early 1900s, it had teetered on the brink of bankruptcy in the 1980s and had played second fiddle to Kesko for several decades. Kesko Plc was a publicly traded company that competed against S Group by pursuing an ownership model driven by independent retailer entrepreneurs. In 2005, S Group had pulled ahead of Kesko for the first time in decades in the grocery sector through organic growth and acquisitions. By the close of 2007, S Group’s market share had climbed to 41% from 15.9% in 1990. In the same period, Kesko’s market share had fallen from 40.5% to 33.9%. (See Exhibit 1 for an evolution of market shares.) Many reasons for S Group’s rise were given such as its well-functioning network strategy, which integrated 22 regional cooperatives, the modernization of its cooperative thinking through offering an industry-leading bonus system to its customer-owners, the discipline in its supply chain, and its clear strategic thinking. S Group management also believed that its recent success was tied as much to an emotional feeling; one executive stated: “When a customer-owner is shopping, they must feel, ‘This is my store!’” Questions constantly circulated as to whether both organizations had appropriate business models. Why did one outperform the other at different times in history? Would the business model make one more successful in the long run? What was the “right” business model?
Professors Ramon Casadesus-Masanell and Tarun Khanna, Samuli Skurnik of Skurnik Consulting, and Research Associate Jordan Mitchell prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2008, 2009, 2010 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
Finland’s S Group: Competing with a Cooperative Approach to Retail
History of S Group
In 1904, 12 local cooperatives4 selling agricultural and foodstuffs came together in Tampere (see Appendix A for a map of Finland and key facts about the country) to form SOK.5 As a second-tier cooperative (i.e., a cooperative owned by other cooperatives), SOK’s purpose was to form a centralized purchasing organization, provide advice to sprouting cooperatives, and promote the cooperative ideology.6 In Finland, the first step toward the cooperative business network was the founding of the Pellervo Society, an association for cooperatives established in 1899 at a time when Finland was still under Russian rule.7 Cooperatives had become a popular structure in Europe throughout the second half of the 1800s,8 by encouraging concepts such as “open membership,” “democracy,” and the distribution of profits in relation to the use of services.9 Throughout the succeeding...