SOK CORPORATION ANNUAL REPORT 2012 The co-op members are the sole owners of S Group’s cooperative enterprises. Co-op mem- bership is S Group’s way of conducting its coop- erative form of business and producing services and benefits for its co-op members. 2 SOK CORPORATION · ANNUAL REPORT 2012 SOK CORPORATION · ANNUAL REPORT 2012 3 Contents Adapting to a new era 6 Grocery trade for the benefit of co-op members 8 Consumer goods trade through multiple channels 12 ABC and the drive to renew 16 Contemporary travel industry and hospitality business 20 Co-op member’s own car dealership 26 A new phase in the agricultural trade 28 Rapid expansion in the neighbouring countries 32 Competitiveness through procurement 36 S Group with the best talent 38 Well-being through cooperative activities 42 S-Bank – a co-op menber’s daily partner 46 What is S Group? 48 S Group Key Figures 2008–2012 50 SOK Corporation’s Corporate Governance and Management System 51 SOK Supervisory Board 2012 54 SOK Executive Board 2013 56 SOK Corporation’s Corporate Management Team 2013 57 SOK Corporation’s Organisation 1. April, 2013 58 SOK Corporation’s Financial Statements 2012 59 4 SOK CORPORATION · ANNUAL REPORT 2012 SOK CORPORATION · ANNUAL REPORT 2012 5 Adapting to a new era IN 2012, THE NUMBER OF CO-OP MEMBERS GREW TO MORE THAN TWO MILLION. To honour the theme year, SOK S Group’S RETAIL SALES GREW BY FIVE PER CENT, BUT SOK CORPORAtion’S WEAK pledged to support a cooperative RESULT REDUCED THE ENTIRE Group’S RESULT. THE PROPOSED CHANGE IN THE society development project in the COMPETITION ACT IS CREATING UNCERTAINTY IN THE GROCERY TRADE. Myanzi area in Uganda. In addi- tion, SOK is co-funding the profes- sorship of cooperative enterprise The year 2012 was weak in retail. The uncer- Maatalous secured the support of, and powerful management, donated to Lappeen- tainty at the beginning of the year was followed development opportunities provided, by the DLA ranta University of Technology. We by faltering economic growth at the end of the Group, a Danish cooperative. want these two projects to be part year. Sales growth waned, and the number of We have entered an era in which slow eco- of the new era in the cooperative personnel in the sector took a downward turn nomic growth is intertwining with changes in activities. after a long and steady period of growth. the operating environment and in customers’ Responsibility is an integral part Compared to the general development, the purchasing behaviour. This is forcing us to adapt of cooperative activities. In 2012, cooperatives performed well in 2012. Their sales to a lower level of earnings. Although S Group responsibility was further highlight- increased more than average in the sector, dif- invested more than EUR 500 million in new facili- ed as the core of our operations ferent lines of business developed fairly evenly ties or renovation of old ones last year, the rate when we outlined our objective of and results remained nearly at the previous of investments is slowing down little by little. being a forerunner in terms of re- year’s level. By contrast, SOK Corporation’s Adapting also requires improved cost-effec- sponsibility in our lines of business. result was clearly negative, which also reduced tiveness. Therefore, we launched measures Our commitment to wind power is a the Group’s total result. at SOK as early as the end of 2012 aiming to good example of this. Based on de- The challenges we faced in developing the produce cooperatives’ services more efficiently. cisions already made, we promise consumer goods trade and the expenses of The grocery trade is currently facing great that as much as 50 per cent of the launching the operations of the new logistics uncertainty. In January, the government is- electricity we consume will be gen- centre accounted for the drop in the result at the sued a proposal on amending the Competition erated by wind energy in 2016. entire Group level, whereas in SOK Corporation, Act. According to many legal scholars, its true The success of every company the result was burdened by difficulties in the impact is rather unclear. However, it is clear that depends on its personnel. I would automotive trade and high development costs. the proposed amendment would automatically like to extend my warm thanks to all There were also successes. Confidence in determine both S Group and K-Group as having S Group employees for their solid the cooperatives’ capacity to provide services a dominant market position in both the procure- performance in serving our co-op remained good, which manifested as the thresh- ment and sales market. members. My thanks also go to old of two million co-op members being sur- The Parliament will discuss this basically personnel working in the admin- passed in February 2012. Thus, co-op member- well-intended amendment in the spring, and istration of the cooperatives and ship is in high demand in weak economic times it is our sincere wish that the amendment is SOK, as well as to all our partners. as well. The cooperatives, in turn, rewarded their specified considerably. Otherwise, the absolute members in the amount of EUR 420 million. requirement of equality placed on the large retail 14 February 2013 The operations in Finland’s neighbouring groups could endanger the success of domestic countries were the bright spot in SOK Corpora- production in the pressure from large multina- tion: the Prisma stores in four countries already tional food retailers and imported food. have approximately 700,000 loyal customers, The UN declared 2012 as the International and sales development is solid, particularly in Year of Cooperatives. S Group celebrated the St. Petersburg. The ownership arrangement year by organising a ”Well-being through coop- Kuisma Niemelä made in the agricultural trade is also among the erative activities” stakeholder event. Chief Executive Officer, SOK successes. Through the arrangement, Hankkija- 6 SOK CORPORATION · ANNUAL REPORT 2012 SOK CORPORATION · ANNUAL REPORT 2012 7 Grocery trade for the benefit of co-op members INCREASED DEMAND FOR ORGANIC PRODUCTS Organic products made a breakthrough in S Group in S Group’S GROCERY STORES SERVE CUSTOMERS WHO VALUE 2011. That year, their sales grew by more than 50 per cent and selections expanded to contain more than AFFORDABLE PRICES, QUALITY AND PERSONALISED SERVICES. 1,500 products. Development continued to be good in 2012 as well, and sales of organic products grew by THE MOST IMPORTANT NEAR-TERM OBJECTIVE OF S Group’S 26 per cent. In two years, S Group has doubled sales GROCERY TRADE IS TO IMPROVE THE PURCHASING EXPERIENCES of domestic organic products. Now, its selection boasts more than 2,000 different organic products. OF CO-OP MEMBERS AND INCREASE INTERACTION WITH THEM. – Customers increasingly value authenticity and purity as well as transparent production methods which take the environment into consideration. The selection and availability of organic products develop best when the As a consumer cooperative, NO NEED FOR INCREASED REGULATION entire chain – producers, processors and retail – work S Group always advocates the The price of food is affected by many factors. in close co-operation, says Ilkka Alarotu, Assortment interests of the customer. Each Before a product has made its way from the field to Director in S Group’s grocery trade and Chairman of cooperative protects the interests the table, the producer and industrial processor of the organic product association Pro Luomu ry. In addi- tion to organic products, local products are an increas- of its members in its region. In the its ingredients as well as retail have all received their ingly important part of the grocery trade selections in grocery trade, S Group aims to offer respective share of the price. S Group. Cooperatives work in close co-operation with its co-op members the most com- Taxation always affects the price of food as well. suppliers and producers in different parts of Finland prehensive grocery selections and In international comparisons, foodstuffs in Finland in order to increase the share of local products in their the most desired products at prices are already taxed heavily, which is reflected in the stores. – Currently, S Group is preparing a local food as affordable as possible. Each grocery bills. Different taxes account for as much strategy, which takes into consideration both the pro- vincial and local level. The ultimate goal is to increase cooperative continuously monitors as 40 per cent of the money circulating in the food local production and manufacturing and, in that way, FOODIE.FM FOR INCREASED DAILY CONVENIENCE the prices in the grocery stores in chain. create more jobs. Thus, our selections will contain a S Group is building an environment of electronic services its operating area. The strategic Currently, the pressure to increase the prices of more varied range of local products which consumers for the grocery trade around the Foodie.fm web service. objective of S Group’s grocery trade foodstuffs is generated by not only heavier taxation, value and want to buy, Alarotu continues. Within a short period of time, the service has developed is that each store is the most eco- but also increased energy prices and labour costs, from a digital food assistant into an online shopping com- nomical in its size class in its own more expensive agricultural inputs and increased munity making use of interactivity and personalisation. area of influence. world market prices of raw materials. At the end of the year, the service had as many as 300,000 Permanently economical pric- According to studies, the Finnish retail sector is users.