VILNIUS - The end-of-December merger of the Baltic operations of Finland's Kesko Foods and Sweden's ICA, owner and operator of the Rimi retail chain, promises to tighten competition on the 4.7 billion euro retail food market in Estonia, Latvia and Lithuania.
The merger, which will take the form of a 50-50 joint venture, "will permit more effective operations," according to ICA President and CEO Kenneth Bengtsson, so that the merged company can achieve its aim of securing a 25 percent market share within three years.
"The objective is to expand the store network in all Baltic countries, which means wider product selections and more affordable prices for customers," he explained in December.
A final agreement on the merger should be signed soon so that the joint venture could start operating by summer 2004, the companies said.
Kesko spokesman Atte Kaksonen told the Baltic News Service that it had not yet been decided under what trademark the stores would work together.
In 2003, the combined Baltic sales of Kesko Foods, which operates the Citymarket and SuperNetto stores, and ICA amounted to 550 million euros, which together would give them a 15 percent market share.
Kesko has a 23 percent market share in Estonia, and Rimi 17 percent in Latvia. The two companies operate a total of 140 groceries in the Baltics, and there are expectations that the merger will provide economy of scale benefits in terms of wholesale purchasing, network development and logistics.
Ain Taube, CEO of the Estonian supermarket operator AS A-Selver, said it was a logical step for the two Scandinavian groups to merge their Baltic operations.
"Today, Kesko is strong in Estonia and Rimi in Latvia," Taube told the Baltic News Service. "I believe that it is realistic for them to achieve their aim of a 25 percent market share in the Baltic countries in three years."
It is clear that the real point of the Kesko-Rimi merger will be to compete with Vilniaus Prekyba, which is currently the market leader with some 20 percent of the Baltic grocery market.
"VP Market is growing fast too, so it remains to be seen which of the two [Kesko-Rimi or VP Market] will be the market leader in three years' time," Kalervo Haapaniemi, managing director of Ruokakesko, said.
For its part VP Market officials were confident of their own strategic plans.
Director Gintaras Marcinkevicius said the merger was not news to him and he was certain that it would not affect VP Market's expansion plans. He stressed that the merger wouldn't change anything in Lithuania, where VP Market dominates, and that the company second-place position on the Latvian market was very stable at 20 percent.
VP Market operates the largest retail chain of groceries in the Baltics, with 266 stores under the brand names of Minima, Media, Maxima and Saulute (T-Market), of which 182 stores are in Lithuania, 69 in Latvia and one in Estonia.
The Lithuanian concern will keep expanding in the Baltic states, Marcinkevicius said, opening 12 T-Market shops and two Maxima supermarkets in Latvia in 2004.
In addition, it will open 15 stores in Estonia.
In December VP Market reported total sales of 927 million euros for the first 11 months of 2003, an 18.2 percent increase year-on-year.