Helsinki, Dec. 18 - Finnish retailer S Group will raise food prices in 2008, its head said on Tuesday, citing high grain prices and agreed salary increases.
"There will be price increases ... the size depends on the product and the biggest increase will come to the dairy products," Chief Executive Arto Hiltunen told Reuters in an interview, adding hikes would not exceed 10 percent.
World wheat prices have more than doubled to hit record high this year as volatile weather reduced output against a backdrop of robust demand.
At the same time unions and employers in various sectors of the economy have recently reached deals for salary increases of between eight and 10 percent over the next two years.
S Group, which became grocery market leader in 2005 after it surpassed rival Kesko, had a 39.9 percent market share of the 12 billion euros ($17.3 billion) market.
"We think we have managed to increase our market share this year as well," Hiltunen said, but added the increase would not be as big as the four percent reached last year after it had bought part of Spar supermarket chain.
S Group opened five new hypermarkets in Finland this year, which should partly account for the higher market presence.
According to Statistics Finland, the grocery market in the Nordic country grew around 6 percent in the nine months to September over the same period a year ago.
Finnish grocery retailers, led by Kesko and S Group, have struggled with slow growth and mounting competition. The pressure has increased since Germany's Lidl entered the market in 2002 as the first foreign discount supermarket chain.
"Lidl caused much of thinking and developing in products and pricing... but we have managed quite well, even with that competition," he said.
The group is also growing internationally: it has opened five hypermarkets in the Talinn area and one in Riga and plans to bring additional three to the Baltic countries by 2009.
Co-operatives-owned S Group's car sales would fall around 70 percent in the fourth quarter, Hiltunen said, after changes in Finnish car taxation announced in November.
"In November and December, new cars are practically not sold at all," he said, adding he hoped next year would make up for some of the losses as lower taxes should trigger higher sales.
Rival Kesko said in November that fourth-quarter sales and operating profit at its car sales unit would fall well short of the previous year's levels.
STRONG CHRISTMAS
Hiltunen said Christmas sales were going well and said he expected them to be better than last year, boosted by high consumer confidence level.
"This Christmas time must be quite good because the expectations of people in regards to their financial situation are quite good," he said, adding that Finns got an additional 200 million euros in tax refunds in early December, which he expected to be used for Christmas shopping.
"There are good indicators that our Christmas sales will be good. We also have a full week before Christmas and that's very good for trade, especially since the last days are the biggest sales days."
Kesko, Finland's largest retailer, agreed the mood was good.
"Consumer confidence is up and in that respect the mood for Christmas sales is good... This week is extremely important in that respect," Arja Talma, Kesko's Chief Financial Officer said.
Also Stockmann, second-largest retailer after Kesko, said its holiday sales were developing well and would grow year-on-year.