Sainsbury and Netto join forces to take on discounters

19-Jun-2014 - Last updated on 23-Jun-2014 at 12:41 GMT

Related tags Supermarket Aldi Wal-mart

Netto is to return to the UK later this year, after agreeing a joint venture with Sainsbury

Early discounter Netto will be returning to Britain next year in a £25M joint venture with Sainsbury, to take on Aldi and Lidl, whose cut price offers have revolutionised the UK grocery market.

Netto announced today (June 20) its new-look business would combine its low-cost operations and infrastructure with Sainsbury’s grocery, product sourcing and property expertise.

The two companies will trial 15 Netto stores, which will be operational by the end of next year.

Each will invest £12.5M

Each partner will invest £12.5M into the venture and expect to incur post-tax losses of up to £10M each in the months leading to March 31 2015, as a result of start-up costs.

Per Bank, ceo of Netto’s parent company Dansk Supermarked, said Netto would bring a new twist to the rapidly growing UK discount sector.

The UK discount sector is estimated to be worth £10bn in annual sales and is expected to double to £20bn in the next five years, said Mike Coupe, ceo designate of Sainsbury.

‘High-growth discount market’

Coupe said: “The joint venture provides a great opportunity for us to gain exposure to the high growth discount market for the first time in partnership with Dansk Supermarked.”

“If successful, this trial has the potential to open up a new long-term growth opportunity for us, complementing our fast expanding convenience, online and non-food businesses, as well as our existing supermarket estate.”

The first of Netto’s 15 stores will open in the north of England at the end of this year, while the remaining will be open by the end of 2015.

£778M buyout

Netto exited the UK in 2010, following a £778M buyout of its 193 stores by Asda. If the new venture is successful, it will be rolled out across the country.

Morten Möberg Nielsen will lead the UK business. Nielsen has an 18-year track record in retail and was previously the md of Netto International in Germany.

Meanwhile, Netto will bring much-needed expertise to Sainsbury, said the supermarket's ceo Justin King.

“Our job is to be close to customers in the UK. We’re not experts in running low-cost sites, we’re not experts in running limited ranges – that’s their core expertise,” King told FoodManufacture.co.uk.

“If you look at Netto stores in Denmark, it’s a different kind of proposition.”

1 comment

Great move for Sainsbury's

Posted by James Russell, 27 June 2014 - 11:46 GMT

I was very interested to read that Sainsbury’s has purchased Netto with plans to bring back its stores to the UK’s high streets.

It not only demonstrates the power of the discounters who are clearly here to stay, but that there are increasing opportunities for new store formats. We initially saw this in response to the popularity of convenience stores, when a flurry of convenience arms opened on the high streets, such as Tesco Express and Sainsbury’s Local. We stressed at the time that this alone wasn’t enough, and it seems that retailers may have listened.

It’s a great move for Sainsbury’s, as it gains a significant presence in the UK discount market, while increasing penetration, volume and value without impacting brand equity.

One thing is certain, as Per Bank commented, it does mark a dramatic new twist in the rapidly growing UK discount sector but it also emphasises just how important the British consumer is in driving this change. We look forward to seeing how Netto and Sainsbury’s perform following this dramatic new development.

James Russell, Commercial Director, Rowan

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