SUPERMARKET chain Sainsbury’s has announced a surprise move to bring the Netto brand back to the UK as it seeks to fight off the challenge from discount rivals Aldi and Lidl.
The group is forming a joint venture with the Danish retailer’s parent Dansk Supermarked and aims to open its first stores in the north of England this year, with 15 planned by the end of 2015.
Sam Hart, an analyst at Charles Stanley, told The Scotsman that yesterday’s unveiling of the tie-up had come “out of the blue”.
He added: “It’s an interesting development. I gather the stores will be around 10,000sq ft and 90 per cent of what’s sold will be sold under the Netto brand.
“I was a little bit surprised to hear they won’t be using the Sainsbury’s distribution network, which would imply they have much grander ideas in terms of the overall scale of things.”
Netto disappeared from the UK after Asda bought the firm’s 194 British stores for £778 million in 2010. The bulk of the outlets were rebranded under the Asda fascia, while 47 were sold to rival grocers to appease competition regulators.
Sainsbury’s and Dansk Supermarked will each invest an initial £12.5m in the joint venture, and expect to incur losses of between £5m and £10m each up to 31 March 2015 due to the start-up costs.
Mike Coupe, who takes over from Justin King as Sainsbury’s chief executive next month, said: “We are very excited about helping to bring the new Netto to British shoppers. This 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, whose expertise and values are a strong complement to our own.
“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.”
Shore Capital analyst Clive Black said: “We take our hat off to Mike Coupe, as this is a potentially inspired move. Whilst we need to see how the trial goes, it could bring Sainsbury’s into the fast-growing discount channel without polluting its core offer.”
The discount sector is worth an estimated £10 billion a year and research firm IGD predicts the market will double in value to about £20bn in five years.
The big four supermarkets – Tesco, Asda, Sainsbury’s and Morrisons – are in the middle of a price war as their market shares are squeezed between Aldi and Lidl and upmarket rival Waitrose.
Sainsbury’s last week reported a 1.1 per cent fall in underlying sales, although the first-quarter performance marked an improvement on the previous three months, when like-for-like sales fell 3.1 per cent – its first decline in nine years.
Dansk Supermarked boss Per Bank added: “It’s great to be bringing a new twist to the rapidly-growing UK discount sector. We’ll offer market-leading value to customers with the freshness and innovation that customers rightly associate with Denmark.
“The discounter experience, operating model and systems of the Dansk Supermarked group, combined with Sainsbury’s UK market insight, property expertise and logistics excellence will help deliver a discounter format we think UK customers will love.”