Sainsbury’s has attempted to silence critics who accuse it of failing to tackle the rise of Aldi and Lidl, by bringing the Danish discounter Netto back to the UK in a joint venture.
Under the deal, 15 Netto-branded stores will open in the north of England, where Sainsbury’s is historically under-represented, giving both companies a chance to cash in on one of the fastest-growing parts of the groceries market. Netto disappeared from the UK high street in 2010 after it was bought by Asda, but the Walmart-owned business only bought Netto stores, rather than the brand name, allowing the parent company Dansk to return.
Analysts suggested that the announcement, which came after two years of negotiations, was a bold step for Sainsbury’s and Netto, but they also warned that Aldi and Lidl’s dominance of this part of the sector will be incredibly hard to break.
The two companies will spend £12.5m to start the venture, with five stores due to open by the end of the year, although the exact locations have not been finalised.
Sainsbury’s said it would not slow down its own plans to open more stores in the North, although the new chief executive, Mike Coupe, did admit that the Netto stores could win customers at the expense of Sainsbury’s.
He said: “We would like to win customers from wherever they are going to come from. We are not blind to the fact that … the discount market is likely to double over the next five years and clearly we would like some share of that action.
“We still believe there are opportunities for large-scale supermarkets in the north of England and I fully anticipate that we will continue to look at opportunities and develop stores where appropriate.”
The new shops will sell Netto-branded products and use the Danish retailer’s systems, infrastructure and expertise in the discount market, along with Sainsbury’s knowledge of the UK high street and sourcing contacts.
Bosses from both companies were keen to stress that the new stores would be completely different to the previous Netto sites in the UK, which were seen as dowdy.
Aldi and Lidl have both managed to grow market share at record speed in the last few years, with more than half the population now using them. The traditional “big four” supermarkets – Tesco, Asda, Sainsbury’s and Morrisons – have been attempting to fight back and this has triggered a price war that has seen inflation drop to a four-and-a-half-year low of 1.5 per cent.
Analysts gave mixed reactions to the deal, with some suggesting that it could be a positive move for Sainsbury’s, while others cautioned that it could hit the supermarket as more shoppers shift to discount stores.
Bruno Monteyne, retail analyst at Bernstein, said: “It’s exciting because Sainsbury’s is very good at quality and Netto is dedicated to value. Too often, traditional supermarkets are trying to have a single store where they try to be all things to all men. So what Sainsbury’s is doing is very clever.
But Dave McCarthy, retail analyst at HSBC, warned: “The discounters and pound stores are succeeding because of what the supermarket players are not doing, not just because of what they are doing.
“Sainsbury’s has the attitude “if you can’t beat them join them”, but to us this is a tacit admission that its core model can’t compete.”