Sainsbury’s takes on discount supermarkets by bringing Netto back

Sainsbury’s is entering the discount grocery market in a joint venture with Danish brand Netto.

Sainsbury’s has been attracting criticism recently for not doing enough to protect its market share from the rising tide of the discount supermarkets. Under pressure from Waitrose at the top end of the market and being squeezed by discount brands at the bottom, sales have been suffering in recent months.

As part of a plan to secure its place, the supermarket is stepping into Aldi and Lidl’s territory – by teaming up with Danish discounter Netto.

After a four-year hiatus Netto is returning to to the UK with 15 stores due to be opened by the end of the next year. The first few will be scattered across the north of England and are due to be up and running towards the end of 2014. If they are successful, the UK could see the brand expanding across the country soon afterwards in a fresh new format.

Sainsbury’s will play an important role in the joint venture – not only will each company invest an initial £12.5 million in the project, but the UK supermarket will share its knowledge of the UK grocery market, product sourcing and property market to bring the brand to life.

“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,” says Mike Coupe, chief executive designate of Sainsbury’s.

All the stores will use Netto’s systems and low-cost operating style, but the company has promised that the new stores will look very different to its heavily criticised earlier outlets.

There will be a major emphasis on fresh produce and in-house bakeries offering fresh Danish breads and pastries.

For the Danish firm it represents an important opportunity to return to a growing market where it has plenty of lost time to make up. The Netto brand left the UK when it was bought by Asda in 2010 – but because it only bought the stores and not the name, it is ripe for a return.

Whether it will be able to break the hold of Aldi and Lidl on the sector is not yet clear, but the firm clearly believes that there is potential in the UK.

< Top ‘Netto’ image: Thomas Kohler >