SAINSBURY’S is to bring discounter Netto back to the UK in a surprise move that will enable it to compete head on with popular German discounters Aldi and Lidl.
At a time when Sainsbury’s rivals are spending billions of pounds on price cuts to reduce the price differential with the discounters, Sainsbury’s move will allow it to benefit from the exodus to its cheaper rivals without having to reduce its prices.
Sainsbury’s said that the Danish grocer, which pulled out of the UK in 2010 when Leeds-based Asda bought its stores for £778m, will return to Britain in “an attractive new trial format, bringing a fresh Scandinavian flavour to the UK discount sector”.
It added that the new-look Netto will be run in a joint venture that combines Netto’s parent company Dansk Supermarked’s excellence in systems, infrastructure and low-cost operations with Sainsbury’s UK grocery, product sourcing and property expertise.
The trial will consist of 15 Netto stores to be opened by the end of 2015. The first will open in the North of England later this year.
Sainsbury’s said that if the trial proves successful, the next stage of the joint venture will see the new format rolled out across the country.
Both Sainsbury’s and Dansk will make an initial investment of £12.5 million in the joint venture. Both partners expect to incur a loss of between £5m and £10m between now and next March.
Per Bank, CEO of Dansk, said: “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.”
Sainsbury’s said the new Netto stores represent a complete departure from the format that left the UK market in 2010.
“They will offer outstanding value and ease of shopping to customers and will feature a great fresh food offer as well as an in-house bakery offering fresh Danish breads and delicious Danish pastries,” the group said.
There will also be weekly and seasonal “when it’s gone it’s gone” offers in both food and non-food ranges.
Mike Coupe, CEO designate of Sainsbury’s 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.”
The UK discount sector is currently worth an estimated £10bn in annual sales and is forecast to double in value to approximately £20bn in the next five years
Netto will be headed up by Morten Möberg Nielsen, previously managing director of Netto International in Germany.