Sainsbury’s brings Netto back to the UK

Sainsbury’s is making a move into the discount grocery market through a joint venture that will bring the Netto brand back to the UK after a four-year hiatus. 

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The deal will see 15 Netto stores opened in the UK by the end of 2015, with the first launching in the North of England in the autumn. The brand will focus on everyday low prices, eschewing multibuys and promotions for “transparent pricing”.

There will also be an emphasis on fresh produce, including a range of in-store bakeries. Both Sainsbury’s and Netto are initially investing £12.5m in the joint venture and if it proves successful, the trial will roll out across the country.

Analysts have called the move by Sainsbury’s “inspired”, giving it access to the fast growing discount grocery market that its core proposition doesn’t address without compromising its brand values. The partnership will make use of Sainsbury’s knowledge of the UK grocery market and Netto’s expertise as a deep discounter, they add.

“This is a potentially inspired move by Sainsbury’s. It is a low risk approach to access a market that is growing fast but where it has no heritage. If it doesn’t work then no major harm is done; if it does then Sainsbury’s accesses a complementary and growing channel,” says Shore Capital analyst Clive Black.

Sainsbury’s posted its second consecutive quarter of like-for-like sales declines in the three months to the 7 June amid a slowdown in the overall grocery market. Sales were up just 1.7 per cent in the 12 weeks to the 25 May, according to Kantar Worldpanel, the slowest growth in at least 11 years.

The discounters Aldi and Lidl continue to outgrow the market, posting sales growth of 35.9 per cent and 22.7 per cent respectively, and achieving a record share of the market. However, Sainsbury’s has kept its distance from the price war, focusing on its values and Brand Match price-matching scheme, rather than pricing.

Netto, which is part of the Dansk Supermarked group, operated in the UK for almost 30 years but sold off its supermarkets to Asda in 2010 after missing out on the boom enjoyed by rivals Aldi and Lidl. At the time it had a market share of around 1 per cent.

Neil Saunders, analyst at Conlumino, says the decision to relaunch the Netto brand makes sense because it has “clear discount connotations” and is a brand that people recognise. However, he cautions that both companies will have to “work very hard” to establish the brand in a crowded market.

“Netto is known as a discounter and that is important in this market. However it will have to work hard to carve out a niche, perhaps through the focus on fresh food. The in-house bakeries suggest it will be a bit more of an aspirational retailer but still a discounter,” he adds.

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