Netto’s UK stores to close as Sainsbury’s calls time on joint venture

Sainsbury’s has ditched its joint venture with the low-cost retailer Netto, putting up to 400 jobs at risk and marking the Danish chain’s second exit from the UK in six years.

Netto’s 16 UK stores, all in the north of England, will close in August, just over two years after Sainsbury’s launched its £25m partnership with Dansk Supermarked Group.

The British supermarket said it would make a £20m writedown on Netto’s assets and spend £10m on winding down the business. About 400 people are employed in the joint venture, 100 of those in head office positions that could be redeployed to either Sainsbury’s or Dansk. Up to 300 jobs in stores may go.

Sainsbury’s exit from the venture comes as it prepares to complete its £1.4bn takeover of Home Retail Group, the owner of Argos, a move which is likely to take up considerable management and financial resources.

Mike Coupe, chief executive of Sainsbury’s, said: “To be successful over the long-term, Netto would need to grow at pace and scale, requiring significant investment and the rapid expansion of the store estate in a challenging property market. Consequently, we have made the difficult decision not to pursue the opportunity further and instead focus on our core business and on the opportunities we will have following our proposed acquisition of Home Retail Group.”

He said the grocery market had “evolved significantly” since Sainsbury’s first envisaged its joint venture with Netto almost three years ago.

Coupe said: “Netto is an excellent retailer with talented leaders and colleagues and we have learnt a great deal about the discount grocery retail market from this trial venture.”

But the breakup of Dansk’s 50-50 joint venture with Sainsbury’s marks the failure of Netto’s second attempt to crack the UK market. Its previous attempt ended in 2010 when Dansk sold its 200 UK outlets to Asda. The group has more than 400 stores in its home market, as well as outlets in Germany, Poland and Sweden.

Sainsbury’s has never revealed details of Netto’s trading performance in the UK but the group has struggled to find appropriate sites amid heavy competition from fast-expanding rivals Aldi and Lidl.

Per Bank, chief executive of Dansk Supermarked said: “Whilst we are pleased with the performance of the stores to date, it has become clear to both partners that the business requires greater scale over a short period of time to achieve long-term success. Reaching scale has been challenging due to appropriate site availability and therefore we decided together to end the joint venture and focus on other opportunities within our respective businesses.”

Fraser McKevitt, head of retail and consumer insight at analysis firm Kantar Worldpanel, said Netto’s relatively small size meant it could not match the economies of scale which have helped underpin the success of rival discounters Aldi and Lidl.

“Aldi and Lidl have each had a rapid programme of new store openings matched with huge advertising and marketing spend to keep themselves front and centre in consumers’ minds. Despite a 20-year history predating this joint venture, Netto lacks this brand awareness and credibility in its latest incarnation, and any retailer looking to learn from this experiment should note that this isn’t something which can be achieved without significant investment,” McKevitt said.

Credit- The Guardian