Written by: Keith Tully
Reviewed: Tuesday 5th July, 2016
Sainsbury’s has said it will close the 16 British Netto stores it has been operating on the basis of a joint venture with a Danish supermarket group called Dansk Supermarked.
The collaboration was designed as an effort to establish a supermarket chain to rival the German discounters Aldi and Lidl, which have both significantly grown their respective market shares as grocery retailers in the UK in recent years.
However, the joint venture is now set to be abandoned with Sainsbury’s intending to wind down the business and close all its Netto stores before the end of August.
Around 400 jobs are understood to be at risk but hopes are that some of the employees potentially affected will be redeployed either within Sainsbury’s or the Dansk Supermarked Group.
As the decision to close the Netto stores was announced, Mike Coupe, chief executive of Sainsbury’s, explained that the business would’ve required very extensive investment in order to develop into a genuinely competitive low-cost supermarket operation.
“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,” he said.
“Consequently, we have made the difficult decision not to pursue the opportunity further.”
Coupe went on to say that Sainsbury’s will focus its efforts and investments on core activities and on processes relating to its acquisition of the Home Retail Group, which owns Argos.
Sainsbury’s and the Home Retail Group agreed the terms of an acquisition deal in April of this year, with Sainsbury’s set to pay £1.4 billion to take over the business.
All 16 of the UK Netto stores operated by Sainsbury’s and its Danish joint venture partner are located in the north of England. The first Sainsbury’s operated Netto store was opened in November 2014.
“We have learnt a lot about the discount grocery retail market from this trial venture,” said Mr Coupe in a statement.
Sainsbury’s has said it will make a £20 million write-down in relation to its Netto endeavours over the past two years and indicated its intention to spend a further £10 million on winding down the operation in the coming weeks.