Netto fail to cost Sainsbury millions of pounds

Sainsbury announced the decision after a strategic review of the business
  (Photo: Sainsbury )

Sainsbury must write down £20m worth of investment and face £10m costs after the failure of its joint venture with Dansk Supermarked Group to operate Netto discount stores in the UK.

The announcement came following a strategic review of the business, Sainsbury confirmed.

The value of the investment in the Netto joint venture within J Sainsbury plc consolidated group accounts was £20m, which Sainsbury said would be written down to zero. The company said it was also expecting cash costs of circa £10m to wind down the business.

These amounts would be excluded from underlying results, it added.

It is unclear at this stage how meat suppliers to the stores will be affected.

Commenting on the move, Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel, said: “British consumers are eager and willing to shop with discount retailers but even with Sainsbury’s help, Netto couldn’t match the competition it faced from the likes of Aldi and Lidl. Operating in its ‘trial’ format prohibited Netto from achieving the economies of scale that have generated such success for its rivals. 

“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.” 

The 16 joint stores set up as a result of the joint venture, which began in June 2014, are expected to continue to trade for the rest of July and close during August.

DSG and Sainsbury made the decision after assessing trading data, customer and operational insights, expansion costs, the evolving food retail market and long-term strategies for each business.

“Since we first envisaged the trial, almost three years ago, the grocery sector has evolved significantly and we launched our strategy 18 months ago to address these changing dynamics,” said Sainsbury CEO Mike Coupe.

“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.”

“We, together with Sainsbury’s, set out to trial Netto in the UK to provide us with the basis to review the business at the end of the trial period,” said Per Bank, CEO of Dansk Supermarked Group. “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. We have thoroughly enjoyed the collaboration with Sainsbury's and will now apply key learnings and insights within our business to deliver added value for our customers and owners.”

“We have thoroughly enjoyed the collaboration with Sainsbury's and will now apply key learnings and insights within our business to deliver added value for our customers and owners.” 

The businesses are working together to minimise the impact of this decision on Netto colleagues and will be consulting with and supporting colleagues through this period of change.

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