Sainsbury’s push into discount groceries through its UK joint venture with the Danish chain Netto has less than a year to prove itself, the head of its Danish partner has warned.
As the last deliveries arrived for the opening of the first store at a retail park in Leeds on Thursday, Per Bank, chief executive of Netto’s owner, Dansk Supermarked, said: “I hope we can set new standards for discounters in the UK. It’s a big risk but I believe we are able to deliver that. We’re a discounter, but a discounter with a Scandinavian twist.”
Netto’s bright yellow signs and distinctive scottie dog logo are making their reappearance four years after beating a retreat from the cut-throat UK market. Bank signed a joint venture with Sainsbury’s in June to bring Netto back to the country as the German supermarket rivals Aldi and Lidl continue to grow rapidly.
The falling price of groceries, and British shoppers’ desire to save pennies by cutting down on waste and shopping around, are putting pressure on Tesco, Morrisons, Asda and Sainsbury’s.
Sainsbury’s is fighting back by buying its own slice of the fast-growing discount market, which is expected to double to account for 15% of grocery sales within five years. The plan is to open 15 stores, by the end of next year, close to the M62 corridor between Liverpool and Hull, to test the water. Five will open this month in Sheffield, Ormskirk, Doncaster, Manchester and Leeds.
Bank said Netto would not hang around if it proved to be on the losing side.
“We hope to come to a decision fast,” he said. “If we can’t meet the needs of customers then we will come to a point where we say it doesn’t work and we will have invested a limited amount of money. But we are confident it will work.”
Dansk Supermarked and Sainsbury’s are each investing £12.5m in the joint venture and expect to incur losses of £5m-£10m each before March next year. Bank said the decision whether the chain would be here to stay would be based on “whether we get customers who like our offer”.
Sainsbury’s and Dansk appear to be trying to create the Ikea of the discount world – light, bright and cheap, with a Scandinavian touch. Many aspects of the Leeds store will be familiar to discounter fans. It is relatively small, at just 10,000 sq ft, and stocks a tight range, including some quirky products and unknown brands; it charges 3p for carrier bags, and has shelf-ready packaging so fewer staff are needed and cost are reduced.
With about 2,200 products the Netto range is similar in size to that of Aldi’s and Lidl’s, but much less than the 40,000 average for large supermarket chains. About two-thirds of the produce is own-label goods; another 20% is made up of third-party brands most Britons will never have heard of, and 10% is big international brands such as Heinz, Marmite and Kelloggs.
Own labels include Kat cat food, which sells in Netto’s stores across Europe, and Snaxters crisps and Bell’s cereals, both created especially for the UK by the joint Sainsbury’s and Netto product team.
From the evidence of the Leeds store what makes the venture stand out from those of its rivals is that arriving shoppers are confronted near the shops’ entrances with piles of fresh fruit and vegetables, many of which are stored in chillers.
The Danish brand Lego is also playing a part in the Netto launch, with cheap prices on the toy bricks among the bargain offers and a giant Lego version of its scottie dog logo touring Leeds to try to drum up social media chatter about the opening.
Less familiar Danish treats include upmarket Anthon Berg chocolates and herring in curry sauce. “You have to be a little bit brave but it’s delicious,” promised Netto UK’s head, Morton Möberg.
Like Aldi and Lidl, Netto is looking for more affluent shoppers with bargains on champagne, wine and chocolates as well as cheap basics. It will accept credit cards and there is an emphasis on fresh British meat and freshly baked cakes and bread.
The ambition to cater to the middle classes and open in a wide range of locations is what sets Netto’s latest attempt to crack the UK apart from its previous failed venture. That ended in 2010 when Dansk sold its 200 outlets to Asda.
“At that time the thinking was that discount was only for those on low incomes. Now it is for everyone. Everybody wants value for money,” Bank said.
Sainsbury’s, which has had a downturn in sales this year after nearly 10 years of growth, is clearly hoping Netto will give it a new avenue for expansion.
Mike Coupe, the supermarket’s chief executive, said the launch would bring “some much needed Scandinavian flair to the UK discount market”.
But just a quick walk from the car park serving the Leeds Netto store is a large Sainsbury’s store, which owns the retail park where its new discount partner has just set up shop.
Bank said: “Both formats benefit from being close to each other. The alternative to going to Netto is another discounter or stores elsewhere.”
With that in mind Sainsbury’s is putting several of the Netto stores close to its own. In Heaton Park, Manchester, the Netto store will sit in space split off from part of a very large Sainsbury’s outlet.
But Bank admitted it was likely that Netto would win some sales from its co-owner. “It is important that we compete head on with other discounters and our prices are competitive with them. But where we take customers from is not important, whether that’s from our parent or elsewhere.”
Even the small corner shop was in his sights. “We will take over from a lot of smaller corner stores that do not offer the value for money that customers are looking for,” he said.
The Netto dog is back – only time will tell whom it will bite.
New openings
Netto UK is now aiming to have 15 stores open by the summer, well ahead of its original target of the end of next year, according to the boss of its Danish co-owner. Per Bank, chief executive of Dansk Supermarked, which shares ownership of the chain with Sainsbury’s, said many of the sites had already been found. The first four will open by the end of next week – today’s opening in Moor Allerton in Leeds will be followed next weekin quick succession by Heaton Park in Manchester, Kilner Way in Sheffield and the Hattersley Centre in Ormskirk, Lancashire. By the end of the month there will be a fifth, in Doncaster.
The UK chain will be part of a much bigger business for Netto, which is Denmark’s largest grocer. It has 455 stores in its home market, as well as 350 in Germany, 329 in Poland and 156 in Sweden.