If you can't beat 'em, join 'em: Sainsbury's joins forces with Danish discounter Netto

Supermarkets are desperate to compete with German discounters Aldi and Lidl. Has Sainsbury's found a way to save its bacon?

by Rachel Savage
Last Updated: 22 Sep 2014

German discounters Aldi and Lidl have been gaining market share at the expense of the ‘Big Four’ supermarkets faster than you can say ‘Wie geht es dir?’ So Sainsbury’s new joint venture with Danish discounter Netto looks like it could be a good move. After all, if you can’t beat ‘em, join ‘em.

The established supermarkets have been desperately trying to compete with the discounters. Tesco and Morrisons are positively haemorraghing margins in the increasingly bloody price war, in an as-yet-unsuccessful effort to stem falling sales.

Sainsbury’s hasn’t been immune to the all-conquering Germans either. Sales fell for the second consecutive quarter in its latest results after nine years of uninterrupted growth, despite rising revenue from online and convenience stores.

Now, rather than getting bruised and battered by trying and failing to be as cheap as Aldi and Lidl, it can concentrate on higher-spending customers while getting a slice of the discounting pie.

Britain’s second-largest supermarket and Netto’s parent company Dansk Supermarked (does what it says on the tin) are each putting in £12.5m to the tie-up. The first stores will be opened up north, with a plan to have 15 by the end of 2015.

If the Danes prove a hit, Netto stores will be opened across the country. It would be second-time lucky though – the discounter was in the UK from 1990 until 2010, when Asda took over its 193 stores.

‘The new Netto stores represent a complete departure from the format that left the UK market in 2010,’ Sainsbury’s said in a stock market statement. At least they’ll all have a mouthwatering-sounding ‘in-house bakery offering fresh Danish breads and delicious Danish pastries’ anyway.

‘This joint venture provides a great opportunity for us to gain exposure to the high growth discount market for the first time,’ said Mike Coupe, Sainsbury’s rather pompously-titled ‘CEO Designate’ (a.k.a. taking over from Justin King, who is speaking at MT Live next week, next month).

The two companies are estimating a post-tax loss of £5m-£10m each in the year to March 31 2015. If the experiment does come off it’ll be worth the temporary hit, with researcher IGD projecting discounters’ annual sales to double from £10bn to £20bn in the next five years. With all that space to grow, Aldi and Lidl may not have completely cornered the cheap ‘n’ cheerful market after all.

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