Netto UK relaunch intensifies competition in grocery sector

6th Nov 2014 08:16

Discount grocer Netto has re-launched in the UK on Thursday with Sainsbury's joint venture with Danske, the chain's Danish owner, opening five stores in northern England in November to turn up the intensity on an already white-hot supermarket sector.An initial store in Leeds, the first Netto store in the UK since the chain's UK operations were bought by Asda in 2010, will be followed by four more openings by the end of November and a further 10 by the end of 2015.If consumers take to the refreshed offering, the concept will be rolled out across the UK.Both partners are investing an initial £12.5m in the "trial" with start-up costs expected to result in a post-tax loss in the region of £5m-£10m in the period to 31 March 2015.Sainsbury's said the new Netto store format would be a "complete departure" from their former shabby appearance, instead pushing Netto's heritage as bringing "fresh Scandinavian flavour to the UK discount sector", with a fresh food offer accompanied by in-house bakeries supplying Danish pastries and breads.The pair said the joint venture would combine Dansk's excellence in systems, infrastructure and low-cost operations with Sainsbury's UK grocery, product sourcing and property expertise.Analyst Clive Black and Darren Shirley at Shore Capital said: "We will be interested to see if the Netto trial evolves into a material venture in time, so giving Sainsbury's access to the rapidly growing discount channel, where its brand has traditionally been a 'square peg in a round hole'."However, they were more sceptical on Sainsbury's own immediate prospects."Whilst Netto may prove to be a new growth channel in time, Sainsbury's core business has been suffering a material deterioration in performance in 2014, set against a weak market."Such trading has, in our view, contributed to the decision of management to announce a strategic review, the outcome of which will be revealed next week."Black and Shirley said they remained generally cautious on the UK superstore groups as investment propositions.