Sainsbury's cuts ties with Netto – all stores to close by August

The supermarket giant, which penned a deal with Netto parent Dansk Supermarked Group (DSG) to bring the discounter back to the UK in June 2014, said it made the “difficult decision” to end the partnership after assessing “trading data, customer and operational insights, expansion costs, the evolving food retail market and long-term strategies.”

The 16 Netto stores opened since the joint venture was launched will continue trading throughout July, but will close next month.

Sainsbury’s, which will incur cash costs of around £10m to wind down the business, said it was now working with DSG to “minimise the impact” of the closures on around 400 Netto staff, whose jobs are now at risk.

It is understood than less than 100 of those workers are employed directly by Dansk, while Sainsbury’s will aim to re-deploy just over 300 staff into its existing shops.

The grocer’s chief executive Mike Coupe said: “Netto is an excellent retailer with talented leaders and colleagues and we have learnt a great deal about the discount grocery retail market from this trial venture. 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.

“Against this backdrop, as planned, we carried out a detailed review with DSG on the future of Netto.

“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.

“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.

“Our learnings from the trial will undoubtedly benefit the rest of our business as we move forward.”

DSG chief executive Per Bank added: “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.

“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.”