J Sainsbury is to convert part of one of its supermarkets into a Netto store as the company relaunches the discount chain in the UK.
This means the Netto venture, which is a partnership with Dansk Supermarked, will help Sainsbury’s tackle two challenges in the grocery industry – the rise of the discounters and declining sales for out-of-town hypermarkets.
Sainsbury’s announced last month that it would open 15 Netto stores in the UK in attempt to take on the German discounters Aldi and Lidl.
The FTSE 100 company declined to reveal where the stores would be located, but it has now emerged at least one Netto will be opened on an existing Sainsbury’s site.
One of the first Netto shops to be opened will be colocated with a Sainsbury’s at Heaton Park in Manchester.
The Sainsbury’s store at Heaton Park covers 100,000 sq ft at present, but the company will convert 10,000 sq ft into a Netto. The discount supermarket will have a separate external entrance to the Sainsbury’s store.
When the venture was announced, Mike Coupe, the new chief executive of Sainsbury’s stressed that Netto would operate as a stand-alone retailer.
However, the opening of a store on a Sainsbury’s site highlights how the company could use its assets to assist Netto.
Mr Coupe said Netto will expand “as well as, not instead of” traditional Sainsbury’s stores and that it was a “very different format appealing to a different customer at a different time”.
A second Netto store will open in Moortown, Leeds on a stand-alone site, with the specific location of the other 13 stores not publicly known.
The City is split on Sainsbury’s tie-up with Netto. Bruno Monteyne, analyst at Bernstein, said it was a “strategic masterstroke”. However, David McCarthy at HSBC, said it is the “wrong answer” to the growing popularity of Aldi and Lidl, claiming that Sainsbury’s should focus on making its own supermarkets more “compelling”.
He added: “Sainsbury, it seems, would sooner accelerate the problem than make its offer more compelling.
“The discounters and pound stores are succeeding because of what the supermarket players are not doing, not just because of what they are doing.
“Sainsbury’s has the attitude ‘if you can’t beat them join them’, but to us this is a tacit admission its core model can’t compete.”