discounters Aldi and Lidl as it opens the first of 15 stores with Netto in Moor Allerton, Leeds.
If the venture proves to be a success, the partnership will roll the format our across the UK.
The deal marks Netto’s return to the UK after it withdrew in 2010.
The discount sector is the grocery market’s fastest-growing area. It is currently worth approximately £10 billion in annual sales and is forecast to double in value to around £20 billion in the next five years, according to IGD.
In recent months German discounters Aldi and Lidl have been snatching market share from the “big four” – Sainsbury’s, Tesco, Asda and Morrisons – by taking advantage of their customers’ desire for budget-friendly buys.
Some analysts have raised concerns about the value of the deal to Sainsbury’s because Netto may well undercut its own ranges, but the stores will initially be based in the north of England, where the Sainsbury’s brand is weak.
Netto and Sainsbury’s are investing £12.5 million in the venture which is expected to make a loss of between £5 million and £10 million up to 31 March 2015.
Morten Moberg Nielsen, head of Netto UK, said: “We think everyone should be able to buy nice things, in a nice shop, at a nice price.”