Sainsbury‘s joint venture with Netto is a move to defend its interests against Aldi and Lidl that ultimately will not rein in the rapid growth of the discounters. While this sector is growing rapidly, and there is room for additional players in the market, it will lack the scale to compete, and being a separate fascia, will do nothing to make Sainsbury‘s more competitive against the discounters.
After a four-year hiatus, Danish discounter Netto is returning to the UK in a joint venture with Sainsbury‘s that will see a 15 store trial begin in the North of England. The stores will be stocked with Netto products but are set to make use of Sainsbury‘s UK insight and supply chain.
This is a clear defensive play by the supermarket as the threat from Aldi and Lidl continues to increase, with the discounters now holding market shares of 3.6 per cent and 2 per cent, respectively. While it makes sense for Sainsbury‘s to act now and protect its interests in a booming sector, it will be hard for Netto to establish itself against these powerful rivals. Both Aldi and Lidl are also looking to double their store portfolios to reach over 1,000 stores each, which shows the size of the challenge facing this venture.
With the discount sector growing so rapidly, there is space for more players in this market; however, the dominance of the German players will be hard to compete with. Sainsbury‘s will be able to support rapid growth within this joint venture, but the investment required to do this is significantly more than the £12.5m it has invested so far.
This article originally appeared on Verdict Retail‘s ‘Verdict View‘ blog.