Netto relaunches in new discount store battle

Discount shoppers have a new place to go from this week: Netto, which has relaunched in the UK through a partnership with Sainsbury's.

The Scandinavian chain has opened its first store, in Moor Allerton, Leeds. Four more will open in the north of England before the end of the month, and another 10 across the country are planned over the next year.

In an "if you can't beat 'em, join 'em" excercise, Sainsbury's is responding to the way in which budget stores have eaten into the profits of the major supermarket chains. According to the Institute of Grocery Distribution (IGD), Britain's discount sector is worth around £10 billion in annual sales, weith that figure set to double over the next five years.

This is eating into the takings of the big four supermarkets - Sainsbury's, Asda, Tesco and Morrisons - with Aldi and Lidl posting sales growth of 35.9% and 22.7% respectively.

Some supermarkets have responded by cutting their prices. Last month, Morrisons took the radical step of offering loyalty card customers a price match against Aldi and Lidl.

Sainsbury's too has cut prices, in a move away from special promotions. But the chain has always marketed itself as offering higher quality than its competitors, making it hard for the company to compete hard on price.

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Meanwhile, the discounters have been pushing hard to improve the quality of their offerings - and it's working. A survey carried out earlier this year by market research firm Verdict found that the proportion of shoppers who use Aldi and Lidl because of product quality is 29.3% and 26.0% respectively.

This is ahead of the industry average of 17.3% - and apart from Waitrose with 50.4%, only Sainsbury's comes close to Aldi and Lidl with 27.5%.

Unsurprisingly, Netto, too, plans to focus on quality offerings. Its new stores will be offering bottles of Prosecco for £5.50, for example, and two British sirloin steaks for just £3.69. Scandinavian products - from Danish pastries to Lego - will also be a particular feature.

Verdict retail analyst Michael Macdonald, though, is sceptical of the success of the venture -particularly given plans from both Aldi and Lidl to expand to over 1,000 UK stores each.

"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," he says.

"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 £12.5 million it has invested so far."

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