Sainsbury's to close all Netto stores

Sainsbury's has given up on its discount supermarket experiment and is planning to close its Netto stores.

It has pulled out of its joint venture with Danish retailer Dansk Supermarked Group, and plans to shut the 16 Netto branches, all in the north of England, next month.

About 400 jobs are at risk, although the two companies hope to redeploy people where they can.

The reason for the closure, says Sainsbury's chief executive Mike Coupe, is that in the three years of the trial, the grocery sector has changed.

Major expansion was needed if the chain was going to be able to compete with Aldi and Lidl, and the costs of doing this were just too great.

"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," he says.

"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."

The Netto joint venture was launched in June 2014 in an attempt to steal market share from the likes of Aldi and Lidl. It was a revival of the brand, which had once had nearly 200 stores in the UK, but which disappeared after the chain was sold to Asda in 2010.

Sainsbury's will now write off the £20 million value of Netto, and expects to spend another £10 million winding down the business.

Sainsbury's will now be focusing on the acquisition of Home Retail Group, which owns Argos. However, this is turning out to be more expensive than expected, with Home Retail Group recently being forced to put aside £30 million to compensate customers of its financial services division for charging them late payment fees by mistake.

"The proposed takeover by Sainsbury's now looms large in the future of both companies, and could deliver significant benefits," comments George Salmon, an equity analyst at Hargreaves Lansdown. "However the outcome of two challenged businesses joining forces still remains very uncertain."